Kusserow on Compliance: Reminder—False Claims Act penalties are increasing next month

Last year, Congress enacted legislation modifying the False Claims Act (FCA) to add incentives to “Whistleblowers” and provide added deterrence to those who would violate law by increasing financial penalties.  The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, passed as part of the Bipartisan Budget Act of 2015 (P.L. 114-74), requires the Department of Justice (DOJ) to increase FCA penalties to annually account for inflation, raising penalties. The DOJ last raised civil monetary penalties under the FCA to their current levels in August 1999, increasing the minimum penalty from $5,000 to $5,500, and increasing the maximum penalty from $10,000 to $11,000. This increase was consistent with the maximum 10 percent increase provided for in the 1996 Debt Collection Improvement Act.  The $11,000 per claim penalty represents the maximum penalty permissible under prior law—exactly double the $5,500 per claim minimum penalty.  Under the new legislation now going into effect, this will increase next month, and the change will bump the minimum penalty for a FCA from $5,500 to $10,781 and increase the maximum penalty from $11,000 to $21,563. One of the provisions of the legislation is requiring the federal government to increase civil monetary penalties as a “catch up adjustment,” which requires agencies to update penalties to account for inflation. The initial adjustment would be implemented through rulemaking.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2016 Strategic Management Services, LLC. Published with permission.

Health industry railroaded? Agency’s doubled FCA penalties could be a sign

Civil monetary penalty (CMP) amounts are set to double for False Claims Act (FCA) violations that come under the jurisdiction of the Railroad Retirement Board (Board). The CMP adjustments, which will take effect in August, 2016, raise penalties for Railroad Retirement Board related false claims violations from their current range of between $5,500 and $11,000 up to between $10,781 and $21,563. The Railroad Retirement Board adjustment, set out in an Interim final rule makes it the first agency to comply with a congressional mandate to update FCA penalties for inflation set out in the Bipartisan Budget Act of 2015 (P.L 114-74). The DOJ and other health related agencies are expected to follow the Railroad Retirement Board’s lead when they update their own CMP regulations related to the FCA.

Adjustment

The Bipartisan Budget Act of 2015 mandated that, by July 1, 2016, federal agencies make cost-of-living adjustments to FCA CMP amounts to account for inflation because the rates were, in effect, last adjusted in 1986. The statute sets the formula for computation of the new penalties, requiring that the new penalty is obtained by multiplying the pre-adjustment penalty amount or range by the percent change in the Consumer Price Index for all Urban Consumers (CPI–U) over the relevant time period, and rounding to the nearest dollar. The Railroad Retirement Board determined that between October 1986 and October 2015, the CPI–U has increased by 215.628 percent. Accordingly, the agency concluded that the new minimum and maximum penalties for false claims violations under the FCA are $10,781 and $21,563 respectively.

Health

Because the Railroad Retirement Board’s Interim final rule relied upon the same computational method that other agencies are expected to utilize under the statute, life science companies, the health care industry, and government contractors can expect other agencies to issue comparable regulations. Under the Bipartisan Budget Act of 2015, agencies do have the authority to issue lower penalties if an agency determines that the full penalty increase would have a significant economic impact on a substantial number of small entities. While the Railroad Retirement Board did not conduct an economic impact analysis, some experts suggest that an agency like the DOJ will need to conduct such an analysis, which could result in lower penalties.