Having previously examined the falsity, materiality, and scienter elements of the False Claims Act (FCA) in our FCA Fundamentals series, we now turn to what damages can arise from violations of the False Claims Act. The False Claims Act imposes liability for each false claim. If the alleged scheme is broad, pervasive, or spans an extended period, this can result in many individual false claims and significant damages and penalties. It is essential for defendants to scope damages and consider potential exposure throughout a False Claims Act case, which often requires an expert consultant.
Statutory Liability Under the False Claims Act
An entity or individual violates the False Claims Act if they knowingly present, or cause to be presented, false or fraudulent claims to the government for payment or approval, or if they knowingly make, use, or cause to be made or used a false record or statement material to a false or fraudulent claim. Defendants can also be liable for knowingly failing to repay or transmit money or return property to the government that it should not have received. Any co-conspirators of such unlawful conduct may also face liability.
Pursuant to 31 U.S.C. § 3729(a)(1), any defendant who violates these provisions is subject to treble (3x) damages “which the Government sustains because of the act of that person.” Defendants are also liable for per claim civil penalties. Although the statute provides for civil penalties between $5,000 and $10,000, these amounts are adjusted periodically for inflation. For violations occurring after May 9, 2022, the civil penalty is between $12,537 and $25,076. A copy of the Department of Justice’s (DOJ’s) Final Rule on the Civil Monetary Penalties Inflation Adjustment for 2022 is available here.
A court can reduce treble damages to double damages if it makes all of the following self-disclosure and cooperation findings under 31 U.S.C. § 3729(a)(2):
- The defendant furnished to the United States all information known about the FCA violation within 30 days.
- The defendant “fully cooperated” with any government investigation.
- The defendant furnished such information to the United States before any criminal prosecution, civil action, or administrative action commenced, and the defendant did not have knowledge of any investigation.
A defendant who violates the False Claims Act is also liable to the United States for litigation costs.
In cases where an employee asserts a retaliation claim (either as a standalone cause of action or in combination with a substantive FCA claim), a prevailing plaintiff is entitled to the relief necessary to make them whole after an adverse employment action or discrimination. Under 31 U.S.C. § 3730(h)(2), this can include reinstatement, double back pay with interest, and compensation for any “special damages” sustained, including litigation costs and attorneys’ fees.
Constitutional Limitations on Penalties
The Eighth Amendment prohibition on excessive fines may limit the penalties assessable under the False Claims Act. These challenges to FCA judgments are most often seen in situations where the cumulative penalty of a large number of false claims is high, but the government’s actual damages, or the damages per individual claim, are low, such that the penalties are disproportionate to the harm. This could continue to be the subject of litigation if rapid inflation leads to further penalty adjustments.
Late last year, the Eleventh Circuit became the first appellate court to hold that the excessive fines clause limits penalties in a declined False Claims Act lawsuit carried forward by a relator. In U.S. ex rel. Yates v. Pinellas Hematology & Oncology, P.A., 21 F. 4th 1288 (11th Cir. 2021), the Eleventh Circuit reviewed a jury award that found the United States sustained only $755.54 in damages but resulted in a total judgment of $1.179 million after trebling and penalties. Despite ultimately holding that the award, in this case, was constitutional, the Eleventh Circuit joined the Fourth, Eighth, and Ninth Circuits in reasoning that FCA awards are fines for Eighth Amendment purposes, and it further held that these awards are still imposed by the United States and therefore subject to constitutional scrutiny when the government does not intervene.
However, this limitation on penalties may still be a high bar for those challenging judgments. For example, the Fourth Circuit has held that a $24 million FCA penalty was not excessive even though the relator did not prove any economic harm. See U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390 (4th Cir. 2013). The Fourth Circuit found that the penalty reflected the gravity of the defendants’ conduct and would serve as a deterrent for future misconduct.
This discussion is focused on the federal False Claims Act, which encompasses federal healthcare programs such as Medicare and Tricare and other financial arrangements with the federal government, such as Department of Defense or Department of Transportation contracts. However, many states have their own false claims acts that often parallel the federal FCA. In the healthcare context, claims under a state false claims act analog generally seek damages reflective of Medicaid dollars reimbursed for false claims. Defendants should be sure to consider the entire scope of potential damages when analyzing their case, including federal and state claims where applicable.
With treble damages and per claim penalties, it is easy to see how False Claims Act damages can rapidly balloon into millions or even tens of millions of dollars. Indeed, DOJ announced that False Claims Act settlements and judgments exceeded $5.6 billion in the fiscal year ending September 30, 2021. For more information, contact a member of the Healthcare Fraud Task Force.