Signed into law on November 2, 2015, the Bipartisan Budget Act of 2015 requires federal agencies to increase civil monetary penalties imposed by the FCA to account for inflation. The increase – referred to as a “catch up adjustment” – will be implemented through interim final rulemaking procedures under the Administrative Procedures Act and must be in place by August 1, 2016. The amount of the adjustment is based on the difference between the CPI in October of the calendar year in which the penalty was last adjusted and the CPI in October 2015. FCA penalties were increased to their present level in 1999. In addition, the Budget Act requires agencies to continue to make annual adjustments to penalties moving forward, also based on changes in the CPI. Those annual adjustments are automatic and will be implemented without rulemaking procedures or any agency assessment of the need for such an increase.
Increasing civil monetary penalties undoubtedly will have a substantial impact on FCA defendants. Even at their current levels, FCA penalties are widely considered draconian and often grossly disproportionate either to the actual damages suffered by the government or to a defendant’s degree of culpability. Particularly in healthcare cases involving the submission of an enormous number of claims for payment to the government, FCA defendants often fear disastrous results under the FCA penalties provision, which provides significant leverage to the government and qui tam relators in negotiating settlements.
Although it is possible that FCA penalties are already so high that a further increase will not significantly shift the leverage of the parties’ negotiating positions in an FCA case, the Budget Act’s increase and continued, required future adjustments make clear that the FCA’s civil penalties will not be reined in anytime soon. Moreover, as those penalties continue to increase, an FCA defendant’s rights under the Eighth Amendment’s Excessive Fines Clause may become an increasingly hot-button issue, especially in cases involving a large number of claims for relatively small monetary amounts.