False Claims Act Penalties

The False Claims Act (FCA) is one of the most powerful tools at the disposal of the U.S. government to combat fraud, waste, and corruption. The FCA penalizes companies and individuals who attempt to defraud the government out of taxpayer money by making false claims, providing shoddy services, or reneging on contracts. This federal law has certain provisions in order to make it as wide-ranging and potent as possible. It can be used to provide whistleblowers with financial rewards for their honesty, protect them against employer retaliation, and exclude fraudulent providers from receiving future reimbursements and awards.

What Does “Knowingly” Under the False Claims Act Mean?

The False Claims Act makes it illegal to “knowingly” submit or cause to submit false claims to the government. Doing so creates liability for up to three times the government’s damages plus individual penalties that are linked to inflation rates.

The Supreme Court has recently further clarified and defined the “scienter” provision of the FCA. To “knowingly” submit false claims can entail three different kinds of knowledge and subjective beliefs:

1. Actual knowledge, or what the defendant is aware of. This encompasses plans and specific plots to defraud the federal government, in full knowledge of the law against doing so.
2. Deliberate ignorance, or defendants who are aware that there is a substantial risk that their statements may be false, but intentionally do not take steps to verify their claims. For instance, this may encompass a physician or insurance adjuster who classifies a patient as high risk under Medicare Advantage ICD codes in order to receive higher reimbursements, without full knowledge of their actual condition.
3. Reckless disregard, which covers defendants who submit claims while being conscious of a substantial and justifiable risk that the information they are certifying is not true. For instance, a contractor might act with reckless disregard for community safety by certifying that a construction project has been completed to the best of their ability, while cutting corners on safety and environmental protection measures.

7 Types of False Claims Act Violations

There are seven different kinds of violations that the False Claims Act prohibits. They include:

1. False claims: The most clear-cut kind of violation, false claims are those presented knowingly to the government for payment when the party or person filing the claim is not entitled to the funds that they are requesting. An example might be billing for a laboratory test that a patient never received.
2. False records or statements: The making, using, or causing others to use or make false records or statements that are material to a false claim is also prohibited under the FCA. Materiality in this instance means having significant influence over the amount involved. An example might be an electronic health records (EHR) software company that falsely certifies compliance with testing standards in order to qualify for reimbursement.
3. Conspiracy: Conspiracy in this instance means not a conspiracy against the government in general, but conspiring specifically to violate the False Claims Act. Examples might include a network of pharmaceutical companies that collude in order to report false prices under the Medicare/Medicaid Best Pricing Rule, as occurred in this $2.5 billion recovery from the Average Wholesale Price Multidistrict Litigation Proceeding (AWP-MDL). Tycko & Zavareei LLP partner Renée Brooker earned the Attorney General’s Highest Award for Fraud Prevention for sizeable recoveries in connection with her work on this multi-state fraud recovery and litigation effort.
4. Conversion: Purposefully keeping government funds or property that should legally be returned is also prohibited under the FCA. Examples might include contractors that are overpaid for their work through a clerical error, but choose to keep the additional payments as opposed to returning them.
5. Issuing false receipts: The person, party, or company that is authorized to make or deliver a document that certifies the return of the total amount of government funds or property must make every effort to know that all of the information on the receipt is true. Failing to ensure that information is accurate may induce liability under the reckless disregard or deliberate ignorance provisions of the”knowing” standard of the FCA.
6. Unlawful purchase of government property: Knowingly purchasing government property from a government employee, officer, or member of the Armed Forces who may not legally sell said property is illegal under the FCA. Examples might also include unlawful sales and bribery connected to government officials.
7. Reverse false claims: Attempting to avoid payment due to the government by making false claims or statements or falsifying records is prohibited. Reverse false claims were included in the 2009 reforms to the False Claims Act in the wake of the 2008-9 financial crisis. Reverse false claims entail attempting to prevent the government from collecting what it is owed. When one party has an obligation to pay a certain amount to the government and they conspire to avoid doing so by making false statements or keeping false records, they may incur FCA liability.

Every time a false claim is submitted to the government, each individual instance may be in violation of several components of the False Claims Act.

For instance, a doctor who overbills Medicaid for one patient’s procedure may be found to be in violation of several counts under the False Claims Act. For this one act of fraud, the doctor may be found to be in violation of:

• Issuing false receipts
• Conspiracy
• Making false records or statements
• Making a false claim

If the same doctor overbills many patients many times, each instance of overbilling may also accumulate multiple penalties. The way the False Claims Act is structured can lead to hefty financial penalties for even relatively small cases of fraud.

Who Can Face False Claims Act Penalties?

False Claims Act penalties can apply to individuals as well as corporations. False Claims Act penalties are civil damages and fines, although some cases of fraud also involve criminal liability.

When government funds are knowingly misappropriated through false statements or claims, False Claims Act penalties may be incurred. Examples of people and parties who can face FCA penalties include:

• Government contractors: Common instances of fraud involve contractors with the Department of Defense, infrastructure projects and construction, and cybersecurity violations. False claims as they relate to project costs, timelines, safety standards, and/or adherence to contract requirements may incur False Claims Act liability. Additionally, failing to provide minimum cybersecurity standards is now subject to False Claims Act reporting under the launch of the new Civil Cyber Fraud Initiative.
• Healthcare providers: Healthcare providers, pharmaceutical companies, laboratories, and insurance companies cost the taxpayer billions of dollars each year in fraud. Conservative estimates from the Department of Justice project that more than $100 billion may be lost each year to waste, fraud, and abuse in healthcare.
• Recipients of government funding: Any institution that receives government funding, such as educational institutions, private prisons, or research facilities all must abide by the False Claims Act.
• Anyone engaging in international trade with the US: International trade is subject to False Claims Act penalties. Whistleblowers can also report bribes and improper payments for a reward under the Foreign Corrupt Practices Act.
• Financial institutions and securities holders: Financial institutions, businesses that receive government-backed loans, and players in securities markets must play by the same rules as everyone else. Mortgage lenders, banks, and companies with public offerings are subject to civil penalties if they make false claims or subject the public to scams.

Individual Penalties and the False Claims Act

One important element of the False Claims Act is that it assesses penalties for each individual false claim made to the government. Therefore, the financial repayment due is not a simple one-time fee as a deterrence against future fraud. Instead, penalties under the FCA take the form of a series of fees due for each individual attempt to defraud taxpayer funds, as well as each violation of the act overall.

The individual penalty structure of the False Claims Act also ensures that whistleblowers can receive high monetary rewards for the information they share. Whistleblowers who share information that results in the successful recovery of government funds recover a percentage (15-30%) of the total settlement. If the case involves multiple violations of the False Claims Act, a whistleblower’s reward will be significantly higher.

False Claims Act Penalty Amounts

Originally enacted in 1863 to deter defense contractor fraud during the American Civil War, the False Claims Act has been amended several times over the years. Some of the most notable changes have been to increase the number and amount of financial penalties, as well as to tie penalty rates to inflation in the United States.

Each violation of the False Claims Act creates a possible liability to the United States Government for a civil penalty of no less than $5,500 and no more than $11,000. False Claims Act penalties adjusted for inflation are assessed per individual false claim.

False Claims Act Penalty Range

In addition to the base amounts per false claim or violation, there is an additional possible penalty of up to three times the amount of damages that the government has sustained because of the fraud, a provision known as “treble damages.” If the party who has perpetrated the fraud reports it to the government themselves or cooperates substantively in the investigation, then the penalty may be reduced to only double the amount of damages. This is to incentivize people to report fraud on their own terms, before it has been shared by a whistleblower or unearthed by federal investigators.

How is Inflation Calculated for False Claim Penalties?

The passage of the Bipartisan Budget Act of 2015 influenced the way that False Claims Act penalties are calculated. Inflation is now reassessed every year, which adjusts the civil penalties range regularly. This law also replaced the previous 10% cap with a 150% cap on inflation. This has led to a dramatic increase in the amount that penalties can vary from year to year.

As of November 2015, any fraud found to be perpetrated after this date is subject to penalties assessed under the new guidelines. Inflation adjustments are publicly available in the Code of Federal Regulations.

Current False Claims Act Civil Penalties

2023 False Claims Act penalties increased due to rising inflation rates in the United States. As of January 30, 2023, the minimum False Claims Act penalty increased from its last iteration of $12,537 up to $13,508 per claim. The new maximum penalty has increased from $25,076 to $27,018 per false claim.

How Are False Claims Act Penalties Determined?

Using the minimum and maximum penalty values provides guidance on how much the total value of penalties could be. Determining the exact value, however, often falls to a jury and judge: The former will determine the number of penalties to impose, while the latter will determine the monetary amount.

False Claims Act penalties are a matter of legal understanding, and may not be included in a settlement out of court. Building a strong case with a qui tam attorney can help ensure that penalties assessed are higher for instances of ongoing conspiracy to defraud.

A Jury Determines How Many False Claims Act Penalties to Assess

The jury is largely responsible for deciding how many violations have occurred. U.S. juries are dedicated to deciding questions of fact—if the wrongdoing occurred, and how many times it did. Judges, on the other hand, are tasked with applying the law once guilt is established. Therefore, a judge would assess how many penalties can be applied for each violation.

A Judge Determines How Much Each FCA Penalty Should Be

Various court cases have set precedents allowing judges to exercise some discretion in how they assess the number of penalties per violation. Some factors that may influence their consideration may be:

• Defendant compliance and willingness to accept responsibility
• Whether the violations showed a pattern of wrongdoing or if they were isolated incidents
• The seriousness of the damages

Settlements Typically Do Not Include False Claims Act Penalties

Should the government decide to settle the case out of court, there may not be any individual penalties assessed in a case of fraud. However, whistleblowers may still be able to recover substantial amounts from the final settlement amount.

Settling a case out of court does not preclude the government from recovering defrauded funds, or a whistleblower from receiving a percentage of the total amount. Settling out of court may simply hasten the end of a protracted discovery period, ease the burden on a new governing structure that has acquired a company accused of previous wrongdoing, or ensure that the government can still recoup funds from a company going bankrupt due to the discovery of its ongoing deceit.

Excessive Fines Clause and False Claims Act Penalties

Recent Eleventh Circuit Court activity has strengthened judicial understanding of the Excessive Fines Clause and the False Claims Act. In a case involving civil False Claims Act penalties for laboratory testing under improper conditions with reimbursement from Medicare, the total single damages awarded was just $755.54. However, after penalties were assessed per each of the 214 false claims, the total judgement came to over $1.1 million dollars.

Under the 8th Amendment, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The defendant attempted to argue that over $1.1 million in punitive damages was in violation of the Excessive Fines Clause, due to the fact that the FCA penalties assessed were approximately 1,558 times the actual damages. However, the Eleventh Circuit held that, while the Excessive Fines Clause should apply to cases where the federal government fails to intervene in a qui tam relator’s claim, the penalties were fair in this particular instance since they were assessed at the lowest end of the scale for FCA liability (just $5,500 per false claim). This case enriches our understanding of how high penalties can be assessed in cases involving even relatively low dollar amounts of fraud.

Whistleblower Rewards and False Claims Act Penalties

The text of the False Claims Act currently states that if the government intervenes in the action, the relator (or whistleblower) is eligible to receive between 15 to 25% of the total amount recovered through the qui tam lawsuit. This includes the sum of the individual damages assessed for each violation of the False Claims Act. At times, this amount can stretch from thousands to even millions of dollars.

If the government does not intervene in the qui tam suit, the whistleblower can receive an even higher amount of the total damages incurred with a guilty verdict. In this case, the whistleblower can receive up to 30% of the total amount that the defendant is ordered to pay.

However, if the whistleblower planned or initiated the fraud, the court may use their discretion to reduce the possible amount of financial reward.

False Claims Act Cases with Significant Penalties

False Claims Act cases can skyrocket into the million or billion dollar range quickly due to the treble damages and individual penalties assessed per violation. Some examples of significant FCA settlements include:

• GlaxoSmithKline: This $3 billion healthcare fraud settlement included pricing fraud concerns for pharmaceuticals Paxil, Wellbutrin, and Avadia, as well as instances of off-label marketing and the payment of kickbacks to prescribers. The case involved both civil and criminal liability, with False Claims Act healthcare penalties assessed at $2 billion.
• Pfizer: This $2.3 billion case involved another pharmaceutical company, Pfizer, that was accused of creating a sham nonprofit called the Patient Access Network Foundation (PANF). While offering kickbacks in order to generate more prescriptions of its drugs Sutent, Tikosyn and Inlyta, the company also channeled improper payments into its nonprofit while charging Medicare subscribers incorrect copay amounts for its lifesaving drugs.
• Booz Allen: This federal procurement fraud case involved a settlement of $377.4 million from the famous defense contractor. The former employer-turned-whistleblower earned themselves over $69 million, one of the largest procurement fraud awards ever, for their information. The claim involved improper cost allocation between government contracts and private commercial contracts, including international projects. Tycko & Zavareei LLP was proud to represent the whistleblower.

False Claims Act Penalties: FAQs

The following are some frequently asked questions about False Claims Act penalties, settlements and assessing liability.

What is a possible penalty for violating the False Claims Act?

Penalties for violating the False Claims Act include fines of at least $13,508 per false submission or certification. This is in addition to up to treble damages sustained by the federal government.

What is the False Claims Act maximum penalty?

The current maximum penalty per false claim or submission is just over $27,000 per false claim or submission, when assessed under 2023’s new inflation rates.

What is an example of a False Claim Act case?

A False Claims Act case involves an individual or a business that certifies false information to the federal government. Examples might include:

• Overcharging on government contracts
• False information on loan applications
• False submissions for contracts or programming under the SBA
• False submissions for reimbursement through Medicare, Medicaid or TRICARE
• Falsely certifying cybersecurity protocols have been met for government contractors

Ask a Qui Tam Attorney about False Claims Act Penalties

Do you have information about fraud, improper certifications, or keeping overpayment of government funds? You may be able to qualify as a whistleblower, earning yourself a potential reward and protections against retaliation.

For more information about possible damages and financial payments under the False Claims Act, speak to an experienced qui tam attorney today. The whistleblower lawyers at Tycko & Zavareei LLP are available to answer any questions you may have, as well as to consult with you about the specifics of your case. Speak out against corruption today by filling out our confidential, no-cost case evaluation form.