A little known federal agency, the Railroad Retirement Board (“Board”), which administers retirement-survivor and unemployment-sickness benefit programs for railroad workers, published an interim final rule on May 2, 2016 raising the amounts of penalties “under the Board’s jurisdiction.” Among these are the penalties authorized by the Federal False Claims Act (“FCA”). The Board proposes increasing the minimum penalties for FCA violations from $5,500 to $10,781 and the maximum penalties from $11,000 to $21,563—per claim. Such an increase is the tip of the spear.
Legislative Overview
On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (“BBA”), PL 114-74, 129 Stat 584, which requires, among other things, that federal agencies significantly increase civil monetary penalties, including those awardable under the FCA. Section 701 of the BBA, titled the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, amends the Federal Civil Penalties Inflation Adjustment Act of 1990 by requiring a so-called “catch up adjustment” through which agencies must update the levels of their penalties to account for inflation. The initial “catch up adjustment” would be implemented through interim final rulemaking, like that promulgated last week by the Board.
Following the initial adjustment, the BBA requires further, annual adjustments without any agency discretion, including an assessment of the need for an increase. Specifically, Section 701 states that “[f]or the second adjustment made under subsection (a) after the date of enactment of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, and each adjustment thereafter, the head of an agency shall adjust civil monetary penalties and shall make the adjustment notwithstanding section 553 of title 5, United States Code.” (emphasis added).
The Board published its interim final rule “[a]s required by Section 701 of the Bipartisan Budget Act of 2015 . . . to provide for adjustments in the minimum and maximum amounts of civil monetary penalties under the Board’s jurisdiction.” 81 Fed. Reg. 26127, 26127 (May 2, 2016). “The penalties authorized by . . . the False Claims Act . . . are within the Board’s jurisdiction, and the Board accordingly publishe[d] [the] interim final rule in compliance with the 2015 Act.” Id. at 26128. Under the Board’s proposed rule, “[f]or claims or statements made on or after August 1, 2016, but before January 1, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563.” Id. at 26129. Meanwhile,
[f]or claims or statements made on or after January 1, 2017, the minimum and maximum penalty amounts which may be assessed under 31 U.S.C. 3729 is the larger of: (1) The amount for the previous calendar year; or (2) An amount adjusted for inflation, calculated by multiplying the amount for the previous calendar year by the percentage by which the CPI-U for the month of October preceding the current calendar year exceeds the CPI-U for the month of October of the calendar year two years prior to the current calendar year, adding that amount to the amount for the previous calendar year, and rounding the total to the nearest dollar.
Under the BBA, federal agencies must publish their rules by July 1, 2016 to take effect by August 1. Many may well follow the Board’s lead in making their catch-up adjustment.
The Fallout
Nearly doubling the penalties available under the FCA has obvious (and not so obvious) ramifications. Rising penalties, of course, magnify the liability risk for all government contractors, including a disproportionately large number of health care providers. The added risk may prompt health care providers to scale back the services provided to beneficiaries of one or more federal health programs, which would have a negative impact on beneficiaries’ access to care.
From a legal standpoint, imposition of penalties potentially in excess of $21,000 per claim surely will result in arguments that such penalties constitute “excessive fines” and thus violate the Eighth Amendment. Time will tell. Foley will continue to monitor and report on developments in this area.