False Claims Act Penalties to Double Next Week

The stakes are increasing for drug, biologic and medical device companies exposed to False Claims Act (FCA) lawsuits that are often brought by whistleblowers. Effective 8/1, the Department of Justice (DoJ) will nearly double the per-claim penalties it imposes under the FCA. According to a recent interim final rule, DoJ will increase the minimum per-claim penalty from $5,500 to $10,781, and increase the maximum per-claim penalty from $11,000 to $21,563. The new amounts will apply only to civil penalties assessed after 8/1 for violations that occurred after 11/2/2015. Violations that occurred before this date will be assessed under the current the current civil monetary penalty formula.

“These penalty increases could significantly amplify the risks for companies subject to FCA litigation,” Mayer Brown attorneys Lori E. Lightfoot and Laura R. Hammargren told FDA Webview 7/26. “FCA civil penalties, which often eclipse the actual amount of the false claims, are mandatory under the statute if liability is found, even if no damages have been proven. With the increase in penalties, the government and relators will be further incentivized to bring lawsuits, particularly where damages may be minimal (such as cases where fewer claims are involved), or where damages are difficult to prove.  The increased penalties also expose companies to higher verdicts, which, in turn, will raise the settlement amounts demanded and expected by the government.  These increased risks are also likely to have the effect of encouraging settlements in general, even where the evidence of fraud may be lacking.  In summary, the increased claims could notably bolster the government’s leverage in FCA cases, which is already considerable.”

The sector most vulnerable to FCA enforcement actions is the healthcare industry. In 2015, DoJ recovered about $2 billion in settlements from alleged healthcare violators. “Companies should therefore prioritize minimizing any potential FCA liability,” the attorneys said. “For example, companies can monitor past and present trends in FCA cases, and implement processes, training and monitoring to address those risk areas.  Companies should also create an environment that encourages whistleblowers to internally report wrongdoing, as many whistleblowers file lawsuits when they believe they were not supported or were punished in reporting the problem.  This is an important focus because whistleblowers in recent months have more frequently continued with their FCA claims even when the government declines to intervene, a trend that will likely continue with the increased civil penalties.  Finally, companies should respond rapidly and appropriately once any potential violation is detected, to prevent further potential violations.”