The Federal False Claims Act (FCA) prohibits knowingly submitting a false or fraudulent claim for compensation to the federal government. Federal enforcement actions under the FCA can be civil or criminal in nature, depending on the specific allegations involved. In both types of cases, the penalties for violating the FCA can be severe. As a result, asserting an effective defense strategy is essential for any entity or individual accused of violating the FCA.
Asserting an effective defense strategy starts with understanding the specific allegations and the nature of the government’s inquiry. Allegations under the False Claims Act can take many different forms, and for entities that bill the federal government regularly (e.g., healthcare providers and federal contractors), it can be difficult to discern both the focus and scope of the government’s inquiry. But these are critical pieces of information for building an effective defense and identifying the penalties that are on the table.
“Investigations under the False Claims Act can present substantial risks for healthcare providers, government contractors, and other entities. When facing scrutiny under the FCA, these entities must work quickly to build a comprehensive defense strategy focused on avoiding unnecessary penalties.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
So, what is at risk if your business or practice faces an FDA investigation? What are the first steps toward building an effective defense strategy? Here is a brief introduction to what business owners, executives, and practitioners need to know:
The Steep Penalties for False Claims Act Violations
The potential penalties in False Claims Act investigations fall into four categories. Depending on the circumstances involved, an investigation under the FCA targeting the submission of false or fraudulent claims to the federal government can lead to one or more of the following:
- Treble Damages
- Civil Monetary Penalties (CMP)
- Exclusion from Government Funding
- Criminal Penalties
Treble Damages
The False Claims Act case imposes treble damages, or three times the amount fraudulently requested, for civil violations of the statute. Since a False Claims Act investigation often targets hundreds of thousands, if not millions or tens of millions, of dollars in allegedly submitting false claims, targeted entities and individuals’ potential liability exposure can be substantial.
In most cases, the imposition of trebled damages is required under the False Claims Act. Under the Excessive Fines Clause, judges do not have the discretion to reduce the amount defendants owe in civil FCA enforcement actions. However, 31 U.S.C. Section 3729(a)(2) states a judge may impose double, rather than treble, damages if:
- The defendant furnished law enforcement with all the information about the violation known to the defendant within 30 days of the defendant first obtaining the information;
- The defendant fully cooperated with the government investigation; and,
- When the defendant provided the information, no FCA investigation was pending.
This serves as an incentive for government payees to voluntarily self-disclose FCA violations. As a practical matter, however, when government payees need to disclose FCA violations that have the potential to trigger a federal investigation, a more proactive approach will be warranted. Rather than simply seeking double (rather than treble) damages in court, potential targets will want to engage experienced legal counsel to work with the federal government to secure a resolution that avoids formal charges.
Civil Monetary Penalties (CMP)
Defendants targeted in FCA enforcement actions civil monetary penalties (CMP) and liability for treble damages. The False Claims Amendments Act of 1986 originally set these penalties at $5,000 to $10,000. However, the Bipartisan Budget Act of 2015 required all federal agencies that impose civil fines to begin adjusting these penalties for inflation (if they were not doing so already), and the U.S. Department of Justice has adjusted the FCA penalties for inflation by this statute. 28 C.F.R. Section 85.5 lists the FCA statutory civil penalty range as between $11,803 and $23,607. In civil FCA enforcement cases, federal courts impose the CMP that are in effect at the time of the imposition of the penalty, not when the false claim(s) at issue were submitted.
Importantly, under the FCA, civil monetary penalties are assessed for each violation. In United States v. Bornstein, the U.S. Supreme Court held that an individual violation means each false claim or request for reimbursement, even if a defendant submitted multiple such civil false claims or requests on a single bill or form. Thus, for example, a doctor who submits a single bill to a federal health care program for three medically unnecessary procedures can face separate CMPs for each of the three “claims” included on the bill.
This method of calculating CMP for False Claims Act violations and the imposition of treble damages for all improperly received amounts means that entities and individuals targeted in FCA investigations can potentially face enormous liability. But even this isn’t the only concern.
Exclusion from Government Funding
Along with facing treble damages and CMP, individuals and entities accused of violating the False Claims Act can also face exclusion from government funding. This means that healthcare providers can lose their ability to bill Medicare and Medicaid programs, government contractors can lose their ability to do business with the government, and federal grant recipients can lose the opportunity to receive funding from federal agencies. For many, this exclusion not only means that they cannot afford the CMP that they owe, but it also means that they cannot remain viable as a going concern.
Criminal Penalties
Under 18 U.S.C. Section 287, entities and individuals targeted in False Claims Act investigations can face criminal penalties for knowingly submitting false and fraudulent claims to federal payors. Criminal penalties under the FCA include statutory fines (up to $250,000 and $500,000 for businesses in most cases) and up to five years of federal imprisonment. Criminal defendants can also face liability for restitution, and, similar to CMP under the False Claims Act, criminal penalties can be imposed on a per-claim basis. As a result, targeted entities and individuals’ exposure can be substantial—far in excess of what appears based on the plain language of Section 287.
An Effective FCA Defense Strategy is Essential
Due to the substantial risks of facing civil or criminal scrutiny under the False Claims Act, an effective defense strategy is essential. Along with identifying the specific allegations at issue in the government’s investigation, another key early step is to identify the source of the inquiry. There are two primary possibilities:
This is important for both procedural and substantive reasons. On the procedural side, qui tam actions initiated by whistleblowers are subject to procedural requirements that do not apply to government-initiated FCA investigations. If a whistleblower’s qui tam complaint is procedurally deficient, this alone can be enough to defeat the inquiry. If the whistleblower’s qui tam complaint is procedurally adequate but the federal government declines to intervene based on the evidence that is available (or lack thereof), this can also result in a favorable resolution without the need to defend against a comprehensive federal investigation.
On the substantive side, whistleblowers often have personal reasons for submitting complaints against their current or former employers—and this, too, can provide a defense that isn’t available in government-initiated cases. If a targeted entity can show that a whistleblower’s complaint is based on malice rather than clear evidence of improper billings or reimbursement requests, this will bring a swift end to the inquiry in many (though not all) cases.
Whether an FCA investigation involves a whistleblower complaint or the government itself initiated the investigation, once the investigation is underway, several critical steps targeted entities and individuals must take to defend themselves. These steps include, among others:
- Responding in a timely and appropriate manner to any subpoenas, target letters, search warrants, or other formal requests;
- Conducting a comprehensive and attorney-client privileged FCA compliance assessment;
- Identifying all claims of concern and determining what remedial action is warranted;
- Developing a comprehensive and cohesive defense strategy based on the circumstances at hand; and,
- Working with the DOJ and/or other investigating agencies to target a favorable resolution that avoids formal civil enforcement action or a criminal indictment.
From implementing an appropriate legal hold to determining whether to fully defend against the government’s allegations or pursue a settlement that minimizes liability and avoids exclusion, all aspects of responding to an FCA investigation require the advice and representation of experienced legal counsel. With this in mind, engaging experienced counsel at the first sign of a potential FCA investigation is essential. Whenever possible, entities that bill the federal government should also engage counsel proactively to address improper billings and reimbursement requests before they trigger federal scrutiny. While a proactive approach is almost always best, acknowledging federal billing violations requires tact. Mistakes at this stage can prove extremely costly—potentially leading to both scrutiny and penalties that could (and should) have been avoided.
