On February 8, 2024, however, that same federal judge amended the judgment over concerns that the statutory penalties were unconstitutionally excessive. This article highlights the issue and explains what those accused of violating the FCA can learn from this decision.

Per-Claim Penalties Under the FCA

There are two damages components under the FCA. One is trebling the government’s damages. The other is a penalty for each violation of the FCA. These penalties—which are rarely imposed by the Justice Department in the settlement context—can be significant.

While the FCA text itself calls for a minimum penalty of $5,000 for each violation, the statute also calls for adjustments of that amount for inflation. For false claims submitted since 2015, the minimum penalty imposed today for each violation is $13,946, and the maximum is $27,894.

The impact of these penalties varies by the nature of government claims. For example, if a defense contractor submits just one false invoice to the government seeking wrongful payment of millions of dollars, the maximum penalty for that one violation is just a small fraction of the government’s total damages.

But in the healthcare context, those penalties can be much greater. For a healthcare example, consider a provider that submits 100 false claims to Medicare, causing Medicare to improperly pay the provider $100 for each false claim, resulting in a total of $10,000 in improper payments. Trebled damages under the False Claims Act would result in $30,000 being imposed, but the minimum penalties assessed would add up to $1,394,600 (100 false claims x $13,946 per false claim). In that case, the penalties ($1,394,600) dwarf the government’s actual damages ($10,000).

That disparity strikes most as excessive, but courts have often declined to conclude that such a disparity violates the U.S. Constitution’s Excessive Fines Clause.

Federal Judge Cuts Penalties by 82 Percent

On February 8, 2024, federal judge Wilhelmina M. Wright amended her previously entered judgment over concerns that the penalties were unconstitutional. In the initial judgment, $358 million of the $487 million total comprised per-claim penalties. Judge Wright reduced penalties from $358 million to $86 million—an 82% cut—over concerns that the original amount violated the Constitution.

The court weighed a number of factors in reaching its reduction, including:

• the reprehensibility of defendants’ conduct,
• the harm to the victim,
• the ratio of punitive damages to actual damages,
• legislative intent,
• the financial status of the defendants, and
• the penalties imposed in similar cases.

But the court’s ultimate calculation of penalties did not rest on the number of claims or the proper penalty amount per claim, but rather the amount of penalties in relation to damages. The court stated that the Excessive Fines Clause permitted total penalties of no more than double the amount of the government’s actual damages. The government’s actual damages found at trial ($43 million) was therefore the basis for capping penalties at double that amount ($86 million). That number was then added to the statutory trebled damages (another $86 million), leading to an amended judgment of $216 million, excluding interest, fees, and costs.

In other words, the court found that the maximum judgment permittable by the Excessive Fines Clause is five times single damages in total: actual damages (x1) + trebled damages (x2) + penalties (x2).

Using this methodology in the healthcare example from the previous section, instead of $1,394,600 in penalties for the 100 false claims, the maximum penalties allowed to be imposed would be only $20,000—twice the amount of the actual improper payments.

Takeaways From This Case

As an initial matter, Judge Wright’s approach to FCA penalties is just one way of addressing Excessive Fines Clause issues. As the opinion points out, there are many other approaches. But if Judge Wright’s damages-focused approach gains traction, there could be significantly enhanced ability for those accused of FCA violations to get their day in court.

Practically speaking, there is a reason there are very few False Claims Act trials. In the healthcare example discussed earlier, the provider accused of $10,000 worth of false claims could almost always settle with the Justice Department for an amount that does not include per-claim penalties. It would be unwise to risk over a million dollars in penalties at trial when a pre-trial settlement could be had for less than $30,000. That leads to many FCA theories premised on unmeritorious allegations being settled instead of tried. The dollars and cents simply do not add up.

But a cap on penalties based on actual damages could give those accused of False Claims Act violations a real avenue to contesting liability, which is good not just for healthcare providers but all who want a justice system that gives those accused of fraud a real chance to defend themselves.

At the present time, however, the law on FCA penalties as it relates to Excessive Fines Clause issues is underdeveloped—thanks in part to the fear of trial penalties—and so it is critical for those accused of violating the False Claims Act to have attorneys who know the law in particular jurisdictions and can advise clients on trial risk. 

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