Fraud penalties for healthcare providers could soon double if a rule released by an obscure federal agency is any indication of what's expected.
The U.S. Railroad Retirement Board released an interim final rule last week upping the minimum penalty from $5,500 to $10,781 per false claim submitted to a government program. The board also increased the maximum penalty from $11,000 per false claim to $21,563. Rules for healthcare providers accused of submitting false claims are likely to soon follow suit, experts say.
“It does not apply to healthcare False Claims Act cases generally, but it suggests that's where they're going to end up,” Jonathan Diesenhaus, a partner at Hogan Lovells, said of the Railroad Retirement Board's new higher penalties. “The statute that made the Railroad Retirement board run that calculation applies to all civil penalties.”
An increase in False Claims Act penalties isn't unexpected. But questions have remained about exactly how much those penalties would increase, and the Railroad Retirement Board's new rule seems to answer that question.
The Bipartisan Budget Act of 2015 mandated that civil monetary penalties be raised by August 2016 to account for inflation. Such penalties include those levied under the False Claims Act, which makes it a crime to submit tainted claims to government programs such as Medicare and Medicaid. It's been 20 years since those penalties increased.
Higher penalties could add up quickly in False Claims Act cases against providers; such cases often involve hundreds or even thousands of allegedly false claims. Plus, under the law, the government may seek triple the amount of money it actually lost. In 2015, two-thirds of federal False Claims Act lawsuits filed by whistle-blowers targeted healthcare entities.
Kirsten Mayer, a partner at Ropes & Gray who represents providers, said a doubling of False Claims Act penalties might increase pressure on some providers to settle. Companies might be more tempted to take settlement offers from the government rather than fight allegations in court “because it's just going to be too devastating a financial loss if you have to go to trial on it.”
Diesenhaus also noted that now more than two dozen states have their own laws that are very similar to the False Claims Act. If those states also raise their penalties to stay in step with the federal law, providers could face a double whammy of higher fines, said Diesenhaus, who recently testified before a congressional subcommittee about the effects of the federal law on providers.
Patrick Burns, a co-executive director of the Taxpayers Against Fraud Education Fund, praised the doubling of penalties, saying maybe they'll inspire companies to put better compliance programs in place. Burns' group is a not-for-profit supporting whistle-blower incentive programs.
Others, however, say they don't expect even double penalties to make much of a practical difference in most False Claims Act cases involving providers.
That's because, for one, the vast majority of False Claims Act cases already settle, and settlement amounts are typically based on alleged damages, not possible penalties, said Tim Heaphy, a partner at Hunton & Williams and former U.S. attorney in Virginia who now represents providers.
Jennifer Weaver, a partner at Waller Lansden Dortch & Davis, who represents providers, said she's never helped settle a case based on potential penalties. She said she's also not sure how much double penalties would increase pressure to settle.
“The penalties are already so intensely punitive that I don't know how much of a difference this will make,” Weaver said.
For example, Tuomey Healthcare System in Sumter, S.C., recently made headlines as one of the rare systems to fight False Claims Act allegations in court. Last year, a federal appeals court upheld a $237 million verdict against the system—more money than the hospital's annual revenue. The system was accused of submitting more than 21,000 false claims to Medicare. Tuomey ultimately ended up settling with the government for $72.4 million.
Weaver also said the government has been somewhat reluctant to really push for penalties, even in False Claims Act cases that go to court. That's because overly high penalties could violate the Eighth Amendment of the U.S. Constitution, which bars excessive fines.
Penalties more than 10 times higher than the government's actual losses might raise those constitutional questions, Weaver said.