The False Claims Act and qui tam law have a long and interesting history together. During the Civil War, massive civilian procurements by the governments of both the Union and Confederacy provided an opportunity for unscrupulous individuals to profit by selling everything from defective weapons, spoiled food, and even empty boxes in order to make a quick buck. It was often difficult for the governments, distracted by war and not having a very effective method for tracking criminals down, to hold those responsible for their actions.

 

Congress passed the False Claims Act on March 2, 1863. It is often referred to even today as the “Lincoln Law” as it became effective during his administration. Rewards were offered for qui tam relators to bring cases on behalf of the government. Wild West fraud bounty hunters, if you will.

 

For most of its history, the law was primarily used against defense contractors. For the first 80 years, relators were guaranteed a hefty 50% of the monies recovered by the government. However, 1943 amendments to the law reduced the amount paid to relators from near-zero to a maximum of 25%, and barred qui tam cases in which the government already had evidence of wrongdoing; whether the government had pursued it, or even knew about. This brought False Claims Act qui tam cases to a near-total halt.

 

Remember the “$400 hammer” stories from the 1980s? In response to widespread practices of fraud by government contractors, the False Claims Act was again amended in 1986 to reinstate incentives for relators to bring qui tam cases, set penalties in place (discussed below) and provide protection measures for whistleblowers. Meanwhile, as the federal government became more involved in administration of health care payments, so too did the False Claims Act come to be applied to Medicare claims, which have increased dramatically since the 1990s.

 

So there you have it – Medicare fraud cases are pursued under the False Claims Act because fraudsters sold the Union Army lame mules 150 years ago. Well, that’s a bit of an oversimplification; but now, per the Bipartisan Budget Act of 2015, every agency has to update their own rules for indexing penalties under the False Claims Act by July 1, 2016.

 

The Railroad Retirement Board, of all things, went first, and on May 2, 2016 published an interim rule that it will in fact increase the civil penalty amounts commencing from a minimum of $5,000 to $10,781 per violation and the maximum from $11,000 to $21,563.

 

It’s been a while since I last recall seeing mention of the Railroad Retirement Board in health care news. However, their precedent is being rapidly followed by other agencies, including the Department of Justice, publishing their regulations on June 30.

 

So where did these updated numbers come from? In short, they are inflation-adjusted from the values published in the 1986.

 

The last adjustment in 1996 adjusted the 1986 amounts from a minimum of $5,000-5,500 per violation to a maximum of $10,000 to $11,000 per violation. However, there was a Debt Collection Improvement Act (under Omnibus Consolidated Rescissions and Appropriations Act) in effect at the time which limited the statutory maximum increase to 10%. As such, the increases were minimal.

However, the Debt Collection Improvement Act of 1996 was eliminated by the 2015 Bipartisan Budget Act of 2015, thereby eliminating the 10% cap and replacing it with a cap on the amount of the initial adjustment. Regardless, of all the complicated math reasoning listed in the Federal Register; the new per claim penalties are as follows:

Start Date

Minimum

Maximum

Prior to October 23, 1996

$5,000

$10,000

October 23, 1996 – July 31, 2016

$5,500

$11,000

August 1, 2016 – December 31st, 2016

$10,781

$21,563

 

While previous adjustments to the Civil Monetary Penalties were being made approximately every 10 years, going forward that adjustments will be made annually. There is sure to be more that unfolds as the focus on Medicare overpayments and fraud increases.