Last week, HHS, OIG, CMS, the Office of the Assistant Secretary for Financial Resources, and the Administration for Children and Families issued an interim final rule (the Rule) that adjusts maximum civil monetary penalties for inflation.
The rule is broad in scope, affecting the “various civil monetary penalty authorities for all agencies within HHS.” Among other penalties, fines have increased for Stark Law violations.
The new Rule mirrors a rule issued by the DOJ earlier this year that substantially increases the amount of False Claims Act (FCA) civil penalties. Like the penalties under the DOJ rule, the new maximum penalties that this Rule creates apply to civil penalties “assessed after August 1, 2016, whose associated violations occurred after November 2, 2015.”
The new Rule applies to diverse types of violations. For example, the civil monetary penalty adjustments apply to Food and Drug Administration (FDA) rules such as those governing drug samples, adulterated food, clinical trials, and tobacco products, as well as OIG-enforced rules, including those governing false claims, physician inducements, and enrollment in Medicare and Medicaid.
The Rule nearly doubles some civil monetary penalties. For example, it increases the penalty for implementing practices that discourage patients from enrolling in HMOs or competitive medical plans by 106%: from $100,000 to $206,000. A Medicaid Managed Care organization’s penalty for improperly expelling or declining to re-enroll a beneficiary rose from $100,000 to $197,000. The penalty for Stark Law prohibitions on physician self-referrals increased by 59%: from $100,000 to $159,000.
Other penalty increases are less dramatic, though still significant. For example, Medicare Advantage organizations that improperly expel or refuse to re-enroll a beneficiary now face $36,794 in penalties, as opposed to the $25,000 penalty they faced prior to the Rule.
With increased penalties from additional federal agencies, as well as the DOJ, life-sciences and healthcare face increased risks when under scrutiny by federal agencies, which may parallel or be independent of DOJ investigations. For example, defendants may face greater pressure to settle allegations with the government given the fact that the substantially increased penalties provide the OIG, as well as the DOJ, with more leverage in negotiations.
Companies should note that the penalties they may face in government investigations could be completely out of proportion to any actual damages suffered by the government or the degree of fault involved. As mentioned in our June article on the DOJ rule nearly doubling FCA penalties, the extreme increase of penalties gives rise to arguments that these penalties may violate the Eighth Amendment’s Excessive Fines Clause.