The Reality of FCA Penalties That Nobody Explains
Welcome to Spodek Law Group. Our goal is to give you the reality of Federal False Claims Act penalties - not the sanitized version law firm websites present, not the academic overview prosecutors prefer, but the actual truth about what happens when the government decides you submitted false claims to federal programs.
Heres what most people get wrong about FCA penalties. They think its a calculation problem. Run the numbers, figure out your exposure, negotiate a settlement, write a check, move on. That mental model is dangerously incomplete. The Department of Justice doesn't run one case against you. They run four simultaneous attacks that compound in ways the initial "penalty calculation" never captures.
Those four attacks are: per-claim civil penalties that multiply across every single submission (currently $14,308 to $28,619 each in 2025), treble damages on whatever the government claims it lost, mandatory or permissive exclusion from federal healthcare programs that can end your business permanently, and parallel criminal prosecution that carries up to five years in federal prison. Most defendants discover the second, third, and fourth attacks only after they thought they understood their exposure.
How $755 Becomes $1.17 Million: The Multiplication Nobody Expects
Consider what happend in Yates v. Pinellas Hematology & Oncology. The defendant submitted 214 claims to Medicare. Of those 214, only 64 were actually paid. The total payment? Seven hundred fifty-five dollars and fifty-four cents. Thats the actual damage to the government - $755.54.
The penalty calculation went like this. Treble damages on $755.54 equals $2,266.62. Seems managable. But then the court imposed per-claim penalties on all 214 claims submitted - not just the 64 that were paid. At $5,500 per claim (the rate at the time), that added $1,177,000 to the judgment.
Let that sink in. The government recieved $755 in fraudulent payments. The defendant owed $1.17 million. Thats a ratio of 1,558 to 1.
And heres what makes this worse. The per-claim penalty applies to every claim submitted - not just the ones that succeeded. You submit a false claim, it gets rejected, you still owe the penalty. The very act of submission triggers liability, regardless of wheather the government paid anything at all. Congress was explicit about this. The penalty is mandatory for each claim found to be false. No discretion. No proportionality analysis built into the statute itself.
Now apply this to a real healthcare practice. A mid-sized clinic submits maybe 500 claims per month. Over a two-year investigation period, thats 12,000 claims. Even if only 10% are found to be false, your looking at 1,200 claims times the 2025 minimum of $14,308. Thats $17.1 million in per-claim penalties before anyone calculates treble damages on actual losses. The math escapes most people's intuition because they're thinking about the fraud - how much did we actually take? - instead of thinking about the penalty structure - how many individual submissions did we make?
OK so your probably thinking - surely that's an outlier. Courts wouldn't allow penalties that disproportionate. And your right that courts are starting to push back. But heres the kicker. That pushback is recent, inconsistent, and requires you to raise the constitutional challenge. It doesnt happen automaticaly.
In 2024, a federal judge in the Northern District of Texas looked at a case where the minimum statutory penalties would have totaled nearly $300 million - approximately one hundred times the actual damages. The court invoked the Eighth Amendment's Excessive Fines Clause and reduced the penalty by 82 percent, bringing it down to around $8 million. Thats still significant. But it required the defendant to make that constitutional argument. Most defendants dont know this option exists.
The Exclusion Penalty Thats Worse Than The Fine
Heres were most people's understanding of FCA penalties completly breaks down. They focus on the dollar amount. How much do I owe? What will I have to pay? Can I negotiate it down?
But for healthcare providers, the exclusion penalty is often the actual death sentence. And it operates on a seperate track from the civil penalty.
Under Section 1128 of the Social Security Act, OIG has authority to exclude individuals and entities from federal healthcare programs. Some exclusions are mandatory - if your convicted of a felony related to healthcare delivery, you WILL be excluded for a minimum of five years. No discretion. No negotiation.
Other exclusions are permissive. OIG can exclude you for submitting false claims even without a criminal conviction. They can exclude you based on a civil settlement. They can exclude you because they've made an administrative determination that you engaged in fraud-related conduct.
What does exclusion mean practically? If your excluded, Medicare wont pay for any services you provide, order, or prescribe. Medicaid wont pay. TRICARE wont pay. The VA wont pay. For a healthcare practice thats built on serving patients with federal insurance coverage, exclusion eliminates 60 to 80 percent of your revenue overnight.
Todd Spodek has explained this to clients who came in focused entirely on the civil penalty number. They'd done the math on treble damages. They'd estimated the per-claim exposure. They thought they knew their worst case scenario. They hadnt factored in what happens when OIG issues an exclusion notice six months after the civil settlement is finalized.
The exclusion proceeding is seperate. It operates on its own timeline. Resolving the civil case doesnt resolve the exclusion question. And the standards are different - OIG doesnt need to prove you committed fraud beyond a reasonable doubt. They make an administrative determination based on the evidence available.
What makes this particularley dangerous is that employers who hire excluded individuals can also face liability. If you employ or contract with an excluded person and federal healthcare program payment is made for items or services that person furnishes, you may be subject to civil monetary penalties and an obligation to repay amounts attributable to the excluded person's work. This means exclusion doesn't just destroy the individual's career - it makes them essentially unemployable in their field. What hospital would hire a physician who triggers automatic clawbacks of every Medicare payment?
The reinstatement process after exclusion is also more difficult then most people imagine. You cant simply wait out the exclusion period and return to billing. You must affirmativley apply for reinstatement, demonstrate that you're no longer a risk to federal programs, and convince OIG that allowing you back serves the programs' interests. Some people never get reinstated. They're excluded for what was supposed to be five years and find themselves unable to practice in any federally-funded setting for the rest of there careers.
The Whistleblower Who Filed 18 Months Ago
Heres the part nobody talks about. If your reading this because you just learned about an FCA investigation, the investigation probly started long before you knew about it.
The False Claims Act includes what's called the qui tam provision. It allows private individuals - often current or former employees - to file lawsuits on behalf of the government. These whistleblowers, called relators, can recieve between 15 and 30 percent of whatever the government recovers.
Think about that incentive structure. Your billing manager notices what they think is a pattern of false claims. They contact a whistleblower attorney. They file a qui tam complaint. That complaint is filed under seal - meaning you dont know about it. The seal typically lasts at least 60 days, but courts routinely extend it for years.
During that sealed period, DOJ investigates. They subpoena your records. They interview witnesses. They build their case. And you have no idea any of this is happening. Your running your business, submitting claims, creating more potential violations every day.
In fiscal year 2024, whistleblowers filed 979 qui tam lawsuits - the highest number in the history of the False Claims Act. Thats 35% more then the prior year. The government recovered $2.4 billion from these whistleblower-initiated cases. Relators recieved over $400 million in rewards.
Sound familiar? That billing clerk who left two years ago. The compliance officer who seemed to be asking too many questions. The disgruntled employee you thought you'd heard the last of. The qui tam bar is activley educating potential whistleblowers about these financial incentives.
By the time you learn about the investigation, the government may have been building their case for 18 months or more. They know things about your billing practices that you've forgoten. They've interviewed people you dont even remember worked there. The asymetry of information is enormous.
And theres another layer to this. The whistleblower often has intimate knowledge of your operations. They know were the bodies are buried becuase they helped bury them. In many cases, the relator was directly involved in the conduct they're now reporting. The FCA doesnt disqualify them from receiving a reward - in fact, participants in fraud schemes are often the best-positioned to blow the whistle because they have the most detailed knowledge.
This creates an uncomfortable reality. The person who helped you submit those claims, who knew they were problematic, who said nothing at the time - that person can now recieve 15 to 30 percent of whatever the government recovers from you. Their cooperation is rewarded. Your reliance on their silence was misplaced. The incentive structure basicly guarantees that anyone with knowledge of fraud has a multi-million dollar reason to turn you in.
When The Criminal Case Runs Parallel
The civil False Claims Act and the criminal false claims statute are different laws. 31 U.S.C. 3729 is civil. 18 U.S.C. 287 is criminal. But they often run in parallel.
A criminal violation of the False Claims Act carries up to five years in federal prison plus fines of up to $250,000 for individuals or $500,000 for organizations. The knowledge requirement is the same as the civil statute - "knowing" includes acting with deliberate ignorance or reckless disregard for the truth. You dont have to intend to defraud. You just have to submit claims that you knew or should have known were false.
What practitioners know that the public dosent: settling the civil case does not stop the criminal investigation. DOJ's civil division and criminal division coordinate, but they make independent decisions. You can write a check to resolve the civil liability and still face criminal charges.
At Spodek Law Group, we've seen cases where defendants thought the civil settlement bought them peace. They disclosed everything during civil settlement negotiations, thinking cooperation would help. Sometimes it does. Sometimes the information they provided during civil discovery becomes the foundation for criminal charges.
The irony is brutal. The defendant who cooperated fully with the civil investigation essentially built the governments criminal case. The defendant who understood this risk from the begining made very different strategic choices.
Theres also the question of what counts as "knowing." Most people assume criminal liability requires you to know you were breaking the law. That's not how the FCA works. The statute defines "knowing" to include acting in deliberate ignorance of the truth or with reckless disregard for the truth. You dont have to sit in a room and say "lets commit fraud." You just have to submit claims while ignoring red flags that should have alerted you to problems.
What does reckless disregard look like? It might be ignoring your compliance officers warnings. It might be failing to investigate when staff raised concerns. It might be continuing billing practices after an audit identified issues. The standard is not "did you intend to defraud the government" but rather "did you close your eyes to obvious problems." Thats a much lower bar, and prosecutors use it aggresivley.
See the problem? You might genuinley believe your billing was appropriate. You might have relied on consultants, on software, on industry practices. But if the government can show you ignored warning signs, that good faith belief wont protect you. And once criminal liability attaches, your looking at up to five years in federal prison - regardless of wheather you ever touched the money or benefited personally from the fraud.
The 8th Amendment Defense That Changes The Math
Heres were it gets interesting. Courts are starting to recognize that FCA per-claim penalties can become unconstitutionally excessive.
The Eighth Amendment prohibits "excessive fines." For decades, courts didn't really apply this to FCA cases. The penalties were the penalties. Congress set the range. Multiply by the number of claims. Thats your exposure.
But starting around 2024, some courts began asking whether the resulting numbers made any sense. When minimum penalties would reach $300 million on $43 million in actual damages, is that really proportionate? When the penalty is 100 times the harm, does that cross a constitutional line?
The Northern District of Texas case I mentioned earlier concluded that the Excessive Fines Clause permitted total penalties of no more than double the governments actual damages. When you add that to the trebled damages already required by the statute, the court found the maximum permissable judgment was roughly five times single damages: actual damages (1x) plus trebled damages (2x) plus penalties (2x).
This is an emerging defense strategy. Its not established everywhere. Different circuits may reach different conclusions. But its worth understanding because it can transform your exposure analysis.
The government comes in demanding per-claim penalties that would total $50 million. Your actual damages might be $2 million. Under the emerging constitutional framework, your real exposure might be capped at $10 million - still significant, but wildly different from the initial demand.
Todd Spodek and the team at Spodek Law Group have been tracking these constitutional developments carefully. It represents one of the few areas were defendants are actualy gaining ground in FCA litigation.
But dont assume this defense will automaticaly apply to your case. The Excessive Fines Clause analysis is fact-specific. Courts look at the relationship between the penalty and the harm caused, the defendants culpability, whether the defendant gained financially, and other factors. In some cases, courts have found that even very large penalties were not constitutionally excessive because the defendants conduct was particularily egregious or because the government's need for deterrence was especialy strong.
What matters is having counsel who knows to raise this argument and how to present it effectivley. The constitutional defense isnt self-executing. If you dont raise it, you dont get the reduction. And you need to present evidence about proportionality, about your financial condition, about the nature of your conduct. This is technical constitutional litigation layered on top of already complex FCA proceedings.
What Happens in the First 72 Hours
If you just learned about an FCA investigation - whether through a subpoena, a target letter, an unsealed qui tam complaint, or a visit from federal agents - the next 72 hours matter enormously.
Heres the reality. You need to assume four things simultaneously:
First, the investigation has probably been ongoing for months or years. The government knows more then you think they know.
Second, everything is being documented. Every statement you make, every document you produce, every email you send is potential evidence.
Third, multiple tracks are in play. Civil penalties, treble damages, exclusion, criminal prosecution - all four can happen to the same defendant based on the same conduct.
Fourth, the whistleblower may be someone you trusted. They've already told their story. Now your catching up.
The strategic decisions you make in the first 72 hours will shape everything that follows. Do you assert privilege? Do you cooperate? Do you produce documents voluntarily or wait for formal process? Do you make any statements? How do you handle the criminal exposure while dealing with the civil case?
These are not decisions to make without experienced counsel who understands how all four tracks interact.
The Cost of Delay
Look, I understand the impulse to wait. Maybe the investigation will go away. Maybe they'll lose interest. Maybe the whistleblower's case is weak and DOJ will decline to intervene.
That happens sometimes. DOJ declines to intervene in many qui tam cases. The whistleblower can still proceed on their own, but government-declined cases have lower settlement values on average.
But heres what waiting actually costs you. Every day the investigation continues, you may be submitting more claims that become additional counts. Every billing cycle adds exposure. The per-claim penalties dont stop accumulating just because you dont know about the investigation.
More importantly, the earlier you engage experienced FCA defense counsel, the more strategic options you preserve. Early intervention can sometimes prevent charges from being filed at all. It can seperate you from co-defendants. It can position you for favorable treatment if you have information about larger schemes.
The window closes. Once charges are filed - civil or criminal - your options narrow dramaticaly.
Moving Forward
Federal False Claims Act penalties are not what most people think they are. The treble damages calculation everyone focuses on is actualy the least of your concerns if your facing thousands of per-claim penalties, mandatory or permissive exclusion from federal programs, and potential criminal prosecution.
The 2025 penalty range of $14,308 to $28,619 per claim doesnt sound catastrophic until you realize your billing department submitted 2,000 claims over the relevant period. Now your looking at $28 million to $57 million in per-claim penalties alone, before treble damages even enter the calculation.
At the same time, the constitutional landscape is shifting. The Excessive Fines Clause provides a defense that didnt exist in practical terms five years ago. Courts are willing to reduce penalties by 82 percent when the math becomes absurd.
This is complicated terrain. The stakes involve not just money but your liberty, your professional license, your ability to participate in federal healthcare programs, your entire business.
Spodek Law Group handles these cases because they require understanding of how civil, administrative, and criminal tracks interact - and how to navigate all four simultaneously.
The clock started when you learned about the investigation. The question is what you do with the time you have. Call 212-300-5196.
