On July 5, 2024, the Eighth Circuit Court of Appeals (“the Court”) ruled that a $7.5 million award of treble damages and civil penalties in an Iowa FCA case was unconstitutional due to the Eighth Amendment’s prohibition against “excessive fines.” The Court also examined other matters, including the acceptability of statistical sampling and the pleading requirements necessary to bring a Stark or Anti-Kickback Statute (“AKS”) violation in addition to a False Claims Act (“FCA”) claim. This ruling is expected to have significant and lasting effects on FCA cases and the imposition of treble damages.
Background
The FCA allows private individuals (relators) to bring qui tam lawsuits for fraudulent claims resulting in federal overpayments. The AKS prohibits financial inducements for referrals in federal health programs. The Stark Law forbids physician referrals for designated health services if the referring physician has a financial relationship with the entity.
In United States v. Zorn (“Zorn“), a relator initiated a qui tam action under the FCA against their employer claiming that Zorn and its affiliates had overbilled the government and knowingly solicited and engaged in illegal self-referrals in violation of the AKS and Stark Law.
Statistical Sampling
The relator in Zorn used a sample of 31 patient files to investigate potential fraudulent claims instead of reviewing each file individually. Zorn challenged this approach, contending that it relied on unreliable scientific evidence. The Court upheld the use of statistical sampling, finding no abuse of discretion by the trial court in denying the motion to exclude expert testimony. The Court concluded that bench trials allow for more flexible standards in admitting evidence. It left open the question of whether statistical sampling would be permitted in a jury trial.
Stark & AKS Pleading in FCA Cases
The relator also alleged that Zorn violated the AKS and the Stark Law through an illegal self-referral scheme. The Court ruled that the relator failed to show that those violations led to fraudulent FCA claims.
Excessive Damages in FCA Cases
The FCA allows for treble damages, and, as such, the district court imposed $7.5 million in damages and penalties for 1,050 false claims. The defendants argued the award violated the Eighth Amendment’s Excessive Fines Clause. The Court agreed, finding the combination of treble damages and per-claim penalties constituted a punitive sanction subject to this Clause. The Court ruled that punitive damages must be proportional to the offense’s gravity, noting the harm was purely economic. It vacated the punitive sanction and remanded for a reduction to a single-digit multiplier of compensatory damages.
Practical Takeaways
- Statistical sampling patient files to investigate potentially fraudulent claims instead of reviewing each file individually may be appropriate in bench trials;
- To pursue a civil suit under the AKS or Stark Law, a relator must show that these violations led to fraudulent FCA claims that were actually submitted to the government; and
- If the government does not intervene in an FCA case, treble damages may violate the Eighth Amendment Excessive Fines Clause.
If you have questions or would like more information about this topic, please contact:
- Kennedy Bunch at (317) 977-1420 or kbunch@hallrender.com;
- Kathryn Daggett at (317) 977-1415 or kdaggett@hallrender.com;
- David Honig at 317-977-1447 or dhonig@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
