Treble Damages and Penalties: The True Financial Risk of the False Claims Act for Small Practices (31 U.S.C. § 3729)

The False Claims Act (FCA), under 31 U.S.C. § 3729, is one of the most powerful tools the federal government uses to combat fraud in healthcare and other federally funded programs. For small medical practices, violations, even those caused by unintentional errors, can lead to catastrophic financial consequences. The law authorizes treble damages (triple the government’s loss) and imposes per-claim civil penalties that can reach tens of thousands of dollars. With Medicare, Medicaid, and TRICARE claims numbering in the hundreds or thousands each year, even a modest error rate can escalate into millions of dollars in liability.

This guide explains the mechanics of treble damages, the per-claim civil penalty structure, the FCA’s “knowing” standard, and the compliance strategies small practices need to avoid becoming targets of enforcement actions. It also includes a realistic case study illustrating the compounding effect of damages and penalties, and provides a detailed compliance checklist to help protect your practice.

The FCA was first enacted in 1863 to address fraud by suppliers during the Civil War. Today, healthcare fraud is one of its primary enforcement areas. It applies to any person or entity that “knowingly” presents, or causes to be presented, a false or fraudulent claim for payment to the federal government. This includes claims submitted to Medicare, Medicaid, and other federal healthcare programs.

For small practices, the law’s penalties are uniquely dangerous. Treble damages can instantly triple any repayment obligation, while civil penalties, assessed on a per-claim basis, can add staggering sums. For example, submitting 100 false claims can generate millions in penalties even before damages are calculated.

The risk is not limited to deliberate fraud. A lack of internal oversight, poor billing practices, or failure to correct known errors can be enough to meet the FCA’s “knowing” standard, exposing the practice to liability.

Understanding Treble Damages Under the FCA

What Treble Damages Mean

Treble damages triple the amount of the federal government’s proven loss. If a practice improperly receives $50,000 in payments, the damage amount increases to $150,000 before civil penalties are added.

Calculation Process:

1. Determine the actual overpayment or fraudulent amount.

2. Multiply that amount by three to get treble damages.

3. Add civil penalties for each false claim submitted.

Example:

• Overpayment: $120,000

• Treble damages: $360,000

• Civil penalties: 150 claims × $15,000 minimum = $2,250,000

•  Total liability: $2,610,000

Civil penalties are applied per false claim, not per fraudulent episode. This is where small practices often underestimate their exposure. A single coding pattern error that repeats across multiple claims can result in hundreds of violations.

As of current inflation adjustments, penalties range from approximately $13,946 to $27,894 per claim. For practices submitting hundreds of claims each month, the financial impact can be devastating if compliance issues are not detected and corrected promptly.

The FCA’s “Knowing” Standard

The FCA defines “knowing” broadly to include:

• Actual knowledge of the falsity.

• Deliberate ignorance of the truth.

• Reckless disregard of the truth or falsity.

This means the government does not have to prove intent to defraud. A practice that ignores warning signs, fails to investigate anomalies, or neglects to train staff adequately can meet the “knowing” standard, even without malicious intent.

1. Upcoding: Billing for a higher-level service than was actually provided.

2. Unbundling: Billing separately for procedures that should be billed together at a lower cost.

3. Billing for Medically Unnecessary Services: Providing, and billing for, services not supported by patient medical records.

4. Lack of Documentation: Submitting claims without adequate patient records to support them.

5. Improper Modifier Use: Using modifiers to bypass claim edits or coverage restrictions.

6. Failing to Return Overpayments: Not refunding overpayments within 60 days of identification.
   

A suburban orthopedic practice frequently billed Medicare for complex fracture surgeries when medical records showed that simple fracture repairs had been performed. A whistleblower complaint triggered a Department of Justice investigation.

Audit Findings:

• Overpayment identified: $210,000.

• Treble damages: $630,000.

• Civil penalties: 220 claims × $14,500 = $3,190,000.

Total Liability: $3,820,000.

Outcome:

The practice settled for $3 million and signed a five-year Corporate Integrity Agreement. The agreement required annual external audits, mandatory compliance training, and a new compliance officer position.

Direct Costs:

• Treble damages and civil penalties.

• Legal fees and settlement costs.

Indirect Costs:

• Disruption of operations during investigations.

• Loss of patient trust and community reputation.

• Increased malpractice and compliance insurance premiums.

Long-Term Costs:

• Corporate Integrity Agreements with ongoing monitoring expenses.

• Inability to participate in federal programs if excluded.
  

Building an FCA-Proof Compliance Program

Step 1: Leadership Engagement

Owners and managing physicians must actively champion compliance and participate in oversight.

Step 2: Comprehensive Written Policies

Document clear billing, coding, and overpayment return procedures. Ensure policies reflect the latest CMS and OIG guidance.

Step 3: Continuous Staff Training

Use case-based training that includes examples of FCA violations and their consequences.

Step 4: Regular Internal Audits

Audit a statistically valid sample of claims quarterly, and address issues immediately.

Step 5: Corrective Action Documentation

Keep records of all identified errors, corrective measures, and outcomes to demonstrate good-faith compliance.

Step 6: Vendor Oversight

Require billing vendors to adhere to FCA compliance terms and monitor their performance regularly.

• Implement compliance management software with automated claim anomaly detection.

• Benchmark coding patterns against specialty norms to identify outliers.

• Require sign-off from a compliance officer before submitting high-value claims.

• Establish anonymous internal reporting channels for staff to raise concerns without fear of retaliation.
  

Pitfall: Over-reliance on external billing services.
Solution: Conduct internal spot checks and independent reviews of vendor-submitted claims.

Pitfall: Ignoring low-dollar errors.
Solution: Address every error, small mistakes can set patterns that escalate liability.

Pitfall: Poor record keeping.
Solution: Retain complete and organized documentation for at least the required retention period.

Treble damages and civil penalties under the FCA can obliterate the financial stability of a small practice. The only way to mitigate this risk is through proactive compliance: leadership commitment, comprehensive policies, thorough training, regular auditing, and vendor oversight.

By embedding FCA compliance into daily operations, small practices can protect themselves from devastating liability, maintain eligibility for federal healthcare programs, and preserve patient trust. The investment in prevention is minimal compared to the crushing cost of an FCA violation.

Consider leveraging a compliance automation tool to streamline your efforts. Such platforms help you document and manage obligations, conduct regular risk assessments, and remain audit-ready, reducing liabilities while signaling accountability to regulators and patients alike.

• 31 U.S.C. § 3729 – False Claims Act.

• HHS-OIG Compliance Program Guidance for Individual and Small Group Physician Practices.

• CMS Medicare Program Integrity Manual.