On February 26, 2025, a federal judge in Texas ruled that a $448 million penalty under the False Claims Act violated the Constitution, despite upholding the jury’s verdict that Healthcare Associates of Texas submitted fraudulent Medicare claims.
The U.S. District Court for the Northern District of Texas issued a major ruling in United States ex rel. Cheryl Taylor v. Healthcare Associates of Texas, LLC, finding that the False Claims Act’s mandatory per-claim penalties can violate the Eighth Amendment’s Excessive Fines Clause when grossly disproportionate to the actual harm.
In this case, a whistleblower claimed that Healthcare Associates of Texas (HCAT) used improper Medicare billing practices, leading to overpayments totaling $2.75 million. The jury found the company liable for 21,844 false claims, awarding a staggering $448 million in penalties. The court upheld the verdict but reduced the penalty to $16.5 million, citing constitutional concerns.
The False Claims Act allows whistleblowers to report fraudulent claims made to federal programs like Medicare. It imposes damages and per-claim civil penalties that can quickly result in nine-figure awards—even in relatively low-dollar fraud cases.
Historically, courts have enforced these penalties, but recent rulings suggest growing unease with the scale of financial punishment, especially when the underlying misconduct doesn’t involve outright fabrication or harm.
The court acknowledged that the defendant’s harm was significant. “[S]ubmitting false claims harms the government in [sic] ways that are difficult to quantify.” Yet the court determined that the harm did not necessitate a penalty “two orders of magnitude greater than the actual financial harm” (especially where the actual damages were themselves “‘substantial’”). Indeed, the minimum penalty mandated by the statute was one hundred times the amount of actual damages. That ratio was “grossly out of alignment with the ratios in other similar cases.” The court pointed to the above-referenced Minnesota case from last year, in which the court held that even a penalty-to-actual damages ratio of 8.2-to-1 was unconstitutionally excessive. The Texas court also pointed to decisions in which courts determined that 3-to-1 and 8-to-1 ratios were not unconstitutionally excessive.
The Eighth Amendment’s Excessive Fines Clause is rarely invoked in FCA cases, but this ruling could encourage more defendants to challenge disproportionate penalties. FCA enforcement traditionally relies on steep per-claim penalties to deter fraud, but as courts scrutinize extreme damage awards, the balance between deterrence and fairness may be shifting.
This case signals a shift in how courts may approach False Claims Act penalties when technical violations—not outright fraud—are involved. The defendant, Healthcare Associates of Texas, submitted inaccurate Medicare billing codes, but didn’t bill for services not rendered. The court recognized this as a “reporting offense,” not deliberate fraud, and found that imposing a $448 million penalty for $2.75 million in actual damages was grossly disproportionate.
By reducing the penalty to a 3-to-1 ratio of actual damages, the court made clear that even penalties set by statute can be unconstitutional if they exceed the harm caused. This sets an important precedent: FCA defendants whose conduct doesn’t involve overt deceit may have a strong Excessive Fines Clause argument—especially when facing penalties that are orders of magnitude greater than the financial harm.
Massive False Claims Act penalties aren’t always ironclad—especially if they far outweigh actual damages. This case suggests that raising Eighth Amendment arguments early could be a viable defense strategy. Legal teams should reevaluate how to approach FCA cases when high per-claim penalties are at stake.
A false claim is any knowingly fraudulent request for payment submitted to the federal government.
Yes, both individuals and organizations can be held liable under the FCA.
Challenges under the Excessive Fines Clause are rare but gaining traction in recent years.
No, this ruling is binding only in the Northern District of Texas but may influence other courts.
Yes, whistleblowers (relators) typically receive a percentage of the recovered funds.