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                              Friendship Home Healthcare, Inc., et. al., DAB CR5458 (2019)
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Friendship Home Healthcare, Inc., et. al., DAB CR5458 (2019)








  
  
    

  
      
Department of Health and Human Services 
    DEPARTMENTAL APPEALS BOARD
          Civil Remedies Division





Friendship Home Healthcare, Inc.; Friendship Home Health, Inc.; Friendship Home Health Agency, LLC; Friendship Healthcare Systems, Inc.; Friendship Healthcare System; Friendship Home Solutions, Inc.; Friendship – Angel DME, Inc.; Friendship Private Duty, Inc.; Angel Private Duty and Home Health, Inc.; Friendship Home Solutions of New Jersey, Inc.; Friendship Residential Services, Inc.; Theophilus Egbujor; and Grace Egbujor,
Petitioners,
v.
The Inspector General.
Docket No. C-19-658Decision No. CR5458October 31, 2019

        
              
    

      DECISION
The Inspector General (IG) of the United States Department of Health and Human Services demanded payment of stipulated penalties from Petitioners for allegedly breaching a corporate integrity agreement (CIA). Petitioners timely invoked the dispute resolution provision of the CIA and sought a hearing before an administrative law judge (ALJ). I conclude that Petitioners breached the CIA three times and are liable to pay stipulated penalties to the IG for each breach. The total amount of stipulated penalties owed by Petitioners is $1,322,500.
I. Background
Petitioners are, collectively, entities that provide home health care services and skilled and unskilled nursing services in Tennessee and the owners of those entities. IG Ex. 3 at 1. On June 4, 2014, a relator commenced a *qui tam* action in the United States District Court for the Middle District of Tennessee asserting that Petitioners violated the False Claims Act (31 U.S.C. § 3730(b)) by submitting Medicare and Medicaid claims for home
**Page 2**
health care services that: were provided by personnel who were not authorized to provide the care; included false documentation; and relied on falsified authorizations by a director of nursing. IG Ex. 3 at 2. The United States and the state of Tennessee intervened in the case. IG Ex. 3 at 2. Petitioners settled the lawsuit, agreeing to pay $6,500,000. IG Ex. 3 at 5. Petitioners and the IG also entered into a CIA in which the IG agreed not to exclude Petitioners from participation in all federal health programs in exchange for Petitioners’ compliance with various requirements. IG Ex. 1 at 1-2; IG Ex. 3 at 10. Both the settlement agreement and the CIA became effective on June 1, 2015. IG Ex. 1 at 34-39; IG Ex. 3 at 22-27. The CIA has a five-year term. IG Ex. 1 at 2.
The CIA provides numerous requirements that Petitioners must meet. IG Ex. 1. Relevant to this case, the CIA requires Petitioners to hire an Independent Review Organization (IRO) to conduct reviews of Petitioners’ Medicare and Medicaid claims and reimbursements, and Petitioners are to include the IRO’s review in each of the annual reports that Petitioners must submit to the IG. IG Ex. 1 at 10-11, 22-23, 40-41, 43. Under the CIA, Petitioners must repay any overpayments identified by the IRO within 30 days, including an IRO’s estimate of actual overpayments, in accordance with refund policies of the program that overpaid Petitioners. IG Ex. 1 at 46. The CIA authorizes the IG to impose a stipulated penalty of $2,500 for each day that Petitioners fail to perform certain obligations under the CIA, including “the repayment of Overpayments” identified by the IRO. IG Ex. 1 at 27-28. If the IG concludes that Petitioners failed to comply with the CIA, the CIA provides that the IG will issue a demand letter to Petitioners indicating that the IG is exercising its contractual right to demand payment of stipulated penalties; Petitioners have ten days after receiving the demand letter to cure the breach and pay the stipulated penalties or request an ALJ hearing. IG Ex. 1 at 30.
On November 19, 2018, the IG sent Petitioners a Demand for Stipulated Penalties (demand letter). In it, the IG specified that Petitioners had failed to repay $1,930,882.68 in overpayments identified in its second and third annual reports. The IG demanded $1,322,500 in stipulated penalties. IG Ex. 2.
Petitioners timely requested a hearing. On May 7, 2019, I held a prehearing conference, the substance of which is summarized in my May 8, 2019 Prehearing Conference Order and Schedule for Filing Briefs and Documentary Evidence (Prehearing Conference Order). At the conference, the parties did not object to my reading of the CIA that 42 C.F.R. §§ 1005.2-1005.21 and the Civil Remedies Division Procedures (CRPD) were the controlling procedures in this proceeding. Prehearing Conference Order ¶ 3. I noted that the standard of proof was a preponderance of the evidence and that the CIA placed the burden on Petitioners to prove “their full and timely compliance and the steps taken to cure the noncompliance, if any.” Prehearing Conference Order ¶ 5. Finally, I established a prehearing exchange schedule. Prehearing Conference Order ¶ 7.
**Page 3**
In July 2019, the IG moved for dismissal of the hearing request, asserting that the request was insufficiently specific in disputing the facts and law stated in the demand letter. I denied the motion, noting that Petitioners were to file their prehearing exchange first, thereby allowing the IG to be fully presented with Petitioners’ reasons for disputing the stipulated penalties before the IG filed her exchange.
Petitioners timely filed their exchange, which included a brief (P. Br.) and five proposed exhibits (P. Exs. 1-5), one of which was the written direct testimony of Petitioners’ counsel authenticating P. Exs. 1-4. Petitioners also submitted a witness list that included Petitioners’ counsel and a former IG Senior Counsel. The IG’s exchange included a motion for summary judgment and a brief in support of that motion (IG Br.) along with 13 proposed exhibits (IG Exs. 1-13). Petitioners filed a reply brief (P. Reply) and an amended witness list that included a third proposed witness, but no written direct testimony for that witness. The IG filed a sur-reply (IG Sur-reply), to which Petitioners responded without objection.
II. Evidentiary Rulings and Decision on the Record
Petitioners did not object to any of the IG’s proposed exhibits. Therefore, I admit IG Exs. 1-13 into the record. Prehearing Conference Order ¶ 11; CRDP § 14(e); *see also* 42 C.F.R. § 1005.8(c).
The IG objected to all of Petitioners’ proposed exhibits as irrelevant and immaterial to the matters to be decided in this case. I overrule these objections because the correspondence between Petitioners’ counsel and a former IG Senior Counsel directly relate to the issues in this case. Therefore, I admit P. Exs. 1-5 into the record.
I directed the parties to submit written direct testimony, in the form of an affidavit or a declaration made under penalty of perjury, for any witnesses that the parties wanted to offer in this case. I advised that if the parties were precluded from obtaining written direct testimony from a witness, the parties must request a subpoena to compel the witness to appear and testify. Further, I informed the parties that I would only hold an in-person hearing if written direct testimony were submitted and the opposing party requested to cross-examine at least one witness for whom written direct testimony had been submitted. Prehearing Conference Order ¶¶ 9, 10, 13; 42 C.F.R. § 1005.16(b); CRDP §§ 16(b), 19(b), 19(d).
The IG did not submit written direct testimony for any witnesses. Petitioners’ counsel submitted his own written direct testimony to authenticate P. Exs. 1-4 and indicated that, if necessary, Petitioners would call a former IG Senior Counsel to testify to the IG’s receipt of those documents. However, the IG indicated that “there is no need to call
**Page 4**
[Petitioners’ counsel] or [the] I.G. Senior Counsel . . .” because the IG did not dispute the authenticity or receipt of those documents. Inspector General’s Objections to Petitioners’ Exhibits and Proposed Witnesses at 3. Therefore, there is no reason to hold an in-person hearing to take testimony from the witnesses Petitioners listed.
The IG objected to Petitioners’ effort to amend its witness list and add a third witness, noting that Petitioners failed to provide written direct testimony for that witness in violation of the Prehearing Conference Order. Petitioners responded that the new witness was only needed to testify to the accuracy of the contents of P Exs. 1-4. The IG’s objection is well made. Further, even if I were inclined to waive the requirement to submit written direct testimony, the regulations prohibit me from accepting testimony from a witness who was not disclosed as part of its prehearing exchange absent a finding of extraordinary circumstances and a determination that the admission of the testimony would not cause substantial prejudice to the other party. 42 C.F.R. § 1005.8(b)(2), (3). Petitioners provided no reason for failing to list the third witness on its original witness list. Although the regulations direct me to permit rebuttal witnesses, Petitioners did not indicate in their reply brief or in their response to the IG’s objection to the amended witness list that the newly added third witness was intended as a rebuttal witness. Petitioners only state that the reason for this new witness is to establish the accuracy of the contents of P. Exs. 1-4. However, the IG did not contest the accuracy of the statements in those documents, only their relevance and materiality to the issues in this case. Therefore, I sustain the IG’s objection to Petitioners’ new witness.
Because there are no witnesses from whom I need to hear testimony in this case, I decide this case based on the written record.
III. Issues
Whether Petitioners were in full and timely compliance with the CIA provisions under which the IG demands payment.
	If Petitioners were not in compliance, what is the period of noncompliance.IG Ex. 1 at 32; Prehearing Conference Order ¶ 4.
IV. Findings of Fact, Conclusions of Law, and Analysis
My findings of fact and conclusions of law are set forth below in bold and italics.
**Page 5**
***1. Petitioners were notified on November 30, 2017; March 6, 2018; and October 15, 2018, of the IRO’s determinations that Petitioners had been overpaid by the Medicare and Medicaid programs, and Petitioners neither repaid that money to the Medicare and Medicaid programs within 30 days of receiving those notices nor had they done so by the time the IG issued its demand letter for stipulated penalties.***
As discussed above, the CIA requires Petitioners to engage an IRO to conduct annual reviews of Petitioners’ claims and reimbursements for five years. IG Ex. 1 at 10-11, 43-51. During this process, the IRO will identify any overpayments that Petitioners received. IG Ex. 1 at 46. For purposes of an IRO review, the CIA defined “Overpayment” as:
The amount of money the Friendship Entities have received in excess of the amount due and payable under Medicare or any state Medicaid program requirements, as determined by the IRO in connection with the claims reviews performed under this Appendix B, including any extrapolated Overpayments determined in accordance with Section A.3 of this Appendix B.
IG Ex. 1 at 43.
The CIA became effective on June 1, 2015. IG Ex. 1 at 34-39. On August 1, 2016, the IG received Petitioners’ first annual report. IG Ex. 5 at 1. However, the IG informed Petitioners in a December 15, 2016 letter that the IRO’s claims review report had multiple deficiencies. IG Ex. 5. The IG gave Petitioners 30 days to submit a proper claims review report and refund any overpayments identified by the IRO or potentially be subject to stipulated penalties. IG Ex. 5 at 3.
Petitioners did not comply with the IG’s letter. According to Petitioners’ counsel, as stated in a February 6, 2018 memorandum to the IG, Petitioners had significant difficulty engaging a competent IRO and obtaining an accurate claims review report. P. Ex. 1. By November 30, 2017, Petitioners finally obtained an IRO review for the reporting period of June 1, 2015 to May 31, 2016. P. Ex. 1 at 2-3. The IRO informed Petitioners of overpayments made to Petitioners in a November 30, 2017 email. IG Ex. 9 at 3. The IRO determined that Petitioners were overpaid a total of $235,019.91 by the Medicare and Medicaid programs. IG Ex. 8 at 1. In an October 15, 2018 email, Petitioners’ counsel confirmed the November 30, 2017 receipt date of the IRO’s Medicare and Medicaid overpayment determinations. IG Ex. 10.
**Page 6**
In a March 6, 2018 email, the IRO notified Petitioners of the results of its review for the June 1, 2016 to May 31, 2017 reporting year. IG Ex. 9 at 2. The IRO identified $292,235.77 in overpayments paid to Petitioners from the Medicare and Medicaid programs, which was based on an astounding Medicare claim denial rate of 98% and Medicaid claim denial rate of 51%. IG Ex. 8 at 1; IG Ex. 9 at 2. In an October 15, 2018 email, Petitioners’ counsel confirmed the March 6, 2018 receipt date of the IRO’s Medicare and Medicaid overpayment determinations. IG Ex. 10.
In an August 31, 2018 letter from Petitioners’ counsel to the IG, Petitioners stated that they were “aware of the overpayments that were identified” but that Petitioners were “in the process of obtaining financing and/or refinancing to be able to repay the overpayments totaling $527,255.28.” P. Ex. 2 at 3. In a September 27, 2018 email, Petitioners’ counsel informed the IG that Petitioners were seeking to sell their business and a prospective buyer had signed a letter of intent. P. Ex. 3.
In an October 15, 2018 email, the IRO informed Petitioners and the IG of the results of its review and for the June 1, 2017 to May 31, 2018 annual report. IG Ex. 12. This included extrapolated overpayments. IG Ex. 13. The IRO determined that Petitioners received $185,325.96 in overpayments from the Medicare and Medicaid programs. IG Ex. 11 at 24.
In a November 29, 2018 letter to the IG, Petitioners’ counsel indicated that Petitioners needed additional time to sell their business to repay the overpayments out of the proceeds from the sale. P. Ex. 4. No evidence suggests that Petitioners ever repaid the overpayments.
***2. Petitioners were obligated under the CIA to repay the overpayments identified by the IRO within 30 days of the IRO identifying the overpayments; therefore, Petitioners needed to have made repayments on December 30, 2017; April 5, 2018; and November 14, 2018, for the overpayments identified for the reporting years of 2015-2016, 2016-2017, and 2017-2018, respectively.***
The CIA requires that Petitioners repay overpayments within 30 days of the IRO identifying those overpayments. IG Ex. 1 at 46. In the present case, Petitioners ultimately filed late reports with the IRO’s findings due to problems with individuals originally hired to perform the IRO function. However, as found above, Petitioners received notice from the IRO of overpayments for the first three reporting years on November 30, 2017; March 6, 2018; and October 15, 2018. Thirty days from those dates are December 30, 2017; April 5, 2018; and November 14, 2018, respectively.
**Page 7**
Petitioners assert that they “had sixty days within which to make the repayment.” P. Br. at 4. Although not specified in their brief, Petitioners are likely referring to the CIA provision on overpayments that requires Petitioners to refund any overpayments that Petitioners identify within 60 days of Petitioners’ identification of the overpayment. IG Ex. 1 at 15. This provision is distinguishable from the overpayment provision related to IRO-identified overpayments because this provision applies to overpayments that Petitioners identify and not ones that the IRO identifies. *Compare* IG Ex. 1 at 15 *with* IG Ex. 1 at 46. In fact, the two provisions are sufficiently separate and distinct that they define the term “Overpayment” differently. IG Ex. 1 at 15, 43. Therefore, the 30-day, not 60-day, time limit for repayment applies in this case because the overpayments were identified by an IRO.
Petitioners argue that their counsel regularly communicated their ongoing efforts to comply with the CIA to the IG and that they requested that the IG “work with them on a payment plan and the []IG’s perceived acquiescence of the request constitute[s] ‘Timely Written Requests for Extensions’ as that term is used in the [CIA].” P. Reply at 2 (quoting IG Ex. 1 at 29-30). Further, Petitioners claim they “took steps necessary to cure the breach, acted with due diligence in trying to sell the company to acquire funds to cure the breach, and apprised the []IG with the reasonable timetable for the sale of the business . . . .” P. Reply at 2.
The IG argues that none of Petitioners’ exhibits show that Petitioners expressly asked for an extension of time to repay the overpayments identified by the IRO and, even if those exhibits did, none of them would have been timely filed under the CIA. Further, the IG pointed out that Petitioners’ argument that it had taken steps to cure its breach of the CIA is only applicable to an imposition of exclusion under the CIA and not stipulated penalties. The IG asserts that the only way Petitioners can cure their noncompliance with the CIA is to repay the overpayments identified by the IRO. IG Sur-reply at 2-4.
I agree with the IG. The CIA does not support Petitioners’ argument. In order for Petitioners to have timely submitted a written request for an extension to perform an act required by the CIA, such as repaying overpayments, Petitioners needed to submit the requests for extensions “at least five days prior to the date by which any act is due to be performed or any notification or report is due to be filed.” IG Ex. 1 at 29-30. Petitioners provided no evidence of any timely requests for extensions of time to repay the overpayments. Simply because the IG showed extreme forbearance in this matter does not mean that the IG waived her right to demand stipulated penalties when her patience finally reached an end.
**Page 8**
***3. The IG had the contractual right to demand stipulated penalties because Petitioners breached the CIA when they failed to repay overpayments identified by the IRO.***
The CIA states that Petitioners agreed to pay stipulated penalties of $2,500 for each day that Petitioners failed to establish and implement certain obligations, including “the repayment of Overpayments as required by Section III.I and Appendix B.” IG Ex. 1 at 27-28. The Appendix B overpayments are the IRO-identified overpayments.
Petitioners argue that they have not breached the CIA:
By seeking to sell the entity and/or refinance, Friendship did “establish and implement” a plan to repay the obligations identified and required under the CIA. Friendship continues to stand by its obligations and efforts to sell the company and/or refinance and repay the overpayments. Failing to repay the overpayments (especially when Friendship did not have the financial wherewithal to do so) is not, in and of itself, enough to trigger the obligation to pay stipulated penalties. In order to trigger the penalties, Friendship must fail to “establish and implement” a procedure to repay the overpayments as required under the CIA. It has done so. Consequently, the payment of stipulated penalties is not appropriate in this case.
P. Br. at 4.
However, Petitioners’ argument has no basis in the CIA, which requires “repayment of Overpayments as required by . . . Appendix B”. IG Ex. 1 at 28, 46. The CIA does not recognize the inability to repay overpayments as an excuse for failing to do so. Petitioners’ failure to make timely repayments subjected them to stipulated penalties.
***4. Petitioners must pay $1,322,500 in stipulated penalties to the IG.***
Petitioners dispute the amount of stipulated penalties that they owe in this case. Petitioners appear to take the position that the final penalty amount ought to be computed by multiplying $2,500 by the number of days between its failure to make repayment of the overpayments that the IRO identified on November 30, 2017, and the date of the demand letter. P. Br. at 4-5.
**Page 9**
The IG responded to this argument, arguing that “Petitioners were delinquent for 557 days in failing to repay three separate Overpayments.” IG Br. at 9. The IG explained her position in detail as follows:
Petitioners are required to pay each identified and extrapolated Overpayment within 30 days of being notified by the IRO. On November 30, 2017, the IRO notified Petitioners of $235,019.91 in Overpayments from the First Claims Review, and Petitioners were required to repay this amount within 30 days, i.e., by December 30, 2017. Similarly, Petitioners were required to repay the $292,235.77 in Overpayments identified in the Second Claims Review by April 5, 2018—30 days after the IRO’s March 6, 2018 notification. The IRO also notified Petitioners on October 15, 2018 of $1,403,627 in extrapolated Overpayments in the Third Claims Review. Consistent with the CIA, Petitioners’ deadline to repay this amount was November 14, 2018.
Each of the Overpayments referenced above gave rise to a separate Stipulated Penalty when Petitioners failed to repay them within the 30-day period set forth in Appendix B. Under the CIA, a Stipulated Penalty of $2,500 per day begins to accrue the day after an obligation is due. Therefore, the Stipulated Penalties for Petitioners’ failure to repay each Overpayment pursuant to Appendix B began to accrue the day after each 30-day period expired and continued to accrue for each day Petitioners failed to establish and implement the repayment. Since each Overpayment results in its own distinct repayment obligation, the Stipulated Penalties run concurrently. This means that as of November 19, 2018—the date of the I.G.’s Demand Letter—Petitioners were delinquent in their obligation to repay three Overpayments: they were 324 days late for the First Claims Review Overpayments, 228 days late for the Second Claims Review Overpayments, and five days late for the Third Claims Review Overpayments. In total, as of the date of the I.G.’s Demand Letter, Petitioners were 557 days out of compliance with the CIA and, therefore, Petitioners did not timely comply with their CIA obligations.
**Page 10**
IG Br. at 10-11 (citations and footnotes omitted). Petitioners did not respond to the IG’s argument in its reply brief.
Petitioners failed to timely repay overpayments at three different times based on three different IRO reviews associated with three different reporting years under the CIA. These three failures represent independent violations of three separate obligations Petitioners agreed to under the CIA. I agree with the IG that she could demand stipulated penalties for each of the three failures to timely repay overpayments starting with the day after each of the 30-day repayment periods ended through the demand letter’s issue date of November 19, 2018. IG Ex. 1 at 27. After all, the CIA authorizes the IG to impose “[a] Stipulated Penalty of $2,500 . . . for each day the Friendship Entities fail to establish and implement any of the following obligations,” including, as relevant here, “the repayment of Overpayments as required by . . . Appendix B . . . .” IG Ex. 1 at 27-28.
Based on the record, the following shows the dates and number of days that Petitioners have failed in their obligation to repay overpayments under the CIA:
December 31, 2017 – November 19, 2018 (324 days)
	April 6, 2018 – November 19, 2018 (228 days)
	November 15, 2018 – November 19, 2018 (5 days)Therefore, Petitioners could be subject to stipulated penalties for $2,500 per day for a total of 557 days, or a total of $1,392,500. The IG demanded less than this amount. Thus, Petitioners are liable for the $1,322,500 demanded by the IG.
V. Order
Petitioners breached the CIA three times and are liable to pay stipulated penalties.
	Petitioners must pay the IG $1,322,500 within 20 days of the date on this decision unless Petitioners request that the Departmental Appeals Board review this decision. IG Ex. 1 at 32-33.
  
          /s/
        Scott Anderson

                      Administrative Law Judge Back to top
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