Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Sircy Sacerio,
(OI File No.: H-14-42509-9),
Petitioner,
v.
The Inspector General.
Docket No. C-15-2880
Decision No. CR4478

Date: December 3, 2015

DECISION

Petitioner, Sircy Sacerio, a registered chiropractic assistant licensed in the State of
Florida, participated in an elaborate scheme to defraud insurance companies by staging
automobile accidents and submitting to the insurers false claims of injury and treatment.
She was convicted on multiple felony counts of conspiracy to commit mail fraud and
mail fraud. Pursuant to section 1128(a)(3) of the Social Security Act (Act), the Inspector
General (IG) has excluded her from participating in the Medicare, Medicaid, and all
federal health care programs for a period of 15 years.

For the reasons discussed below, I find that the IG is authorized to exclude Petitioner and
that the fifteen-year exclusion falls within a reasonable range.

Background

Ina letter dated April 30, 2015, the IG advised Petitioner Sacerio that, because she had
been convicted of a felony offense related to fraud, theft, embezzlement, breach of
fiduciary responsibility or other financial misconduct in connection with the delivery of a
health care item or service, the IG was excluding her from participating in Medicare,
Medicaid, and all federal health care programs for a period of 15 years. The letter
explained that section 1128(a)(3) of the Act authorizes the exclusion. IG Exhibit (Ex.) 1.

Petitioner requested review. She concedes that she was convicted and is subject to
exclusion under section 1128(a)(3), but challenges the length of the exclusion. Hearing
Request (May 28, 2015); Order and Schedule for Filing Briefs and Documentary
Evidence at 2 (July 21, 2015).

The parties have submitted their written arguments (IG Br.; P. Br.). With his brief, the
IG submitted five exhibits (IG Exs. 1-5). The IG also submitted a reply. In the absence
of any objections, I admit into evidence IG Exs. 1-5.

The parties agree that an in-person hearing is not necessary. IG Br. at 8; P. Br. at 4.
Issue

Because the parties agree that the IG has a basis upon which to exclude Petitioner from
program participation, the sole issue before me is whether the length of the exclusion (15
years) is reasonable. 42 C.F.R. § 1001.2007.

Discussion

Section 1128(a)(3) mandates that the Secretary of Health and Human Services exclude an
individual who has been convicted of a felony relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct in connection with the
delivery of a health care item or service. See 42 C.F.R. § 1001.101(c).

In January 2009, Petitioner Sacerio and her minor son were in a “staged” automobile
accident. Although not injured, she fraudulently claimed that she and her son suffered
moderate to severe pain as a result and were “treated” at the Karow Chiropractic Center,
an active participant in the fraudulent scheme. IG Ex. 2 at 18; IG Ex. 4 at 2,4. In June
2010, she and her husband participated in another “staged accident.” Again, she and her
husband claimed that they were in severe pain as a result of the accident and again they
were treated at the Karow Center. They required no such treatment and, although they
may have gone to the Karow Center, in many instances, the claimed treatment was not
provided. IG Ex. 2 at 23, 25, 29; IG Ex. 4 at 4, 5.

In January 2009, Petitioner Sacerio went to work for the Karow Center, where she was
ostensibly employed as a receptionist and office assistant for its owner, Kenneth Karow.
IG Ex. 4 at 2. While employed there, she participated in an elaborate insurance scam,
which involved recruiting insured individuals to stage automobile accidents. With the
assistance of the conspirators, the individuals falsely claimed injuries, and the Karow
Center submitted insurance claims for services that were not necessary and which, in any
event, the Karow Center generally did not provide. Among Petitioner’s duties, she
prepared and submitted false claims to the insurance companies. IG Exs. 2, 3, 4.

On August 21, 2013, Petitioner Sacerio, her employer, and an array of co-conspirators
were indicted. Petitioner was charged with one count of conspiracy to commit mail fraud
(18 U.S.C. § 1349) and nine counts of mail fraud (18 U.S.C. § 1341). IG Ex. 2 at 13, 17.
She pled guilty to the conspiracy charge and five of the mail fraud counts. IG Exs. 3, 5.
The court sentenced her to 48 months in prison and ordered her to pay $1,146,824.26 in
restitution. IG Ex. 5 at 2, 5.

Based on the aggravating factors in this case and the
absence of any mitigating factor, the 15-year
exclusion falls within a reasonable range.'

An exclusion brought under section 1128(a)(3) must be for a minimum period of five
years. Act § 1128(c)(3)(B); 42 C.F.R. §§ 1001.102(a); 1001.2007(a)(2). Federal
regulations set forth criteria for lengthening exclusions beyond the five-year minimum.
42 C.F.R. § 1001.102(b). Evidence that does not pertain to one of the aggravating or
mitigating factors listed in the regulation may not be used to decide whether an exclusion
of a particular length is reasonable.

Among the factors that may serve as a basis for lengthening the period of exclusion are
the two that the I.G. relies on in this case: 1) the acts resulting in the conviction, or
similar acts, caused a government program or another entity financial losses of $5,000 or
more; and 2) the sentence imposed by the court included incarceration. 42 C.F.R.

§ 1001.102(b).? The presence of an aggravating factor or factors, not offset by any
mitigating factor or factors, justifies lengthening the mandatory period of exclusion.

Program financial loss (42 C.F.R. § 1001.102(b)(1)): In her plea agreement, Petitioner
conceded that she would be required to pay restitution to the victims of her crimes and
that the estimated amount of that restitution was between $1,000,000 and $2,000,000. IG
Ex. 3 at 3. The sentencing court subsequently ordered her to pay $1,146,824.26 in
restitution. Restitution has long been considered a reasonable measure of program losses.
See Juan de Leon, Jr., DAB No. 2533 at 5 (2013); Jason Hollady, M.D., DAB No. 1855

' T make this one finding of fact/conclusion of law.

> Petitioner Sacerio worked full-time at the Karow Center for about four years (2009-
2013), and the fraud lasted for more than six years (October 2006 through December
2012), suggesting that her crimes lasted for about three years. Nevertheless, the IG does
not cite the duration of Petitioner’s conduct as an aggravating factor. 42 C.F.R.

§ 1001.102(b)((2) (“the acts that resulted in the conviction, or similar acts, were
committed over a period of one year or more”).
(2002). At a minimum, then, Petitioner’s crimes cost insurers significant financial losses
—many times greater than the $5,000 threshold for aggravation — and the IG may
justifiably increase significantly Petitioner’s period of exclusion. See Jeremy Robinson,
DAB No. 1905 (2004); Donald A. Burstein, Ph.D., DAB No. 1865 (2003).

Petitioner complains that she was not directly responsible for billing, suggesting that
others should be held accountable. P. Br. at 3. Inasmuch as Petitioner was convicted of
conspiracy, the fact that others were implicated is hardly surprising, but I find it
irrelevant. Petitioner’s crimes caused the program losses, without regard to the roles
others may have played in helping her commit those crimes.

Incarceration (42 C.F.R. § 1001.102(b)(5)). The sentence imposed by the criminal court
included incarceration. The district court sentenced Petitioner to four years in prison. I
consider this significant jail time, and it underscores the seriousness of her crime. IG Ex.
S at 2.

No mitigating factors. The regulations consider mitigating just three factors: 1) a
petitioner was convicted of three or fewer misdemeanor offenses and the resulting
financial loss to the program was less than $1,500; 2) the record in the criminal
proceedings demonstrates that a petitioner had a mental, physical, or emotional condition
that reduced her culpability; and 3) a petitioner’s cooperation with federal or state
officials resulted in others being convicted or excluded, or additional cases being
investigated, or a civil money penalty being imposed. 42 C.F.R. § 1001.102(c).
Characterizing the mitigating factor as “in the nature of an affirmative defense,” the
Board has ruled that a petitioner has the burden of proving any mitigating factor by a
preponderance of the evidence. Barry D. Garfinkel, M.D., DAB No. 1572, at 8 (1996).

Obviously, because Petitioner’s felony conviction involved program financial losses
many times greater than $1,500, the first factor does not apply here. Nor does Petitioner
claim any mental, physical, or emotional condition that reduced her culpability. She does
not claim to have cooperated with law enforcement.

Thus, no mitigating factor offsets the significant aggravating factors present in this case.

Based on the aggravating factors and the absence of mitigating factors, then, I must
determine whether the exclusion period imposed by the IG falls within a reasonable
range. So long as that period falls within a reasonable range, my role is not to second-
guess the IG’s judgment. Jeremy Robinson, DAB No. 1905, at 5 (2004) (ALJ review
must reflect the deference accorded to the IG by the Secretary). A “‘reasonable range’
refers to a range of exclusion periods that is more limited than the full range authorized
by the statute [i.e. from a minimum of five years to a maximum of permanent] and that is
tied to the circumstances of the individual case.” Joseph M. Rukse, Jr. R.Ph., DAB No.
1851, at 11 (2002), citing Gary Alan Katz, R.Ph., DAB No. 1842, at 8 n.4 (2002). Here,
Petitioner Sacerio knowingly and actively participated in and profited from a scheme that
cost insurers millions of dollars in losses. She has justifiably been sentenced to
significant prison time. Her crimes demonstrate that she presents a significant risk to the
integrity of health care programs. Based on these factors, the 15-year exclusion falls
within a reasonable range.

Conclusion

For these reasons, I conclude that the IG properly excluded Petitioner from participation
in Medicare, Medicaid, and all federal health care programs, and I sustain the 15-year
exclusion.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Victor Lyapis, M.D.
(PTAN: G12564),
and

Victor Lyapis, M.D., P.C.
(PTAN: FQ163A),

Petitioners,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-15-2051
Decision No. CR4476
Date: December 2, 2015
DECISION

Noridian Healthcare Solutions (Noridian), an administrative contractor for the Centers
for Medicare & Medicaid Services (CMS), revoked the Medicare enrollment and billing
privileges of Victor Lyapis, M.D. and his professional corporation, Victor Lyapis, M.D.,
P.C. (Petitioners, collectively), pursuant to 42 C.F.R. § 424.535(a)(12), because Noridian
determined that Petitioners had been terminated from enrollment in the California
Medicaid program, known as Medi-Cal. Noridian upheld Petitioners’ revocations upon
reconsideration because Noridian determined that Petitioners’ appeal rights from their
Medi-Cal termination had been exhausted. Petitioners then requested a hearing before an
administrative law judge. CMS now moves for summary judgment, which Petitioners
oppose.
2

For the reasons set forth below, I deny CMS’s motion for summary judgment and reverse
the revocation of Petitioners’ Medicare enrollment and billing privileges. The undisputed
facts before me show that at the time Noridian revoked Petitioners’ Medicare enrollment,
Petitioners had not exhausted all available appeals related to their Medi-Cal termination.
Therefore, there is no basis to revoke Petitioners’ Medicare enrollment.

I. Case Background and Procedural History

Petitioners are a physician in California and his solely-owned professional corporation.
On May 3, 2012, Petitioners submitted an enrollment application to Medi-Cal to enroll
the professional corporation. See Petitioners’ Exhibit (P. Ex.) 1 at 4-5. During a review
of the application, the California Department of Health Care Services (DHCS)
determined that the enrollment application failed to disclose that the Medical Board of
California previously disciplined Dr. Lyapis. P. Ex. | at 5.

Ina letter dated July 15, 2013, DHCS denied the Medi-Cal enrollment application.
DHCS determined that Petitioners “failed to disclose the required information.” CMS
Exhibit (Ex.) 1 at 1. The notice letter continued, stating:

Under the provisions of [California] W & I [Welfare & Institutions]
Code Section 14043.28(b)(1), DHCS is deactivating your provider
number .. . effective 20 days (15-day statutory notification plus five
days mailing) from the date of this notification.[']

* * *

W & I Code Sections 14043.28(b)(1) and 14043.65(b), stated above
are applicable to Victor Lyapis, M.D. and Victor Lyapis, M.D.,
Professional Corporation, located at 2320 Sutter Street, Suite 101, in
San Francisco.

CMS Ex. | at 2.

On August 2, 2013, Petitioners requested administrative review from the DHCS Director.
See P. Ex. 1 at5. On September 21, 2013, DHCS’s Office of Administrative Hearings
and Appeals issued a proposed decision affirming the application denial and removal of
Petitioners from the Medi-Cal program. P. Ex. | at 3-12. On September 25, 2013, a
letter from the Chief of Administrative Appeals adopted the proposed decision as the

' The “deactivation” of Medi-Cal billing privileges also results in the provider being
“removed from enrollment in the Medi-Cal program by operation of law.” Cal. Welf.
& Inst. § 14043.28(b)(1).
3

“Final Decision of the Department of Health Care Services.” P. Ex. 1 at 1. The letter
then stated:

This concludes the appeal process provided for under Welfare and
Institutions Code section 14043.65. Any further appeal shall be
required to be filed in accordance with the Code of Civil Procedure
section 1085.

P. Ex. 1 at 1.

On November 22, 2013, Petitioners filed in the Superior Court of California, County of
Sacramento, a Petition for Writ of Mandate pursuant to section 1085 of the California
Code of Civil Procedure. P. Ex. 2 at 2. The court denied a temporary restraining order
against DHCS on February 19, 2014, and later reassigned the case to a different docket
within the court “effective 12/16/2014.” See P. Ex. 2 at 1.

On December 23, 2014, Noridian notified Petitioners that their Medicare billing
privileges were revoked pursuant to 42 C.F.R. § 424.535(a)(12) because Petitioners were
terminated from the Medi-Cal program, and Medi-Cal “confirmed that [Petitioners’]
appeal rights have been exhausted with respect to this termination.”* CMS Ex. 2 at 1.
On January 23, 2015, Petitioners requested reconsideration, noting, in part, that they had
filed a Petition for a Writ of Mandate in the Sacramento Superior Court, and that “[n]Jo
action has been taken on the Petition.” CMS Ex. 3 at 4.

On March 11, 2015, Noridian issued a reconsidered determination that upheld the
revocation of Petitioners’ Medicare enrollment and billing privileges. CMS Ex. 4.
Noridian again found that Petitioners had been “terminated from the California Medicaid
[Medi-Cal] program,” and that Medi-Cal “confirmed that [Petitioners’] appeal rights have
been exhausted with respect to this termination.” CMS Ex. 4 at 1. According to
Noridian, Petitioners, specifically Dr. Lyapis, “had not provided evidence to show full
compliance with the standards for which you were revoked.” CMS Ex. 4 at 1.

On March 27, 2015, Petitioners requested a hearing before an administrative law judge.
The case was assigned to me, and on April 29, 2015, I issued an Acknowledgment and
Pre-hearing Order (Order) setting forth procedures for each party to present its argument
and evidence. CMS filed a motion for summary judgment and supporting brief (CMS

> The initial determination letter told Petitioners that the revocation would be effective
January 15, 2015, which was 23 days after the determination notice. CMS Ex. 2. The
applicable regulations provide that a revocation is effective 30 days after the initial
determination notice except in certain circumstances not present in this case. 42 C.F.R.
§ 424.535(g). However, I do not need to correct this error because I conclude that there
was not a sufficient legal basis for the revocation.
4

Br.) as well as four proposed exhibits (CMS Exs. 1-4). Petitioner filed an opposition to
summary judgment and supporting brief (P. Br.) as well as two proposed exhibits (P. Exs.
1-2). Neither party offered the written direct testimony of any witnesses. See Order 8;
Civil Remedies Division Procedures (CRDP) § 19(b). In the absence of objections from
either party, I admit CMS Exs. 1-4 and P. Exs. 1-2 into the record for consideration.

IL. Issue

The issue in the case is whether CMS had a legal basis to revoke Petitioners’ Medicare
enrollment and billing privileges pursuant to 42 C.F.R. § 424.535(a)(12).

III. Findings of Fact and Conclusions of Law
1. CMS is not entitled to summary judgment.

Summary judgment is appropriate if there is no genuine dispute as to any material fact,
and the moving party is entitled to judgment as a matter of law. Senior Rehab. & Skilled
Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted). When evaluating the
appropriateness of summary judgment, an adjudicator must “view the evidence in the
light most favorable to the non-moving party, drawing all reasonable inferences in that
party’s favor.” Jd. For the purposes of summary judgment, the administrative law judge
should not assess credibility or evaluate the weight of conflicting evidence. Holy Cross
Vill. at Notre Dame, Inc., DAB No. 2291, at 5 (2009).

Here, while there does not appear to be any material facts in dispute, as discussed below,
CMS is not entitled to judgment as a matter of law because Petitioners did not exhaust all
applicable appeal rights of their termination from the Medi-Cal program before the CMS
contractor revoked Petitioners’ Medicare enrollment and billing privileges. See

42 C.F.R. § 424.535(a)(12)(ii) (“Medicare may not terminate unless and until a provider
or supplier has exhausted all applicable appeal rights.”). Therefore, CMS is not entitled
to summary judgment in its favor, and I deny its motion.

I decide this case on the full merits of the written record by weighing and evaluating the
evidence and applying it to the applicable legal standards. An in-person hearing is not
necessary because neither party submitted direct written testimony that would require the
opportunity for cross-examination. See Order at §§j 8-11; CRDP § 19(d).

2. Petitioners had not exhausted all applicable appeals of their termination
from the Medi-Cal program at the time CMS revoked Petitioners’ Medicare
enrollment and billing privileges.

On July 15, 2013, DHCS denied the Medi-Cal enrollment application of Dr. Lyapis’s
professional corporation and deactivated Dr. Lyapis’s provider number, which under
5

California law meant that Dr. Lyapis was “removed from enrollment in the Medi-Cal
program....” See CMS Ex. | at 2; Cal. Welf. & Inst. § 14043.28(b)(1). The parties do
not dispute that the action DHCS took is equivalent to a “termination” of Petitioners from
the Medi-Cal program because neither Dr. Lyapis nor his professional corporation could
participate in the Medi-Cal program as a result of DHCS’s decision. See CMS Br. at 1-2;
P. Br. at 6-7; see also Douglas Bradley, M.D., DAB No. 2663, at 7 (2015) (“Focusing on
the nature and effect, rather than the label, of the State Medicaid Agency’s action is
consistent with — and likely necessary to achieve — section 424.535(a)(12)’s purpose

2).

Petitioners appealed the July 15, 2013 determination to the DHCS Director in accordance
with California law. See P. Ex. 1 at 5; Cal. Welf. & Inst. § 14043.65(a). As noted above,
on September 21, 2013, a hearing officer issued a proposed decision that upheld the
denial of the professional corporation’s enrollment application as well as the deactivation
of Dr. Lyapis’s Medi-Cal enrollment. P. Ex. 1 at 3-12. In a September 25, 2013 letter,
the Director’s designee, the Chief of Administrative Appeals, adopted the September 21
proposed decision as the “Final Decision” of DHCS. P. Ex. | at 1. The letter stated that
the appeal rights in section 14043.65 of the California Code of Welfare & Institutes had
concluded and that any “further appeal shall be required to be filed in accordance with
the Code of Civil Procedure section 1085.” P. Ex. | at 1.

It is undisputed that on November 22, 2013, Petitioners filed a Petition for a Writ of
Mandate in the Superior Court of California, County of Sacramento, pursuant to section
1085 of the California Code of Civil Procedure. P. Ex. 2 at 2. The “Civil Case Details”
printout that Petitioner has provided in this case, which CMS has not disputed, provides
the “Register of Actions” taken in the Sacramento Superior Court regarding the Petition
for a Writ of Mandate. CMS Ex. 2. The Civil Case Details show that as of June 29, 2015
— the date of the printout — the Petition remained pending. CMS Ex. 2 at 1. Accordingly,
it follows that as of December 23, 2014, the day Noridian revoked Petitioners’ Medicare
enrollment and billing privileges, the Petition for a Writ of Mandate regarding the
underlying DHCS decision to terminate Petitioners’ Medi-Cal enrollment remained
pending in the Sacramento Superior Court. See P. Ex. 2 at 1.

Noridian concluded, apparently based on the representations of Medi-Cal to Noridian,
that Petitioners’ had exhausted their available appeal rights after they requested review
from the DHCS Director and received a decision after that level of review. See CMS

Ex. 4 at 1. In neither its initial nor reconsidered determination did Noridian consider the
pending Petition for a Writ of Mandate. CMS Ex. 2; CMS Ex. 4. Before me CMS
simply repeats Noridian’s conclusion that Petitioners exhausted their available appeal
rights for the Medi-Cal termination. However, California provides appeal rights to
individuals or entities whose Medi-Cal applications have been denied or whose Medi-Cal
enrollment has been deactivated or terminated:
6

Notwithstanding any other law, any applicant whose application for
enrollment as a provider or whose certification is denied; or any provider
who is denied continued enrollment or certification, or denied enrollment
for a new location . .. who has had one or more business addresses used to
obtain reimbursement from the Medi-Cal program deactivated, or whose
provisional provider status or preferred provisional provider status has been
terminated pursuant to this article or Section 14107.11, or Section 100185.5
of the Health and Safety Code ... may appeal this action by submitting a
written appeal, including any supporting evidence, to the director or the
director’s designee .... The appeal procedure shall not include a forma
administrative hearing under the Administrative Procedure Act and shal
not result in reactivation of any deactivated provider numbers during
appeal. An applicant, provider, or billing agent that files an appea
pursuant to this section shall submit the written appeal along with al
pertinent documents and all other relevant evidence to the director or to the
director’s designee within 60 days of the date of notification of the
department's action. The director or the director’s designee shall review al
of the relevant materials submitted and shall issue a decision within 90 days
of the receipt of the appeal. The decision may provide that the action taken
should be upheld, continued, or reversed, in whole or in part. The decision
of the director or the director’s designee shall be final. Any further appea
shall be required to be filed in accordance with Section 1085 of the Code o:
Civil Procedure.

Cal. Welf. & Inst. § 14043.65(a).

Section 1085 of the California Code of Civil Procedure provides for a writ of mandate
(also referred to as a writ of mandamus), and states:

A writ of mandate may be issued by any court to any inferior tribunal,
corporation, board, or person, to compel the performance of an act which
the law specially enjoins, as a duty resulting from an office, trust, or station,
or to compel the admission of a party to the use and enjoyment of a right or
office to which the party is entitled, and from which the party is unlawfully
precluded by that inferior tribunal, corporation, board, or person.

Cal. Civ. Proc. § 1085(a).

California courts have repeatedly determined that a petition for a writ of mandate made
pursuant to section 1085 of the Code of Civil Procedure is part of the “direct attack” of an
administrative decision that otherwise precludes conclusive effect of the administrative
decision. See Long Beach Unified Sch. Dist. v. California, 225 Cal.App.3d 155, 169
(1990). The California Supreme Court clarified that exhaustion of judicial remedies
7

through a petition for a writ of mandate “is necessary to avoid giving binding effect to the
administrative agency’s decision because that decision has achieved finality due the
aggrieved party’s failure to pursue the exclusive judicial remedy for reviewing
administrative action.” Johnson v. Loma Linda, 5 P.3d 874, 879 (Cal. 2000) (quotation
marks and citation omitted). In other words, if an aggrieved party has filed a petition for
a writ of mandate, the administrative decision has not yet achieved finality. See Johnson,
5 P.3d at 880 (holding that the petitioner exhausted its administrative remedies but did
not timely file a petition for a writ of mandate, making the administrative decision final).
The California appellate courts have thus considered a writ of mandate made pursuant to
section 1085 of the Code of Civil Procedure to be part of the applicable appeals available
to a party aggrieved by an administrative decision. Indeed, the Chief of Administrative
Appeals recognized as much when he notified Petitioners of their right to seek further
review as provided in section 1085. See P. Ex. 1 at 1.

Here, the evidence before me shows that Petitioners still had a pending Petition for a Writ
of Mandate on their Medi-Cal termination as of June 29, 2015. P. Ex. 2. Accordingly,
because a petition for a writ of mandate is part of the applicable appeal rights available to
Petitioners to challenge their Medi-Cal termination, and because Petitioners timely filed a
Petition for a Writ of Mandate that the court had yet to rule on, I find that Petitioners’ had
not exhausted all of their applicable appeal rights as of December 23, 2014, the date
Noridian revoked Petitioners’ Medicare enrollment and billing privileges.

3. There was no basis for CMS or its contractor to revoke Petitioners’ Medicare
enrollment on December 23, 2014, pursuant to 42 C.F.R. § 424.535(a)(12).

CMS or its contractor may revoke a supplier’s Medicare enrollment and billing privileges
for any of the reasons stated in 42 C.F.R. § 424.535(a). In this case, CMS has relied on
subsection 424.535(a)(12), which provides:

(12) Medicaid termination.

(i) Medicaid billing privileges are terminated or revoked by a State
Medicaid Agency.

(ii) Medicare may not terminate unless and until a provider or
supplier has exhausted all applicable appeal rights.

There is no dispute that Medi-Cal “terminated or revoked” Petitioners’ billing privileges.
CMS Ex. 1. However, at the time Noridian revoked Petitioners’ Medicare enrollment on
December 23, 2014, Petitioners still had a pending Petition for a Writ of Mandate in the
Sacramento Superior Court and thus had not exhausted all applicable appeal rights under
California law. P. Ex. 2; see Johnson, 5 P.3d at 879. Pursuant to section
424.535(a)(12)(ii), there was no basis for Noridian to revoke Petitioners’ Medicare
8

enrollment and billing privileges when it did. The regulation expressly prohibits
Medicare “termination” — which is reasonably read as “revocation” in this subsection —
until all applicable appeal rights are exhausted, a regulatory requirement that was not
satisfied in this case.

IV. Conclusion

As of December 23, 2014, Noridian, on behalf of CMS, did not have authority to revoke
Petitioners’ Medicare enrollment and billing privileges pursuant to 42 C.F.R.

§ 424.535(a)(12) because Petitioners had not exhausted all of their applicable appeal
rights. Accordingly, the revocation of Petitioners’ Medicare enrollment and billing
privileges is reversed.

/s/
Joseph Grow
Administrative Law Judge


Department of

Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,

Complainant

Vv.

Evergreen Gas and Food Mart LLC
d/b/a Sunoco / Food Mart,

Respondent.

Docket No. C-15-2851
FDA No. FDA-2015-H-2020

Deci:

Date:

sion No. CR4475

December 1, 2015

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) initiated a $250 civil money penalty (CMP)

action against Respondent for unlawfu!

ly selling cigarettes to minors, and failing to

verify, by means of photo identification containing a date of birth, that the purchasers
were 18 years of age or older, in violation of the Federal Food, Drug, and Cosmetic Act

(Act), 21 U.S.C. § 301 et seq., and its i

mplementing regulations, 21 C.F.R. pt. 1140.

During the hearing process, Respondent failed to comply with a judicial direction

regarding CTP’s discovery request. I tl
decision of default judgment.

I. Procedural History

CTP began this matter by serving an a
money penalty on Respondent Sunoco

erefore strike Respondent’s answer and issue this

ministrative complaint seeking a $250 civil
/ Food Mart, at 14490 North Cleveland Avenue,

North Fort Myers, Florida 33903, on June 26, 2015. Respondent filed an answer to

CTP’s complaint on July 23, 2015. Lis

sued an Acknowledgement and Pre-Hearing Order
(APHO) on July 31, 2015, that set deadlines for parties’ submissions, including the
August 31,2015 deadline to request that the opposing party provide copies of documents
relevant to the case. Additionally, the APHO stated that a party receiving such a request
must provide the requested documents no later than 30 days after the request. CTP
served Respondent with its request for documents on August 28, 2015.

On October 7, 2015, CTP filed a motion to compel discovery indicating that Respondent
did not respond to its request within the time limit. See 21 C.F.R. § 17.23(a). On the
same date, CTP also filed a motion requesting that all pre-hearing exchange deadlines be
extended. Pursuant to my direction, an October 9, 2015 letter was sent to Respondent
allowing until October 19, 2015 to file an objection to CTP’s motion to compel
discovery. Respondent did not file an objection to CTP’s motion to compel discovery.
On October 28, 2015, I issued an order granting CTP’s motion to compel discovery and
extending the pre-hearing exchange deadlines. The Order allowed Respondent until
November 12, 2015 to comply with CTP’s discovery request. CTP subsequently filed a
motion to impose sanctions on November 18, 2015, indicating that Respondent did not
comply with the Order granting CTP’s motion to compel.

Il. Pending Motions

CTP filed a motion to impose sanctions on November 18, 2015. In its November 18,
2015 motion for sanctions, CTP stated that “Respondent has neither produced any of the
requested documents, nor contacted Complainant or Counsel for Complainant regarding
this matter.” Due to this noncompliance, I am striking Respondent’s Answer, issuing this
default decision, and assuming the facts alleged in CTP’s complaint to be true. See

21 CFR. § 17.35(c) (3), 17.11(a). The harshness of the sanctions I impose upon either
party must relate to the nature and severity of the misconduct or failure to comply, and I
find the failure to comply here sufficiently egregious to warrant striking the answer and
issuing a decision without further proceedings. See 21 C.F.R. § 17.35(b).

II. Default Decision

Striking Respondent’s Answer leaves the Complaint unanswered. Therefore, Iam
required to issue an initial decision by default if the complaint is sufficient to justify a
penalty. 21 C.F.R. § 17.11(a). Accordingly, I must determine whether the allegations in
the Complaint establish violations of the Act.

For purposes of this decision, I assume the facts alleged in the Complaint are true and
conclude the default judgment is merited based on the allegations of the Complaint and
the sanctions imposed on Respondent for failure to comply with the orders. 21 C.F.R.
§ 17.11. Specifically:
Respondent owns Sunoco / Food Mart, an establishment that sells tobacco
products and is located at 14490 North Cleveland Avenue, North Fort Myers,
Florida 33903. Complaint § 3.

During an inspection of Respondent’s establishment on October 8, 2014, at
approximately 7:36 PM, an FDA-commissioned inspector observed that “‘a person
younger than 18 years of age was able to purchase a package of Camel Crush
Menthol Silver cigarettes . . . [.]” The inspector also observed that “the minor’s
identification was not verified before the sale... .” Complaint § 10.

On October 23, 2014, CTP issued a Warning Letter to Respondent regarding the
inspector’s observations from October 8, 2014. The letter explained that the
observations constituted violations of regulations found at 21 C.F.R. § 1140.14(a)
and (b)(1), and that the named violations were not necessarily intended to be an
exhaustive list of all violations at the establishment. The Warning Letter went on
to state that if Respondent failed to correct the violations, regulatory action by the
FDA or a civil money penalty action could occur and that Respondent is
responsible for complying with the law. Complaint § 10.

Hamza Rashid responded to the Warning Letter in an undated letter, received by
CTP on October 27, 2014. “Mr. Rashid stated that he issued a warning to the
employee who sold the tobacco products to the minor, and explained to the
employee the requirement to check identification prior to tobacco sales.”
Complaint § 11.

During a subsequent inspection of Respondent’s establishment on February 11,
2015, at approximately 11:55 AM, FDA-commissioned inspectors documented
that “a person younger than 18 years of age was able to purchase a package of

Marlboro Gold Pack cigarettes . . . [.]” Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits

misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is misbranded

if distributed or offered for sale in any state in violation of regulations issued under
section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R. § 1140.1(b). The

Secretary of the U.S. Department of Health and Human Services issued the regulations at

21 CFR. pt. 1140 under section 906(d) of the Act. 21 U.S.C. § 387a-1; see 21 U.S.C.

§ 387£(d)(1); 75 Fed. Reg. 13,225, 13,229 (Mar. 19, 2010). The regulations prohibit the

sale of cigarettes to any person younger than 18 years of age. 21 C.F.R.
§ 1140.14(a). The regulations also require retailers to verify, by means of photo
identification containing a purchaser’s date of birth, that no cigarette purchasers are
younger than 18 years of age. 21 C.F.R. § 1140.14(b)(1).

Taking the above alleged facts as true, Respondent violated the prohibition against selling
cigarettes to persons younger than 18 years of age, 21 C.F.R. § 1140.14(a), on October 8,
2014, and February 11,2015. On October 8, 2014, Respondent also violated the
requirement that retailers verify, by means of photo identification containing a
purchaser’s date of birth, that no cigarette purchasers are younger than 18 years of age.

21 C.F.R. § 1140.14(b)(1). Therefore, Respondent’s actions constitute violations of law
that merit a civil money penalty.

CTP has requested a fine of $250, which is a permissible fine under the regulations.
21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of $250 is warranted and so
order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Cape Coral Petroleum Inc.
d/b/a Cape Coral Shell,

Respondent.

Docket No. C-15-2960
FDA No. FDA-2015-H-2099

Decision No. CR4473

Date: December 1, 2015

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) initiated a $250 civil money penalty (CMP)
action against Respondent for unlawfully selling cigarettes to minors, on two separate
occasions, and failing to verify, by means of photo identification containing a date of
birth, that the purchasers were 18 years of age or older, on one occasion, in violation of
the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 301 et seq., and its
implementing regulations, 21 C.F.R. pt. 1140. During the hearing process, Respondent
failed to comply with a judicial direction regarding CTP’s discovery request. I therefore
strike Respondent’s answer and issue this decision of default judgment.

I. Procedural History

Respondent timely answered CTP’s complaint opposing the CMP and requested a
hearing. I issued an Acknowledgement and Prehearing Order (APHO) that set deadlines
for parties’ submissions, including the August 31, 2015 deadline to request that the
opposing party provide copies of documents relevant to this case. Additionally, the
APHO stated that a party receiving such a request must provide the requested documents
no later than 30 days after the request.

On August 27, 2015, CTP forwarded, via email, the Respondent’s Informal Brief to the
Departmental Appeals Board. Respondent had mailed its Informal Brief to CTP.

CTP served Respondent with its request for documents on August 28, 2015. On October
5, 2015, CTP filed a motion to compel discovery indicating that Respondent did not
respond to its request for production of documents. See 21 C.F.R. § 17.23(a). On
October 5, 2015, CTP also filed a motion to extend the deadlines. Pursuant to my
direction, an October 6, 2015 letter allowed Respondent until October 20, 2015 to file an
objection to CTP’s motion to compel discovery. That letter also extended the parties’
pre-hearing exchange deadlines.

On October 27, 2015, CTP filed an updated status report requesting that I grant its motion
to compel and extend CTP’s deadlines. The status report stated that Respondent had not
filed an objection to the motion to compel and that Respondent had not produced any
documents in response to CTP’s request for production of documents.

On October 30, 2015, I issued an Order that granted CTP’s motion to compel discovery.
I noted that Respondent had not filed a response to CTP’s motion to compel discovery.
In that Order, I stated that Respondent shall comply with CTP’s request for production of
documents by November 20, 2015. I further stated that:

Failure to do so may result in sanctions, including the issuance of an Initial
Decision and Default Judgment finding Respondent liable for the violations
listed in the Complaint and imposing a civil money penalty. Within five (5)
days of Respondent’s deadline to comply with discovery, CTP must file a
status report notifying me whether Respondent has complied with
discovery.

On November 25, 2015, CTP filed an updated status report advising me that Respondent
had not complied with my October 30, 2015 Order. On November 25, 2015, CTP also
filed a motion to impose sanctions that asked me to strike the Respondent’s answer and
issue a default judgment in this case.

Il. Striking Respondent’s Answer

Respondent failed to file a response to CTP’s motion to compel discovery, and to comply
with the October 30, 2015 Order compelling discovery responses to be provided by
November 20, 2015. Respondent did not comply with CTP’s discovery requests.
Respondent has not made any contact with this Court since July 23, 2015, the date
Respondent timely filed its answer. Respondent’s failure to effectively prosecute and
defend actions taken over the course of the proceedings have interfered with the orderly
and speedy processing of this case, further warranting imposition of sanctions. See
21 CFR. § 17.35(a) (1)(2) and (3).

Due to Respondent’s noncompliance with the October 30, 2015 Order, I am striking
Respondent’s Answer, issuing this default decision, and assuming the facts alleged in
CTP’s complaint to be true. See 21 C.F.R. § 17.35(c) (3), 17.11(a). The harshness of the
sanctions I impose upon either party must relate to the nature and severity of the
misconduct or failure to comply, and I find the failure to comply here sufficiently
egregious to warrant striking the answer and issuing a decision without further
proceedings. See 21 C.F.R. § 17.35(b). Respondent failed to comply with the October
30, 2015 Order, nor did it provide any adequate justification for not doing so.

III. Default Decision

Striking Respondent’s answer leaves the Complaint unanswered. Therefore, I am
required to issue an initial decision by default if the complaint is sufficient to justify a
penalty. 21 C.F.R. § 17.11(a). Accordingly, I must determine whether the allegations in
the Complaint establish violations of the Act.

For purposes of this decision, I assume the facts alleged in the Complaint are true and
conclude that default judgment is merited based on the allegations of the Complaint and
the sanctions imposed on Respondent for failure to comply with my orders. 21 C.F.R.
§ 17.11. Specifically:

e Respondent owns Cape Coral Shell, an establishment that sells tobacco products
and is located at 2231 Del Prado Boulevard South, Cape Coral, Florida 33990.
Complaint § 3.

e During an inspection of Respondent’s establishment on October 27, 2014, at
approximately 2:33 PM, an FDA-commissioned inspector observed that “a person
younger than 18 years of age was able to purchase a package of Camel Crush
Menthol cigarettes . . . [.]” The inspectors also documented that “the minor’s
identification was not verified before the sale... .” Complaint § 10.

e¢ On November 13, 2014, CTP issued a Warning Letter to Respondent regarding the
inspector’s observations from October 27, 2014. The letter explained that the
observations constituted violations of regulations found at 21 C.F.R. § 1140.14(a)
and (b)(1), and that the named violations were not necessarily intended to be an
exhaustive list of all violations at the establishment. The Warning Letter went on
to state that if Respondent failed to correct the violations, regulatory action by the
FDA or a civil money penalty action could occur and that Respondent is
responsible for complying with the law. Complaint § 10.
e Arif Ahmed responded to the Warning Letter in a December 8, 2014 letter. “Mr.
Ahmed stated, “The employee has admitted to me that he sold the cigarettes to the
minor due to his poor judgment of age appearance.’ He also stated that the
establishment’s management took disciplinary action against the employee, and
explained to all employees that they must verify the identification of all tobacco
purchasers under the age of 27. Mr. Ahmed also stated that the establishment has
“We Card’ signage on the door and at the cash registers.” Complaint § 11.

e During a subsequent inspection of Respondent’s establishment on February 23,
2015, at approximately 10:37 PM, an FDA-commissioned inspector documented
that “‘a person younger than 18 years of age was able to purchase a package of
Marlboro cigarettes .. . [.]” Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is misbranded
if distributed or offered for sale in any state in violation of regulations issued under
section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R. § 1140.1(b). The
Secretary of the U.S. Department of Health and Human Services issued the regulations at
21 CFR. pt. 1140 under section 906(d) of the Act. 21 U.S.C. § 387a-1; see 21 U.S.C.

§ 387£(d)(1); 75 Fed. Reg. 13,225, 13,229 (Mar. 19, 2010). The regulations prohibit the
sale of cigarettes to any person younger than 18 years of age. 21 C.F.R. § 1140.14(a).
The regulations also require retailers to verify, by means of photo identification
containing a purchaser’s date of birth, that no cigarette purchasers are younger than 18
years of age. 21 C.F.R. § 1140.14(b)(1).

Taking the above alleged facts as true, Respondent violated the prohibition against selling
tobacco to persons younger than 18 years of age, 21 C.F.R. § 1140.14(a), on October 27,
2014, and February 23, 2015. On October 27, 2014, Respondent also violated the
requirement that retailers verify, by means of photo identification containing a
purchaser’s date of birth, that no tobacco purchasers are younger than 18 years of age.

21 C.F.R. § 1140.14(b)(1). Therefore, Respondent’s actions constitute violations of law
that merit a civil money penalty.

CTP has requested a fine of $250, which is a permissible fine under the regulations.
21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of $250 is warranted and so
order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
Center for Tobacco Products,

(FDA No. FDA-2015-H-0499)
Complainant
v.

Quick Stop, L.L.C. / Rashid Sherwani
d/b/a Quick Stop,

Respondent.
Docket No. C-15-1337
Decision No. CR4472

Date: December 1, 2015

INITIAL DECISION

The Center for Tobacco Products (CTP) seeks to impose a civil money penalty (CMP)
against Respondent, Quick Stop, L.L.C. / Rashid Sherwani d/b/a Quick Stop, located at
1500 Corbin Avenue, New Britain, Connecticut 06053, for five violations of the Federal
Food, Drug, and Cosmetic Act (Act), 21 U.S.C. § 301 et seq., and its implementing
regulations, 21 C.F.R. pt. 1140, within a thirty-six month period. Specifically, CTP
alleges that Quick Stop violated the Act by impermissibly selling cigarettes to minors,
and failing to verify, by means of photo identification containing a date of birth, that the
purchasers were 18 years of age or older.

Procedural History

CTP began this matter by serving an administrative complaint seeking a $5,000 civil
money penalty on Respondent Quick Stop, at 1500 Corbin Avenue, New Britain,
Connecticut 06053, and by filing a copy of the complaint with the Food and Drug
Administration’s (FDA) Division of Dockets Management. Respondent timely answered
CTP’s complaint, following an order granting an extension of time for the Respondent to
file an answer. In its answer, Respondent did not actually deny the allegations, but
instead contested the calculation of the number of violations, and the amount of the civil
money penalty. On April 29, 2015, I issued an Acknowledgement and Prehearing Order
(APHO) that set deadlines for the parties to file their pre-hearing exchanges. Following
Motions by CTP, I issued an Order requiring Respondent to comply with CTP’s Request
for Production of Documents by August 10, 2015, and extending the parties’ exchange
deadlines. CTP filed its pre-hearing exchange on August 20, 2015. Respondent Quick
Stop subsequently timely filed its pre-hearing exchange, admitting all allegations in the
Complaint but contesting the amount of the civil money penalty.

Decision on the Record

Pursuant to 21 CFR § 17.37(b), all direct testimony of witnesses shall be admitted in the
form of a written declaration. In its pre-hearing exchange, CTP submitted two witness
declarations. Respondent Quick Stop has not submitted direct testimony, nor has it
requested to cross examine CTP’s witnesses. Because Respondent Quick Stop has not
submitted any direct testimony, there is no one for CTP to request to cross-examine.
And, since Respondent Quick Stop has admitted all the allegations in the Complaint, the
witness declarations that CTP has submitted are not relevant to the issue of the amount of
the civil money penalty. Therefore, I will decide this case on the basis of the written
record.

Analysis
I. Violations

In its Complaint, CTP alleges that Respondent Quick Stop committed five violations of
the Act and its implementing regulations within a thirty-six month period. On April 27,
2015, Quick Stop filed an answer to the Complaint contesting the amount of the civil
money penalty. Answer. Additionally, on September 10, 2015, Quick Stop filed an
informal brief, admitting all the allegations in the Complaint, but contesting the amount
of the civil money penalty. Informal Brief of Respondent.

CTP makes the following uncontested allegations:
e CTP previously issued a warning letter to Respondent Quick Stop on July 5, 2012,

citing violations’ of 21 C.F.R. pt. 1140 on May 3, 2012, at Respondent’s business
establishment, 1500 Corbin Avenue, New Britain, Connecticut 06053;

' In the complaint, CTP describes the action or actions that took place at Respondent
Quick Stop’s business establishment on May 3, 2012, as both “a violation” and as
“violations.” Complaint § 10. In a previous administrative complaint dated December
30, 2013, and attached to the present complaint, however, CTP described two discrete
¢ On January 24, 2014, CTP initiated a previous civil money penalty action, CRD
Docket Number C-14-476, FDA Docket Number FDA-2013-H-1701, against
Respondent Quick Stop for three violations of 21 C.F.R. pt. 1140 within a
24-month period.” CTP alleged those violations to have occurred on May 3, 2012,
and July 23, 2013;

e The previous action concluded when Rashid Sherwani, Respondent’s authorized
representative, settled the claims on Respondent’s behalf. Mr. Sherwani signed an
Acknowledgment Form dated March 8, 2014 in which he “admitt[ed] that the
violations . . . occurred, waiv[ed] his ability to contest the violations in the future,
and stat[ed] that he understood that the violations may be counted in determining
the total number of violations for purposes of future enforcement actions.” The
Administrative Law Judge closed the case on March 28, 2014;

e During a subsequent two-part inspection of Respondent’s business establishment,
at approximately 10:53 a.m. on September 23, 2014, at Respondent’s business
establishment, 1500 Corbin Avenue, New Britain, Connecticut 06053, FDA-
commissioned inspectors documented Respondent’s staff selling a package of Pall
Mall Orange cigarettes to a person younger than 18 years of age. The inspectors
also documented that staff failed to verify, by means of photographic identification
containing a date of birth, that the purchaser was 18 years of age or older.

CTP asserts that these allegations, as supported by documentary evidence, are sufficient
to establish a basis for liability against Respondent.

Respondent Quick Stop has not disputed these allegations. Therefore, I find that these
facts establish Respondent Quick Stop, L.L.C. / Rashid Sherwani d/b/a Quick Stop’s
liability under the Act. The Act prohibits misbranding of a tobacco product. 21 U.S.C.
§ 331(k). A tobacco product is misbranded if sold or distributed in violation of
regulations issued under section 906(d) of the Act.

21 U.S.C. § 387£(d); see 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R. § 1140.1(b). The
Secretary of the U.S. Department of Health and Human Services issued the regulations at
21 C.F R. pt. 1140 under section 906(d) of the Act. 21 U.S.C. § 387a-1; see 21 U.S.C.
§ 387£(d)(1); 75 Fed. Reg. 13,225, 13,229 (Mar. 19, 2010). Under 21 C.F.R.

§ 1140.14(a), no retailer may sell cigarettes to any person younger than 18 years of age.
Under 21 C.F.R. § 1140.14(b)(1), retailers must verify, by means of photographic

violations at Respondent Quick Stop’s business establishment on May 3, 2012: a
violation of 21 C.F.R. § 1140.14(a), a and a violation of 21 C.F.R. § 1140.14(b)(1).
Therefore, I will infer that CTP’s description in the present complaint of “‘a violation”
occurring on May 3, 2012, was a typographical error.

> The Respondent’s name in the prior complaint was “Quick Stop, L.L.C.”
identification containing a purchaser’s date of birth, that no cigarette purchasers are
younger than 18 years of age.

A. I. Civil Money Penalty

Pursuant to 21 U.S.C. § 333(f)(9), Respondent Quick Stop is liable for a civil money
penalty not to exceed the amounts listed in FDA’s civil money penalty regulations at 21
C.F.R. § 17.2. In its Complaint, CTP sought to impose the maximum penalty amount,
$5,000, against Respondent for five violations of the Act and its implementing
regulations within a thirty-six month period. Complaint § 1. In its Informal Brief, CTP
continues to assert that a $5,000 civil money penalty is appropriate. Informal Brief of
Complainant at 11.

Respondent Quick Stop argues “that CTP is pursuing to apply two segments of law per
violation to make the offence look more heinous.” Informal Brief of Respondent.
Respondent goes on to state that “[t]his practice, although it may be legal, has an
enormous impact on our business.” Id. Essentially Respondent is arguing that CTP
should charge only one violation per inspection. CTP’s practice of charging more than
one violation per inspection is not inconsistent with the regulations.

When determining the amount of a civil money penalty, I am required to take into
account “the nature, circumstances, extent and gravity of the violations and, with respect
to the violator, ability to pay, effect on ability to continue to do business, any history of
prior such violations, the degree of culpability, and such other matters as justice may
require.” 21 U.S.C. § 303(f)(5)(B).

i. Nature, Circumstances, Extent and Gravity of the Violations

Time and again, Respondent Quick Stop has failed to comply with the Act and its
implementing regulations. Respondent admitted to two violations for selling cigarettes to
persons younger than 18 years of age, 21 C.F.R. § 1140.14(a), and two violations for
failing to verify, by means of photo identification containing a purchaser’s date of birth,
that no cigarette purchasers are younger than 18 years of age, 21 C.F.R. § 1140.14(b)(1).
The repeated inability of Respondent to comply with federal tobacco regulations is
serious in nature and the civil money penalty amount should be set accordingly.

ii. Respondent’s Ability to Pay

CTP is seeking a $5,000 civil money penalty against Respondent Quick Stop. In its
production of documents, Respondent Quick Stop provided CTP with tax returns for
2012, 2013 and 2014. CTP states that Respondent reported a gross profit of over
each year. Additionally, CTP states that the tax returns showed yearly net earnings from
self-employment that increased from Jj in 2012, to J in 2013, and to a
in 2014. CTP also asserts that in 2014 Respondent’s capital accounts had a year-end
balance of i.

Respondent states that the proposed penalty “would mean that we will lose approximately
25% of our net annual earnings. This is a huge number for us, or for any business.”
Informal Brief of Respondent. Additionally, Respondent further explained the tax returns
submitted by CTP. Id. Respondent explained that the capital account that CTP
references included both cash and inventory, and that operating the business with that
amount of cash has “been very, very tough and you can imagine taking out $5,000.00
from it would mean we can no longer run our business as we won’t be able to pay our
bills in time and won’t be able to pay for our inventory.” Id.

Considering Respondent’s explanation of these figures, imposition of a $5,000 penalty
would take away nearly a quarter of Respondent’s net annual income, a severe
punishment.

iii. Effect on Ability to do Business

There is nothing in the evidentiary record that shows the effect a civil money penalty will
ave on Respondent Quick Stop’s ability to do business. CTP asserts that “Respondent
did not provide evidence that this penalty will prevent Respondent from conducting
business. The likely result may simply be lower profits for 2015.” Informal Brief of
Complainant. Respondent stated that this penalty would mean it could not pay its bills on
time and would not be able to pay for its inventory. Informal Brief of Respondent.

While the record does not include specific evidence to show the effects of a $5,000 civil
money penalty, it appears that a civil money penalty of this amount will have a
substantial effect on Respondent’s ability to do business.

iv. History of Prior Violations

The current action is the second civil money penalty action brought against Respondent
Quick Stop within the past thirteen months for violations of the Act and its implementing
regulations. In the first civil money penalty action, CRD Docket Number C-14-476,
FDA Docket Number FDA-2013-H-1701, Respondent violated the prohibition against
selling cigarettes to persons younger than 18 years of age, 21 C.F.R. § 1140.14(a), on
May 3, 2012, and July 23, 2013. On those same dates, Respondent also violated the
requirement that retailers verify, by means of photo identification containing a
purchaser’s date of birth, that no cigarette purchasers are younger than 18 years of age.
21 C.F.R. § 1140.14(b)(1). Respondent settled these claims with CTP for an undisclosed
penalty amount.

The current action “brings Respondent’s total violation count to three sales to a minor, in
violation of 21 C.F.R. § 1140.14(a), and three failures to verify the identification of
persons who were not over the age of 26, in violation of 21 C.F.R. § 1140.14(b)(1).”
Informal Brief of Complainant. I agree with CTP that “[t]hese repeat violations show an
unwillingness or inability to sell tobacco products in accordance with federal tobacco
regulations.” Id. While Respondent has already paid a civil money penalty for its
previous violations, its continued inability to comply with the federal tobacco regulations
calls for a more severe penalty.

v. Degree of Culpability

Respondent Quick Stop admitted to all violations in its informal brief. Based on
Respondent Quick Stop’s own admissions, I hold it fully culpable for all six violations of
the Act and its implementing regulations.

vi. Additional Mitigating Factors

Respondent Quick Stop stated that it has taken steps to prevent future violations.
Specifically, Respondent states that: everyone has been trained using the “WeCard”
program, Respondent has developed a store tobacco policy and affixed it by the counter
in sight of the cashier, and that this penalty and correspondence is shared with all
employees “so they actually understand the severity and magnitude of consequences.”
Informal Brief of Respondent.

vii. Penalty

I acknowledge the financial strain a large penalty amount will have on Respondent’s
small business, as well as the steps taken by Respondent to ensure additional future
violations are not found. Based on the foregoing reasoning, I find a reduced penalty
amount of $2,500 to be appropriate under 21 U.S.C. §§ 303(f)(5)(B) and 333(f)(9).

Conclusion

Pursuant to 21 C.F.R. § 17.45, I enter judgment in the amount of $2,500 against
Respondent, Quick Stop, L.L.C. / Rashid Sherwani d/b/a Quick Stop, for five violations
of the Federal Food, Drug, and Cosmetic Act (Act), 21 U.S.C.

§ 301 et seq., and its implementing regulations, 21 C.F.R. pt. 1140, within a thirty-six
month period.

Is/
Catherine Ravinski
Administrative Law Judge

> [note that CTP’s requested civil money penalty is based upon 5 violations.


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

1Q Surgical Associates, Inc.,
(PTAN: CA142561; NPI: 1093115735),

Petitioner,
v.
Centers for Medicare & Medicaid Services.

Docket No. C-15-3047
Decision No. CR4469
Date: December 3, 2015
DECISION

Petitioner, IQ Surgical Associates, Inc. appealed the determination establishing the
effective date of its enrollment and billing privileges as a group practice supplier in
Medicare. The Centers for Medicare & Medicaid Services (CMS) moved for summary
judgment. For the reasons explained below, I grant summary judgment in favor of CMS.
I find that Noridian Healthcare Solutions (Noridian), an administrative contractor for
CMS, properly determined that the earliest approvable enrollment application that it
received was on December 22, 2014, which necessarily determines Petitioner’s effective
date of enrollment as December 22, 2014, with a retrospective billing period starting
November 22, 2014.

I. Background and Undisputed Material Facts

In its pre-hearing brief and response to CMS’s motion for summary judgment, Petitioner
states that it “accepts and joins in the undisputed material facts listed in CMS’ Pre-
Hearing Brief.” Petitioner’s Pre-hearing Brief and Opposition to CMS’s Motion for
Summary Judgment (P. Response) at 2. The following are the undisputed material facts,
as set forth in CMS’s pre-hearing brief and motion for summary judgment (CMS Br.):

October 9, 2014: Petitioner submitted a Form CMS-855B to
Noridian to enroll for the first time as a group
October 31, 2014:

November 21, 2014:

December 2, 2014:

December 19, 2014:

February 23, 2015:

April 9, 2015:

practice supplier in Medicare. CMS Ex.
[Exhibit] 1.

Noridian sent a notice to Petitioner requesting
additional information and supporting
documents needed to complete Petitioner’s
application, including Petitioner’s billing
agent’s tax identification number. The notice
informed Petitioner that if it failed to provide
the necessary further information within 30
days, its application could be rejected. CMS
Ex. 2.

Petitioner faxed Noridian information in
response to the October 31, 2014 request. The
response did not include Petitioner’s billing

agent’s tax identification number. See CMS Ex.
3.

Noridian wrote to Petitioner rejecting its
application because it failed to provide all
requested information within 30 days. CMS
Ex. 4.

Petitioner submitted a new Medicare enrollment
application, Form CMS-855B, to Noridian.
CMS Ex. 5. Petitioner concurrently submitted a
request for a Corrective Action Plan (CAP) for
the rejected October application, asking that its
effective date for billing privileges be based on
the submission date of the rejected application.
CMS Ex. 6.

Noridian wrote to Petitioner notifying it that its
second enrollment application was approved
and that its enrollment was effective December
22, 2014 with billing privileges from November
22, 2014. CMS Ex. 7.

Petitioner submitted to Noridian a request for
reconsideration of its effective date of
enrollment of December 22, 2014. CMS Ex. 8.
April 27, 2015: Noridian ruled unfavorably on Petitioner’s
request to change the effective date of its
enrollment. CMS Ex. 9.

CMS Br. at 3-4. In its brief, Petitioner also set forth what it characterized as “additional
undisputed material facts” including that, on December 5, 2014, which was outside of the
30-day requirement, Petitioner faxed the single remaining piece of missing information,
the billing company’s tax identification number, to Noridian. P. Br. at 2-3; P. Ex. | at 3.
However, despite Petitioner’s characterization, the additional facts are not material to my
determination because even if true, as discussed below, they relate to a corrective action
plan, the unintentional nature of Petitioner’s conceded omission, and the reference to a
Noridian practice to only contact a supplier once during a 30-day period to provide
missing application documentation.

Petitioner timely filed a request for hearing (RFH) on June 24, 2015, and the case was
assigned to me for hearing and decision. I issued an Acknowledgment and Pre-Hearing
Order (Order) on July 2, 2015. With its brief, CMS filed nine proposed exhibits (CMS
Exs. 1-9). With its brief, Petitioner filed three proposed exhibits (P. Exs. 1-3). In the
absence of any objection, I admit CMS Exs. 1-9 and P. Exs. 1-3 into the record. CMS
and Petitioner did not list any proposed witnesses or file any written direct testimony.

IL. Discussion

A. Issues
This case presents two issues:
1. Whether CMS is entitled to summary judgment; and

2. Whether Noridian, acting on behalf of CMS, properly established December
22, 2014, as Petitioner’s effective date for enrollment in Medicare, with
Petitioner’s retrospective billing privileges starting on November 22, 2014.

B. Findings of Fact and Conclusions of Law
I. Summary judgment is appropriate.

Summary judgment is appropriate if “the record shows that there is no genuine issue as to
any material fact, and the moving party is entitled to judgment as a matter of law.”
Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted).
The moving party must show that there are no genuine issues of material fact requiring an
evidentiary hearing and that it is entitled to judgment as a matter of law. Jd. If the
moving party meets its initial burden, the non-moving party must “come forward with
specific facts showing that there is a genuine issue for trial...” Matsushita Elec. Indus.
Co. v. Zenith Radio, 475 U.S. 574, 587 (1986). “To defeat an adequately supported
summary judgment motion, the non-moving party may not rely on the denials in its

pleadings or briefs, but must furnish evidence of a dispute concerning a material fact — a
fact that, if proven, would affect the outcome of the case under governing law.” Senior
Rehab., DAB No. 2300, at 3. To determine whether there are genuine issues of material
fact for hearing, an administrative law judge must view the evidence in the light most
favorable to the non-moving party, drawing all reasonable inferences in that party’s
favor. Id.

Here, CMS moved for summary judgment, and the parties do not dispute the facts
material to this case. See CMS Br. at 3-4; P. Br. at 2. The only issue to be resolved in
this case is a matter of law, which as discussed below, must be decided in CMS’s favor.
Accordingly, summary judgment is appropriate.

2. It is undisputed that Noridian rejected Petitioner’s October 2014
enrollment application because Petitioner did not provide requested
information within 30 days.

A provider or supplier that seeks billing privileges under Medicare must “submit
enrollment information on the applicable enrollment application.” 42 C.F.R.

§ 424.510(a). A “provider or supplier must submit a complete enrollment application and
supporting documentation to the designated Medicare fee-for-service contractor,” and the
application must include “complete, accurate, and truthful responses to all information
requested within each section as applicable to the provider or supplier type.” Id.

§ 424.510(d)(1)-(2). “Once the provider or supplier successfully completes the
enrollment process ... CMS enrolls the provider or supplier into the Medicare program.”
Id. § 424.510(a).

CMS “may reject” an enrollment application if a supplier “fails to furnish complete
information on the provider/supplier enrollment application within 30 calendar days
from the date of the contractor request for the missing information.” 42 C.F.R.

§ 424.525(a)(1); see also 42 C.F.R. § 424.502 (definition of Reject/Rejected). A
supplier does not have the right to appeal a rejected application. Id. § 424.525(d).
Rather, the supplier must resubmit a new enrollment application. Id. § 424.525(c).
CMS may extend the 30-day period before rejecting an application “if CMS
determines that the . . . supplier is actively working with CMS to resolve any
outstanding issues.” Jd. § 424.525(b). However, that determination is a discretionary
matter, and it is also not subject to appeal. See id. § 424.525(d).

Petitioner concedes that the enrollment application it submitted to Noridian on
October 9, 2014, was missing information but nevertheless argues that Noridian
wrongly rejected the application. P. Br. at 2, 4. Petitioner argues that I should
“reverse” the rejection and establish an effective date of October 9, 2014, based on the
previously rejected application. P. Br. at 5-6.

The record shows that in an email dated October 31, 2014, Noridian notified Petitioner
that Noridian may reject Petitioner’s enrollment application if Petitioner did not
submit certain information and documentation within 30 calendar days. Noridian
advised Petitioner to “[s]ubmit the requested information before December 1, 2014.”
CMS Ex. 2. Among the information Noridian listed as missing from Petitioner’s
application was Petitioner’s billing agent’s tax identification number. CMS Ex. 2. On
November 21, 2014, in response to Noridian’s request, Petitioner faxed additional
information, but it did not include its billing agent’s tax identification number. See
CMS Ex. 3. Because Petitioner did not submit all the requested information within the
30-day period, Noridian rejected Petitioner’s application on December 2, 2014. CMS
Ex. 4; see P. Ex. 1 at 2.

Petitioner concedes that it submitted “all required missing information except the
biller’s tax ID number on November 21, 2014.” P. Br. at 5. Petitioner admits further
that it faxed the billing agent’s tax identification number to Noridian on December 5,
2014. P. Br. at 2; P. Ex. 1 at 2-3. According to Petitioner, it was “actively working”
to resolve the missing items, but Noridian did not adequately communicate with it
regarding its application and failed to extend the 30-day period in which to supply the
missing information. P. Br. at 2, 4, 5; see RFH.

Once Noridian notified Petitioner on October 31, 2014, that Petitioner needed to
submit certain documentation within 30 days, it was incumbent upon Petitioner to
furnish all the requested information to Noridian “before December 1, 2014.”

Because Petitioner did not furnish all requested information to Noridian within the 30-
day period, Noridian rejected its incomplete October 2014 enrollment application on
December 2, 2014. Once Noridian rejected the October 2014 application, Petitioner
needed to resubmit a new application. See 42 C.F.R. § 424.525(c). I have no
jurisdiction to consider Petitioner’s October 2014 application because a rejection of an
enrollment application is not a determination that may be appealed. See 42 C.F.R.

§ 424.525(d).

3. The undisputed evidence shows that Petitioner’s effective date of
enrollment in Medicare is December 22, 2014, with retrospective
billing privileges starting on November 22, 2014, based upon the
receipt of Petitioner’s subsequent application that Noridian was
able to process to approval.

The effective date of enrollment for physicians, nonphysician practitioners, and
physician and nonphysician practitioner organizations is “the later of the date of filing
of a Medicare enrollment application that was subsequently approved by a Medicare
contractor or the date an enrolled physician or nonphysician practitioner first began
furnishing services at a new practice location.” 42 C.F.R. § 424.520(d). The date of
filing is the date that the Medicare contractor receives a signed enrollment application
that the Medicare contractor is able to process to approval. See Karthik Ramaswamy,
M.D., DAB No. 2565 at 15, 25 (2014). In addition, CMS may permit retrospective
billing for up to 30 days prior to the effective date of enrollment. 42 C.F.R.

§ 424.521(a)(1). The regulations also provide for a longer retrospective billing period
in certain disaster situations not applicable to this case. 42 C.F.R. § 424.521(a)(2).

Following the rejection of its October 2014 application, Petitioner mailed a second
enrollment application on December 19, 2014, which Noridian received on December
22, 2014. CMS Ex. 5. Noridian subsequently approved this application, and on
February 23, 2015, notified Petitioner that its effective enrollment date was December
22, 2014, and that it was eligible for retrospective billing privileges beginning
November 22, 2014. CMS Ex. 7.!

The effective date of enrollment is the date on which a contractor receives a supplier’s
application that it is able to process to approval. Because December 22, 2014 was the
date Noridian received Petitioner’s application that it was able to process to approval,
Noridian correctly established Petitioner’s effective date of enrollment as December 22,
2014, in accordance with 42 C.F.R. § 424.520(d). Further, based on the effective date of
December 22, 2014, Noridian correctly established that the retrospective billing period
for Petitioner commenced on November 22, 2014. 42 C.F.R. § 424.521(a)(1).

4. Iam not authorized to consider Petitioner’s equitable arguments.

Petitioner notes that it serves an area with a very high population of Medicare
beneficiaries and argues that it will incur a significant financial loss if its claims for
services during the period October 9, 2014 through November 21, 2014, are not paid.
RFH; P. Br. at 1. Petitioner contends that Noridian failed to adequately communicate
with it regarding its “inadvertent error in its application that could have been easily
fixed.” P. Br. at 1.

Petitioner’s assertions regarding its good faith efforts to work with Noridian and its
financial hardship are equitable in nature. Even assuming for summary judgment
purposes that Petitioner’s assertions are true, I do not have the authority to consider these
equitable arguments. Neither an administrative law judge nor the Board is authorized to
provide equitable relief by reimbursing and enrolling a supplier who does not meet
statutory or regulatory requirements. US Ultrasound, DAB No. 2302, at 8 (2010);
1866I1CPayday.com, L.L.C., DAB No. 2289, at 14 (2009). Further, I am not able to

' Noridian’s February 23, 2015 letter to Petitioner is somewhat confusing because
Noridian advises Petitioner that the “[e]ffective date” is “November 22, 2014” while also
stating that Petitioner is “[p]articipating [e]ffective December 22, 2014.” CMS Ex. 7.
The parties do not now dispute, however, that December 22, 2014 is the intended
effective date of enrollment, and November 22, 2014, is the retrospective billing date.
CMS Br. at 3; see 42 C.F.R. § 424.521 (a).
consider any actions that were part of a corrective action plan because neither the Act nor
regulations provide for appeal of CMS’s (or the CMS contractor’s) denial of such a plan.

III. Conclusion

I grant summary judgment in favor CMS. There is no genuine dispute of material facts,
and CMS is entitled to judgment affirming the determination that Petitioner’s effective
date of enrollment is December 22, 2014, and its retrospective billing date is November
22, 2014.

/s/
Joseph Grow

Administrative Law Judge