Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: )
)
The Inspector General, ) Date: June 23, 2008

)
Petitioner, )
)

-Vv.- ) Docket No. C-07-618

) Decision No. CR1808
Cary Frounfelter and Kast )
Orthotics and Prosthetics, Inc., )
)
Respondents. )
)

DECISION

I find that Respondents, Cary Frounfelter (Mr. Frounfelter) and Kast Orthotics and
Prosthetics, Inc. (Kast) presented or caused to be presented claims for payment to the
Medicare program for medical or other items or services that they knew or should have
known were false or fraudulent or not provided as claimed. The evidence in this case
overwhelmingly supports the conclusion that Mr. Frounfelter and his company Kast
systematically, fraudulently, and falsely claimed reimbursement under Part B of the
Medicare program for orthotic devices which they knew or should have known were not
eligible for compensation under Part B. I sustain the determination of the Inspector
General (I.G.) to impose the following remedies, jointly and severally, against
Respondents:

- A civil money penalty of $100,000;

+ An assessment of $42,220; and
2

+ Exclusion from participating in Medicare and all other federally financed health
care programs, including State Medicaid programs, for a period of seven years.

I. Background

On August 1, 2007, Respondents filed a hearing request challenging the I.G.’s
determination to impose the above-described remedies. The case was assigned to me for
a hearing and a decision. I held a hearing in Tampa, Florida on March 10 and 11, 2008.
At the hearing I received into evidence exhibits from the I.G. consisting of I.G. Ex. 1 -
I.G. Ex. 105. I declined to receive I.G. Ex. 106. I received into evidence exhibits from
Respondents consisting of R. Ex. 2 - R. Ex. 21. Lalso received the testimony of several
witnesses. On March 24, 2008, I received additional testimony by telephone.’ The I.G.
and Respondents filed pre- and post-hearing briefs.

II. Issues, findings of fact and conclusions of law
A. Issues
The issues in this case are whether:
1. Respondents presented or caused to be presented reimbursement claims
to Medicare for medical or other items or services that they knew or should
have known were false or fraudulent or not provided as claimed; and
2. The remedies that the I.G. determined to impose are reasonable.
B. Findings of fact and conclusions of law
I make findings of fact and conclusions of law (Findings) to support my decision in this

case. I set forth each Finding below as a separate heading and I discuss each Finding in
detail.

' The parties filed numerous motions prior to the hearing. I issued written rulings
addressing these motions or ruled on them on the record of the hearing. I will not
recapitulate my rulings here although I discuss some of them below, where appropriate, in
the text of this decision.
3

1. Respondents presented or caused to be presented reimbursement
claims to Medicare for medical or other items or services that they knew
or should have known were false or fraudulent or not provided as
claimed.

This case is brought pursuant to section 1128A of the Social Security Act (Act). The Act
authorizes the imposition of remedies, including an assessment, a civil money penalty,
and an exclusion against any individual or entity who presents or causes to be presented
claims to Medicare for items or services that the individual or entity knew or should have
known were false or fraudulent or not provided as claimed. Act, section 1128A(a)(1)(A),

(B).

In this case there is overwhelming evidence proving that Respondents presented or caused
to be presented Medicare reimbursement claims in violation of section 1128A. The
evidence tells a simple and unadorned story of systematic fraud perpetrated by
Respondents against Medicare.

Mr. Frounfelter is an orthotist who constructs, fits, and supplies orthotic devices used in
the care and rehabilitation of individuals who have suffered from orthopedic or
neurological injuries. In October 1997, Mr. Frounfelter incorporated Kast. I.G. Ex. 58, at
3; LG. Ex. 59, at 4. Since then Kast operated as an independent supplier of items or
services to the Medicare program. There is no dispute in this case that Mr. Frounfelter
solely controls the management and direction of Kast and that the actions of Kast
implement the decisions of Mr. Frounfelter. Under Mr. Frounfelter’s management and
direction Kast became a successful enterprise with about $2.5 million in annual revenue
and about $400,000 in annual profits as of March 2006. I.G. Ex. 42D, at 21.

The 54 claims that are at issue in this case are claims that Respondents submitted to the
Medicare program for reimbursement for orthotic devices that they supplied to Medicare
beneficiaries who were inpatients of the HealthSouth Rehabilitation Hospital in Largo,
Florida (Largo hospital). I.G. Post Hearing Brief Attachment 1, at 1-13.’ The total dollar
amount of these claims is $20,627.34. Jd.; 1.G. Ex. 58. The claims cover a period of
alleged service delivery dates that runs about four and one-half years from December 16,
1999 through July 13, 2004. Jd; 1.G. Ex. 31B, at 4-5; I.G. Ex. 25B, at 4-5.

> The attachment is a summary of I.G. exhibits that are in evidence. Although I
may cite to the attachment from time to time for purposes of brevity I make all of my fact
findings from the exhibits which are summarized in that document.
4

Each of these claims is factually incorrect in that it claims a date for supply of an orthotic
device that is later than the date when the Respondents actually supplied the device. I.G.
Post Hearing Brief Attachment 1, at 1-13. That each of the 54 claims postdates the date
when an orthotic device was supplied by Respondents becomes evident by comparing the
date of alleged supply of an orthotic device on each claim with the date when the same
item was provided as is stated in the records of the Largo hospital (hospital records). For
example, the hospital records show that Respondents supplied an orthotic device on
December 6, 2000 to a beneficiary known as M.S. I.G. Ex. 4C, at 12; 1.G. Ex. 58, at 9.
However, Respondents claimed that they provided the device to M.S. on December 28,
2000, more than three weeks after the date when they actually supplied the device. I.G.
Ex. 4D, at 5, 6; I.G. Ex. 58, at 10.

The reason why Respondents postdated each of these claims is that they concluded that it
was necessary to postdate the supply dates of orthotic devices to Largo hospital patients
in order to convince Medicare to reimburse them directly for these devices. The
uncontested evidence is that HealthSouth’s management told Mr. Frounfelter that a
condition for Kast being permitted by HealthSouth to provide orthotic devices to patients
at the Largo hospital was that he and Kast would not bill the hospital directly for the
items that Respondents provided to the hospital’s patients. I.G. Ex. 42A, at 1; 1.G. Ex.
42B, at 2; 1.G. Ex. 42D, at 144, 146, 151, 153. Under their arrangement with
HealthSouth Respondents had to bill Medicare for the orthotic devices they supplied to
Largo hospital patients. 1.G. Ex. 42D, at 149-150, 153. And, as I shall explain,
Respondents knew that Medicare would not reimburse them directly for these devices
unless Respondents convinced Medicare that the devices were supplied later than the
dates of their actual delivery to patients.

As a general rule Medicare distinguishes between payments to institutional providers
(hospitals and nursing homes, for example) for inpatient stays and payments to providers
and suppliers for outpatient items or services. Typically, payments to institutional
providers are made pursuant to Part A of the Medicare program. Part A reimbursement is
a payment to the institutional provider covering all items or services included ina
beneficiary’s inpatient stay. In contrast payments made for outpatient items or services
under Part B are generally made for the specific items or services for which payment is
claimed.

No payment may be made under Part B of Medicare for any item or service that is
covered under Part A. Act, section 1833(d). A provider or supplier may not lawfully
claim reimbursement for an item or service under Part B if that item or service is already
covered under Part A.
5

The general rule governing payment for an orthotic device that is furnished to a Medicare
beneficiary during an inpatient stay is that payment is covered under Part A and not under
Part B. Act, sections 1861(a) and 1861(s)(9). Generally, an orthotist who supplies an
orthotic device to a Medicare beneficiary during the beneficiary’s hospital stay may not
claim reimbursement from Medicare under Part B but, rather, must seek compensation
from the hospital.

Orthotics that are supplied to beneficiaries who are outpatients, as opposed to those
beneficiaries who are inpatients, may be compensable under Part B. Also, there is an
exception to the general rule prohibiting Part B reimbursement for orthotics supplied to
inpatients. Medicare will accept a Part B reimbursement claim from a supplier such as
Respondents for an orthotic device provided to a hospital inpatient if that item was
ordered for the beneficiary’s post-discharge in home use and if that item was supplied to
the beneficiary within the two days prior to the date of the beneficiary’s discharge from
the hospital. I.G. Ex. 57, at 8-11. This exception is known informally as the “two-day”
tule.

HealthSouth’s refusal to pay Respondents for orthotic devices that Respondents supplied
to the Largo hospital inpatients motivated Respondents to find a way to obtain Medicare
Part B reimbursement for those orthotic devices. In order to convince Medicare that the
orthotics for which they claimed reimbursement were legitimately compensable under
Part B, Respondents claimed reimbursement for orthotics that they supplied to Largo
hospital inpatients either: as if they had supplied the orthotics to these patients as
outpatients after their discharge thereby qualifying the claims as claims for outpatient
items or services; or as if they had supplied the orthotics to the patients within the two
days prior to their discharge thereby qualifying the claims for reimbursement under the
two-day rule.
Each of the 54 claims that are at issue in this case alleges either that the orthotic device
for which reimbursement is claimed was supplied by Respondents to a Medicare
eneficiary after the date of the beneficiary’s discharge or within the two days prior to the
eneficiary’s discharge from the Largo hospital. I.G. Post Hearing Brief Attachment 1, at
-13. The claimed, albeit false, date of service on each claim makes the claim appear to

e legitimately compensable under Part B of Medicare.

For example, Respondents filed a claim for an orthotic device that they delivered to a
eneficiary known as M.L., alleging that they had supplied the device to the beneficiary
on December 11, 2000. I.G. Ex. 37B, at 4, 5; 1G. Ex. 58, at 32. The beneficiary had
een an inpatient at the Largo hospital and his or her discharge date was November 21,
2000. I.G. Ex. 37A, at 2, 3: LG. Ex. 58, at 32. In fact, the Largo hospital’s records show
that the orthotic device was actually supplied by Respondents to M.L. on or before

6

November 15, 2000, at least six days previous to the date of the beneficiary’s discharge
from the hospital. I.G. Ex. 37A, at 9; LG. Ex. 58, at 31. Obviously, Medicare would
have denied Respondents’ Part B reimbursement claim for the orthotic device that
Respondents supplied to M.L. had Respondents accurately reported to Medicare the date
when they supplied the orthotic device. Respondents made it appear that their claim was
compensable under Part B by claiming that they supplied the device after the date of
M.L.’s discharge.

The inference that I draw from the pattern of discrepancies between Respondents’ claims
and the Largo hospital records is that Respondents systematically, deliberately, and
falsely asserted that they supplied orthotics to Largo hospital inpatients within the two
days prior to these patients’ discharge or after their discharge in order to induce Medicare
to pay their claims under Part B. This is an obvious fraud against the program because it
induced Medicare effectively to pay twice for the same items, to the Largo hospital under
Part A as part of the hospital’s fee and, to Respondents under Part B. Each of the 54
claims that is at issue here, therefore, is a violation of the prohibition against intentional
submission of false or fraudulent claims stated at section 1128A of the Act.

Respondents challenge the credibility of the evidence on which I base this conclusion.
They argue that the Largo hospital’s records are inherently unreliable because
HealthSouth defrauded Medicare by pocketing Part A reimbursement monies that it
should have distributed to suppliers like Respondents. I find this argument to be
unpersuasive. HealthSouth may have engaged in illegal conduct and, indeed, that
conduct is the subject of a settlement agreement between HealthSouth and the United
States Department of Justice acting on behalf of the United States... However, had
HealthSouth wanted to perfect a fraud against Medicare it would have made its records
consistent with Respondents’ records so that the dates of supply on both sets of records
supported Part B Medicare claims by Respondents. The dates of supply stated in the
Largo hospital records are in fact, not in HealthSouth’s interest and even support
allegations of unlawful conduct by HealthSouth. By contrast, the dates stated in
Respondents’ claims clearly are in Respondents’ interest given that they were attempting
to obtain Part B reimbursement for those claims. For that reason I find HealthSouth’s
records to be more credible than Respondents’ records.

3 I discuss some of the ramifications of that agreement at Finding 2 of this
decision.
7

Respondents argue also that their claims records reflect their practice of “switching”
“stock” orthotics that they supplied to beneficiaries as inpatients, with customized
orthotics, including ankle-foot orthotics, which they supplied to these same beneficiaries
while they were outpatients. Thus, Respondents suggest that their claims are actually for
the customized orthotics that they supplied after beneficiaries completed their stays at the
Largo hospital and are not claims for the stock orthotics that they supplied to these
beneficiaries while they were inpatients.

This argument is unsupported by credible evidence. Respondents have not offered
probative evidence that proves specifically that, with respect to each of the 54 claims that
are at issue, they provided a customized orthotic to the beneficiary as an outpatient. In
their pre-hearing brief Respondents relied mainly on the written declaration of Mr.
Frounfelter as support for this contention. But, Respondents did not offer that declaration
into evidence and Mr. Frounfelter did not testify at the hearing.

Several of the beneficiaries whose care is covered by some of the 54 claims that are at
issue here or their immediate family members denied under oath that Respondents had
switched stock for custom made devices and I find their testimony to be entirely credible
on this issue. Tr. at 327-329; 349-365.

In fact, the evidence strongly supports the inference that Respondents fabricated patient
records in order to justify their Part B reimbursement claims and to make it look as if they
had switched out devices after patients were discharged from the Largo hospital. The
Largo hospital records for a patient known as “G.J.” show that the he received his orthotic
device from Respondents on February 23, 2003. I.G. Ex. 8D, at 8-9. He was discharged
from the hospital on February 26, 2003. Jd. at 2-3. However, Respondents claimed that
they provided him with his orthotic device on March 12, 2003. I.G. Ex. 8E, at 4,6. G.J.
testified credibly that Respondents had not provided him with a second device after his
discharge from the hospital and so, Respondents’ reimbursement claim for the device that
they supplied to him is patently false. 1.G. Ex. 8A, at 2-3; Tr. at 327-329. But, it is also
evident that Respondents fabricated records in order to justify their false reimbursement
claim for the orthotic device that they supplied to G.J. Respondents’ patient notes aver
that, on March 10, 2003, they replaced G.J.’s orthotic due to a “terrible infection” caused
by the previously-supplied device. That assertion is contradicted by G.J.’s testimony and
is unsupported by any clinical evidence.

Additional evidence that Respondents’ assertion that they switched devices is false
emerges from the testimony of a former employee of Kast who averred credibly that he
had never used, nor had he ever seen Mr. Frounfelter use, a stock or off the shelf ankle-
foot orthotic device. I.G. Ex. 54A, at 2.
8

In their post-hearing brief Respondents asserted that the I.G.

elected to completely discount the veracity of information contained in the
Kast patient files, which often included Mr. Frounfelter’s (or other
technician’s) detailed notes regarding patient care that documented that
many of the questioned . . . services were delivered in an appropriate and
legal timeframe, and indeed complied with Medicare’s [two-day rule].

Respondents’ post-hearing brief at 12. But, Respondents have cited to nothing —
including their own records — that supports this assertion. See id.

Moreover, the preponderance of the evidence establishes to be unreliable any
corroborative records that Respondents may have generated to support their
reimbursement claims. As I discuss above, Respondents generated a false record for G.J.
to justify claiming reimbursement for an orthotic device that they never supplied to that
individual. There are other aspects of Respondents’ records that support an inference that
they were fabricated in order to support Respondents’ false reimbursement claims.

For example, a patient identified as “J.R.” was discharged from the Largo hospital on
December 3, 1999. I.G. Ex. 31A, at 2, 3. The Largo hospital’s records show that
Respondents supplied an orthotic device to J.R. on November 19, 1999, about two weeks
prior to the patient’s date of discharge. /d. at 12. Clearly, Respondents should have
sought reimbursement for the device from the Largo hospital out of the hospital’s Part A
reimbursement for the care it provided to J.R. However, Respondents claimed that they
provided the device to J.R. on December 16, 1999, nearly a month after the date when
they actually provided it. I.G. Ex. 31B, at 4,5. In an evident attempt to support that
claim Respondents generated a patient note that is dated December 16, 1999, which states
as follows:

Fit and delivered ROM K/O. Set patient @ 30 degree flex and 60 degree
ext. F/u as Dr. Near request.’

1.G. Ex. 31B, at 3.

* The note is initialed “CFF” and I infer that these initials were put there to
indicate that Mr. Frounfelter had personally reviewed and approved the note.
9

On its face the note suggests that Respondents delivered an orthotic device to J.R. on
December 16, 1999, two weeks after the patient’s discharge from the hospital. The note,
if true, would support Respondents’ claim that they had delivered a device to J.R. after
the patient’s discharge that was different from the one which they supplied to the patient
at the hospital and it would justify claiming reimbursement for the device under Part B.

However, on November 30, 1999, while J.R. was still an inpatient at the Largo hospital
Mr. Frounfelter entered a strikingly similar note in the patient’s hospital record. That
note, which is written and signed by Mr. Frounfelter, states:

Set patient’s ROM to Dr. Near’s requirements 30 [degree] Ext 60 [degree]
flex. Will adj. if Dr. Liles requires different ROM.

I.G. Ex. 31A, at 8.

The evident similarities between the two notes (they use identical numbers for range of
motion although the first provides for 30 degrees of flexion and 60 degrees of extension
and the second provides for 60 degrees of flexion and 30 degrees of extension) suggest
that one simply was copied from the other but utilizing a different date. Moreover,
neither note corresponds with nor explains a physician’s order on November 18, 1999, for
an orthotic device to be supplied to patient J.R. I.G. Ex. 31A, at 6. The two notes appear
to refer, in fact, to care that was either not provided at all by Respondents or which
Respondents provided on a date that was earlier than the date on either note.

Respondents offered no explanation for the similarities between the two notes or the
inexplicable time lapse between the physician’s orders and the asserted dates of treatment
stated in the notes. Absent any explanation by Respondents I conclude that the notes
were concocted by them to support their false claim.

Respondents contend also that on occasion they supplied orthotic devices to beneficiaries
within two days of their planned discharges from the Largo hospital but that
complications or other reasons caused these beneficiaries to remain in the hospital beyond
their intended discharge dates. Respondents suggest that they should not be held liable
for claims that they submitted under Part B for these beneficiaries because they made
these claims in good faith.

There is no persuasive evidence establishing that any of the beneficiaries whose care is
the basis for the 54 claims that are at issue in this case fall into the category of
beneficiaries described by Respondents. For reasons that I explain above, I find
Respondents’ own records to be unreliable and, in several instances, to have been
fabricated. Respondents have not offered any other credible evidence to corroborate their
10

assertions. Moreover, Respondents would not be excused from liability even if their
assertions were true. There is simply no credible evidence to suggest that Respondents
actually believed in good faith that they could claim reimbursement under Part B for
orthotic devices supplied to patients whose stays in the Largo hospital were prolonged for
unforeseen reasons.

Since the inception of this case Respondents have argued that they are not liable for any
violation of section 1128A because they were induced by HealthSouth to file claims
under Part B or because they relied on the advice of HealthSouth’s management to file
such claims. Respondents liken their assertion to that of a supplier who relies on the
advice of legal counsel before filing a claim. According to Respondents a supplier who
relies on advice of counsel is exonerated from liability if the advice turns out to be
incorrect. And, according to Respondents, even if HealthSouth was not technically their
counsel, they assumed that HealthSouth’s guidance was reliable given HealthSouth’s
stature and the size of its operations.

I find this argument to be wholly without merit.’ To begin with, neither HealthSouth nor
the Largo hospital represented Respondents’ interests. Their relationship with
Respondents was an arms-length business relationship.

Respondents knew that they had no right or reason to rely on advice they may have
received from HealthSouth. When Mr. Frounfelter completed an application for Kast to
become an approved Medicare supplier on December 2, 1997, he acknowledged that he
was familiar with and agreed to abide by the Medicare laws and regulations that applied
to him and his business. I.G. Ex. 69. Respondents, as independent Medicare suppliers,
are responsible for complying with Medicare reimbursement requirements and laws
governing the honesty of claims. They have a responsibility to assure that they are acting
lawfully and they may not hide behind the advice of other providers or suppliers to
excuse them from discharging that responsibility.

* In rulings that I made prior to the hearing I denied Respondents’ subpoenas for
witnesses whose testimony Respondents claimed would have supported their “reliance on
HealthSouth” theory for the reason that such testimony was patently irrelevant. See
Rulings on Parties’ Motions, March 4, 2008. However, for purposes of this decision I
accept Respondents’ assertions that such witnesses, if called, would have testified that
they told Respondents that filing claims under Part B for all orthotics that Respondents
supplied to the Largo hospital inpatients was legal. For the reasons that I explain in this
decision Respondents had no basis for relying on such advice and, indeed, had every
reason to disregard it.
11

Furthermore, any suggestion by HealthSouth to Respondents that they could legitimately
claim reimbursement under Part B for orthotics that they supplied to Largo hospital
inpatients would have been so transparently self-serving that Respondents should have
recognized its obvious lack of credibility. Medicare put Respondents on notice precisely
as to their obligations for filing claims that were honest and legitimate. Respondents
received manuals from Medicare that specified their obligations concerning the claims
they submitted. I.G. Ex. 42D, at 115-116. Mr. Frounfelter merely needed to read them to
recognize instantly that the purported advice given by HealthSouth was wrong.° On more
than one occasion Medicare issued statements to suppliers including Respondents
explaining exactly how the two-day rule operated. I.G. Ex. 57, at 9.

Any arguments Respondents now make about not understanding their obligations or
being misled to make good faith errors are belied by admissions they made previously.
Mr. Frounfelter was first interviewed by agents of the I.G. on May 20, 2004. IG. Ex.
42A, at 1. In that interview he admitted that he had agreed, as a condition for doing
business with HealthSouth, to bill Medicare under Part B for items that he supplied to
HealthSouth inpatients. Jd. He stated that he knew that the manner in which billing was
being performed was wrong and illegal but that he did so because all the patients were
going to HealthSouth and because billing in this manner was necessary in order to feed
his family. Id.’

In testimony that Mr. Frounfelter gave on March 1, 2006 in response to an investigational
subpoena, he recanted this admission by asserting that he thought that billing Medicare
Part B directly for orthotics that he supplied to Largo hospital inpatients was correct
because “they were a whole different type of facility [a rehabilitation hospital and not an
acute care hospital]” and “[b]ecause everybody in the county was going there.” IG. Ex.

® Mr. Frounfelter averred that he had not read these manuals. I.G. Ex. 42D, at
115-116. Failure by a supplier to read informational and advisory material supplied to
him or her by Medicare is no excuse for failure to comply with the program’s claims
requirements.

7 Respondents have averred at times that the I.G. agents who participated in this
initial interview of Mr. Frounfelter are not credible and that their report of the interview is
false. I find no evidence to support this assertion. I.G. agent Christian Jurs, one of the
two agents who participated in the initial interview, was cross examined by Respondents’
counsel. Tr. at 46-115. There is nothing in his testimony that is inconsistent with the
initial interview of Mr. Frounfelter. Respondents did not cross examine the other I.G.
agent who was present at the interview although the I.G. made him available for cross
examination.
12

42D, at 154. He contended that he thought that Largo hospital qualified for an exception
to the two-day rule due to the type of care that it provided. /d. at 158. I find these
statements not to be credible. If Respondents thought that billing Medicare Part B for the
orthotics that they supplied to inpatients at Largo hospital was legitimate they would have
had no need to falsify the dates on which they supplied these devices.

Mr. Frounfelter also asserted, in testifying in response to the investigational subpoena,
that the dates of supply on his reimbursement claims for Largo hospital inpatients were
actually the dates of follow up visits that he made personally to these patients’ homes
after their discharge from Largo hospital. He asserted that his understanding of Medicare
reimbursement requirements was that he could bill under Part B for items supplied to an
inpatient if he made a follow up visit to the patient after his or her discharge from the
hospital to assure that the orthotic device fit correctly. I1.G. Ex. 42D, at 161-165. I find
this assertion to be preposterous. There is nothing in Medicare reimbursement documents
which Respondents can point to that even remotely supports their interpretation of
reimbursement requirements (and, indeed, Respondents have identified nothing which
even purportedly does). Nor have Respondents offered as evidence persuasive
documentary proof of these asserted post-discharge visits as respects the 54 claims that
are at issue here. As I discuss above, Respondents’ purported treatment records are
unbelievable.

Respondents argue that they should be excused from any liability for filing false or
fraudulent claims because the I.G. was aware for years about HealthSouth’s activities and
failed to act aggressively to stop them.* They contend that the I.G.’s knowledge that
HealthSouth, or more specifically, the Largo hospital, refused to pay suppliers out of Part
A reimbursement establishes that Respondents’ claims were not false, fictitious, or
fraudulent and that Respondents lacked the necessary intent to defraud Medicare.
Respondents contend that the United States Court of Appeals for the Fifth Circuit’s
decision in United States v. Southland Management Corp., et al., 326 F.3d 669 (5th Cir.
2003), supports their argument. Respondents’ post-hearing brief at 6-12.

n that case the United States Department of Housing and Urban Development (HUD)
ad a contract with a property management company to operate rental apartments for the
enefit of low income tenants. The contract provided for monthly housing assistance
payments to the management company in return for the company’s promise to maintain

* As factual support for this contention Respondents rely on the failure by the I.G.
to act immediately on complaints made by orthotists other than Respondents concerning
HealthSouth’s refusal to pay them out of their Part A reimbursement. Respondents’ post-
hearing brief at 9-11.
13

the property in “decent, safe, and sanitary” condition. The contract allowed for abatement
of assistance payments by HUD if it determined that the property was not being
maintained pursuant to contractual requirements. For several years HUD inspected the
property annually and concluded that the property was not being maintained adequately.
It repeatedly gave notices to the management company concerning the deficiencies that
were identified at the property and provided it with lists of corrective actions that it
determined that the management company needed to take. However, it also did not abate
assistance payments. Ultimately, the United States Attorney filed a civil action under the
False Claims Act, 31 U.S.C. § 3729, against the management company, alleging that the
company’s certifications on their vouchers that they submitted falsely stated that the
property was decent, safe and sanitary.

The Fifth Circuit held that the management company was entitled to the payments it
sought. Therefore, its certifications were not false. That was, according to the court,
because the specific language of the contract between the management company and
HUD entitled the management company to be paid for the claims it made despite their
certifications that the property was decent, safe and sanitary. The court held that the
contract explicitly provided a remedy for a breach: when the management company was
notified by HUD that it failed to maintain the property in a decent, safe, and sanitary
condition, and that corrective action must be taken, the management company continued
to be entitled to payment during the corrective action period and until HUD notified it in
writing that it had failed to take the necessary corrective action. In the opinion of the
court, the voucher certifications filed by the management company simply were
immaterial to enforcement of the contract and therefore, nothing that the management
company said in its vouchers constituted a material falsehood.

The court also noted a continuing course of conduct between HUD and the management
company which it found demonstrated that both HUD and the management company
regarded that it was entitled to receive continuing housing assistance payments despite the
substandard condition of the property. The court observed that there was significant
evidence during the period in question that the property was increasingly uninhabitable
but that HUD wanted the management company to continue to run the property and to
attempt to improve its condition.

Southland is distinguishable from this case on several grounds. Most obviously, the facts
here have no similarities to the relationship described in Southland. The essence of the
Southland decision was that the specific language of the contract between HUD and the
management company superseded any more generally stated voucher filing requirements.
Nothing in Medicare reimbursement regulations or in the relationship between
Respondents as suppliers and Medicare remotely resembles that contract.
14

Furthermore, there is no course of conduct here that resembles the course of conduct in
Southland. In Southland HUD was aware that the management company was failing to
meet HUD requirements but, effectively, waived those requirements for a time because it
determined that the management company’s continued operation of the property was in
the interest of tenants and HUD. Here, there is not even a suggestion that Medicare knew
about Respondents’ false claims but decided to pay them anyway based ona
determination that to do so would benefit Medicare or its beneficiaries. In this case,
Medicare was induced by Respondents to pay for items that should have been covered in
the Part A reimbursement that it gave to the Largo hospital. There is no conceivable
benefit to Medicare from that arrangement.

Finally, there is no evidence that Medicare or the I.G. condoned HealthSouth’s or
Respondents’ actions. The court in Southland found that HUD actively condoned the
management company’s continued operation of the property in question by encouraging it
to improve and by continuing to make assistance payments to it. Here, the evidence
shows only that the I.G. responded slowly to complaints about HealthSouth. A slow
response to complaints is in no sense equivalent to actively condoning unlawful activities.

2. The remedies that the I.G. determined to impose are reasonable.

Section 1128A establishes three distinct remedies that the I.G. may impose against any
individual or entity who violates the Act’s prohibitions against willfully filing false or
fraudulent claims. These remedies include: a civil money penalty of not more than
$10,000 for each item or service for which reimbursement is falsely or fraudulently
claimed; an assessment of not more than three times the amount claimed for each such
item or service in lieu of damages sustained by the United States or a State agency
because of such claim; and exclusion from participation in Medicare and all health care
programs described at section 1128B(f)(1) of the Act including State Medicaid programs.
Act, section 1128A(a). The Secretary of the United States Department of Health and
Human Services published criteria for determining remedies imposed pursuant to the
statutory authority of section 1128A and these are stated in 42 C.F.R. Part 1003.

I have evaluated the I.G.’s proposed remedies de novo and pursuant to the regulatory
criteria. I find these proposed remedies to be reasonable.

a. A civil money penalty of $100,000 is reasonable.
The maximum civil money penalty that the Act permits in this case totals $540,000 (54

false or fraudulent claims x $10,000 per claim). The I.G.’s proposed civil money penalty
of $100,000 is less than 20 percent of the allowable maximum. I find a penalty
15

of $100,000 to be entirely reasonable based on Respondents’ fraud and their culpability
and the notable absence of mitigating evidence. Indeed, a penalty of $100,000 is actually
quite modest in light of the blatant fraud that Respondents perpetrated.

The regulatory factors which govern the amount of a civil money penalty imposed
pursuant to section 1128A are stated at 42 C.F.R. § 1003.106(a)(1). Not all of them are
relevant to this case. I find that those which potentially are relevant here include: the
nature of Respondents’ claims or other wrongdoing and the degree of Respondents’
culpability; Respondents’ financial condition; and such other factors as justice may
require. Jd.

The regulation also describes mitigating and aggravating factors which should be taken
into consideration in applying the criteria for determining penalty amounts. It is an
aggravating factor if the nature of the claims or the circumstances show a pattern of false
or fraudulent claims, if the claims were filed over a lengthy period of time, or if the
amount claimed was substantial. 42 C.F.R. § 1003.106(b)(1). It is a mitigating factor if
the claims were all of the same type, there were few false claims, they occurred within a
short period of time, or the total amount claimed is less than $1,000. /d. Knowingly
filing a false or fraudulent claim is an aggravating factor. 42 C.F.R. § 1003.106(b)(2).
Prompt correction of false claims practices is a mitigating factor. Id.

The evidence in this case establishes the presence of aggravating evidence that relates to
the nature of the 54 false and fraudulent claims that Respondents presented or caused to
be presented and to their culpability. First, there is an evident pattern of false and
fraudulent claims and those claims were filed by Respondents over a lengthy period of
time. Respondents consistently and consciously misstated the dates when they provided
orthotic devices to Largo hospital inpatients in 54 instances over a period of about four
and one-half years. Second, the dollar amount of the false claims in this case — more than
$20,600 — is substantial.

Respondents attempt to minimize the impact of their false claims activity by comparing it
against the overall, arguably illegal, activities of HealthSouth. I find this to be an inapt
comparison. There is no question that HealthSouth is a much larger entity than Kast and I
am willing, for purposes of this decision, to accept as true the assertion that the scope of
its arguably unlawful activities may have been much greater than those of Respondents.
But, Respondents’ fraud is not diminished in any respect by what HealthSouth may or
may not have done.

16

Respondents assert also that the claims at issue were all of the same type and were filed
over a short period of time. They certainly were not filed over a short period of time as is
evidenced by the fact that they span a period of about four and one-half years. And, I
disagree with Respondents’ characterization that the claims were all of the same type.
They were similar only in the nature of the fraud that Respondents committed and in the
general nature of the items (orthotic devices) for which Respondents claimed
reimbursement. But, each claim was unique in that it was for a distinct, individualized
orthotic device. And, the false information that Respondents generated to support each
claim was uniquely developed by them in the context of that claim. In other words, each
of the 54 claims at issue constituted a separate and individualized act of fraud that was
part of a larger pattern of fraudulent activity by Respondents.

As to Respondents’ culpability, it is evident that they knowingly and intentionally
defrauded the Medicare program over a lengthy period of time. This is not a case of
negligent claims filing or even of filing claims with disregard to the truth of their
contents. Rather, it is a case in which Respondents consciously set out to defraud the
Medicare program in order to obtain reimbursement directly from Medicare which they
knew they were not entitled to receive. The intentional quality of Respondents’ actions is
underscored by their falsification of patients’ records in order to support their false and
fraudulent claims. It is underscored also by the fact that Mr. Frounfelter, early in the
investigation into Respondents’ conduct, admitted that he knew that what he and Kast
were doing was unlawful.

Respondents deny any intent to file false or fraudulent claims. They assert that they
relied — albeit improvidently — on the assurances provided to them by representatives of
HealthSouth that filing claims for Part B reimbursement was appropriate under the
circumstances. I have discussed this argument previously in addressing the issue of
Respondents’ liability. It is unnecessary that I revisit it here in depth except to say that I
find it to be unbelievable. Respondents were not innocent bystanders to the fraud of
another entity nor were they led naively into filing false claims. The overwhelming
evidence in this case establishes that they eagerly did business with HealthSouth and
nowingly entered into a corrupt bargain with that entity that had as its centerpiece filing
false and fraudulent claims with Medicare.

Respondents have not averred that their financial condition precludes them from paying a
civil money penalty of $100,000. However, had they made such an argument, I would
not find this amount to be unreasonable in light of the amount of Kast’s annual business.
17

Respondents argue that the civil money penalty (and the other remedies as well) should
¢ mitigated because they provide items or services of a very high quality, and promptly,
to Medicare beneficiaries. I accept as true Respondents’ representations of the quality
and promptness of the items and services that they provide. But, Respondents have not
proven that penalizing them, or for that matter, excluding them from participation, will
ave an adverse impact on Medicare beneficiaries or on the program itself. There is
nothing in the record to suggest that other suppliers of orthotic devices in Respondents’
community are incapable of filling any gaps created by the remedies that I impose.

Respondents have, at times during this case, asserted that there is additional mitigating
evidence. I find these assertions to be without merit. Respondents asserted in their pre-
earing brief that they had cooperated with the government during the investigation into
HealthSouth’s activities. I find that there is no proof to substantiate this claim.
Respondents also asserted in their pre-hearing brief that they ceased to file false or
fraudulent claims immediately upon first being interviewed by the I.G.’s agents. They
provided no proof to support this assertion and there is evidence to the contrary in the
record. Tr. at 70-71.

Respondents contended also in their pre-hearing brief that they terminated any activities
that could be construed as fraudulent once they ceased doing business with HealthSouth.
That may be so, but I do not find it to be a mitigating factor because it was the
relationship between HealthSouth and Respondents that generated the fraud established
in this case. That Respondents may not have engaged in fraud as a consequence of their
relationship with other providers after their relationship with HealthSouth ended is not, in
and of itself, a reason to find the fraud emanating from the HealthSouth relationship to be
any less egregious. Respondents also contended in their pre-hearing brief that they
realized no “increased profit” as a consequence of their fraud. I find this assertion to be
unclear. What is absolutely clear here, however, is that Respondents benefitted
enormously from their relationship with HealthSouth because their willingness to play
ball with HealthSouth provided them with access to a steady stream of highly lucrative
business.

b. An assessment of $42,220 is reasonable.

Regulations governing the amount of an assessment reiterate that the I.G. may impose an
assessment in an amount of up to three times the amount that is falsely claimed. 42
C.F.R. § 1003.104(a)(2). An assessment is intended to be a remedy that is in lieu of the
damages sustained as a result of false or fraudulent claims. 42 C.F.R. § 1003.104(b). The
regulatory factors which apply in determining civil money penalty amounts apply to
determining assessments as well. 42 C.F.R. § 1003.106(b).
18

The proposed assessment in this case of $42,200 is slightly more than double the amount
falsely claimed by the Respondents and is well within the allowable maximum
assessment amount. I find it to be reasonable given the aggravating evidence that I
discuss at subpart a. of this Finding and the absence of mitigating evidence.

Respondents argue that any assessment in this case is precluded by a settlement between
the United States and HealthSouth of alleged False Claims Act or section 1128A
violations by that entity (Healthsouth settlement). The settlement agreement, which is
Attachment 2 to the I.G.’s post-hearing brief, settles claims that the United States may
ave against HealthSouth in return for a payment to the United States by HealthSouth of
$4,000,000. I.G. Post Hearing Brief Attachment 2, at 4. A schedule attached to the
settlement agreement includes the Largo hospital as a facility covered under the
agreement. Id. at 27.

Respondents argue that to collect an assessment from them in light of the HealthSouth
settlement amounts to what they characterize as a “double recovery.” They assert that the
HealthSouth settlement was intended to cover all of the allegedly unlawful orthotics and
prosthetics billings practices engaged in by HealthSouth. Consequently, according to
Respondents, to impose an assessment against them to cover the damages sustained by
Medicare in this case would be unfair and unlawful and would result in an impermissible
windfall to the United States. Respondents’ post-hearing brief at 2.

do not find this argument to be persuasive. First, the damages sustained by Medicare as
a consequence of Respondents’ false and fraudulent claims are not limited exclusively to
the payments made to Respondents for those claims. Here, damages include those costs,
ut they also include the substantial costs of investigating Respondents’ fraud and of
ringing Respondents to justice.’ They also include the inchoate cost to the reputation of
the Medicare program caused by Respondents’ perpetration of their fraud.

This proceeding against Respondents has as its overall objective the protection of the
Medicare program. That objective transcends simply collecting money damages from
Respondents to compensate Medicare for its payments for false and fraudulent claims.
The investigation and litigation costs necessary to attain that objective justify an

° This case is the culmination of an investigation that began several years ago.
Pre-hearing proceedings in this case consumed several months. There were numerous
motions filed by the parties. The hearing itself lasted two days plus additional telephone
earing time. The I.G. paid to transport counsel and several witnesses to the Tampa,
Florida hearing site from locations that were as far away as Hawaii and Washington, D.C.

19

assessment of the amount proposed even if the HealthSouth settlement made Medicare
financially whole for all of the payments it made to Respondents as a result of their false
and fraudulent claims.

Respondents are not parties to the HealthSouth settlement agreement so they cannot claim
the benefit of its terms. The agreement exempts HealthSouth from further liability to the
United States for its possibly false or fraudulent reimbursement claims in return for
HealthSouth’s payment of $4,000,000. But, not only does the agreement not suggest that
the payment covers the exact dollar amount of the United States’ losses, it specifically
reserves to the United States the right to bring actions against third parties who are not
parties to the HealthSouth settlement agreement. I.G. Post Hearing Brief Attachment 2, at
2 (Paragraph O.). The HealthSouth settlement agreement additionally provides that no
individuals other than HealthSouth and certain other named parties are released by it. Id.
at 4-5 (Paragraph C.).

Furthermore, it cannot be concluded reasonably that an assessment paid by Respondents
would amount to a double payment to the United States for Respondents’ false and
fraudulent claims or a windfall. That is because it is impossible to determine whether the
HealthSouth settlement actually made the government whole for all of the false claims
activity generated by or related to HealthSouth’s operations.

t is entirely consistent with the terms of the HealthSouth settlement agreement to
conclude that the lump sum payment agreed to by HealthSouth settled the case without
any accounting of the actual damages sustained by the United States. There is nothing in
the HealthSouth settlement agreement that suggests that the settlement which
HealthSouth agreed to pay equaled the exact dollar amount of the losses sustained by the
United States or renders the United States whole as a consequence of false claims filed
against it by HealthSouth or by orthotics suppliers.

c. An exclusion of seven years is reasonable.

The purpose of any exclusion of a provider or supplier from participating in Medicare and
other federally financed health care programs is to protect these programs and their
beneficiaries and recipients from individuals and entities who have been established to be
untrustworthy. An exclusion thus serves a purpose that is entirely separate from financial
remedies that are designed to compensate programs for their losses or for the costs of
maintaining program integrity. An exclusion is designed to protect against future
misconduct.
20

The regulations provide that an exclusion for violation of section 1128A should be
premised on the same factors and potentially aggravating and mitigating evidence that
pertain to penalties and assessments. 42 C.F.R. § 1003.107(a). I have previously
discussed the aggravating evidence in this case and it is unnecessary that I discuss it again
here. Suffice it to say that it establishes that Respondents are extraordinarily
untrustworthy providers for which exclusions of seven years are certainly merited. These
Respondents engaged in a concerted and sophisticated scheme to defraud the Medicare
program extending over a period of years. There is nothing in the record to suggest that
they would have ceased their fraud but for the I.G.’s investigation of it. I have no doubt
that Respondents would have continued to engage in it had it remained undetected.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

Mahmoud H. Aly, M.D. (CLIA
No. 33D0949772),

Date: June 23, 2008

Petitioner,

Docket No. C-08-51

Decision No. CR1807

Centers for Medicare &
Medicaid Services.

I

DECISION DISMISSING HEARING REQUEST

I dismiss the hearing request of Petitioner, Mahmoud H. Aly. I find that Petitioner
abandoned his request for a hearing but also that he has no right to a hearing due to his
failure to comply with my orders.

I. Background

This is a case brought pursuant to the Clinical Laboratory Improvement Amendments of
1988 (CLIA), CLIA’s implementing regulations, and regulations governing hearings
involving the Centers for Medicare & Medicaid Services (CMS) at 42 C.F.R. Part 498.

On September 5, 2007 CMS notified Petitioner that it had determined to impose remedies
against him for failure to comply with CLIA requirements. CMS advised Petitioner that it
had made its determination to impose remedies based on Petitioner’s failure to comply
with CLIA proficiency testing requirements. The remedies included: suspension of
Petitioner’s CLIA certificate; cancellation of Petitioner’s Medicare payments; and a civil
money penalty of $500.
2

Petitioner timely requested a hearing to challenge CMS’s determination and the case was
assigned to me for a hearing and a decision. I ordered the parties to submit pre-hearing
exchanges which included their proposed evidence and briefs addressing the issues in the
case. CMS filed its pre-hearing exchange. Petitioner’s exchange was due on April 21,
2008, but he failed to file one. On May 5, 2008, at my direction, the staff attorney
assigned to assist me in hearing and deciding this case called Petitioner and advised him
that his exchange had not been timely filed. Petitioner failed to file anything in response
to this notice. On May 27, 2008 I sent an order to show cause to Petitioner directing him
to file his pre-hearing exchange no later than June 9, 2008. I warned him that I would
consider that he had abandoned his hearing request if he failed to comply with the order
to show cause. Petitioner did not respond to the order to show cause.

II. Issues, findings of fact and conclusions of law
A. Issue

The issue in this case is whether reason exists for me to dismiss Petitioner’s hearing
request.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision. I set
forth each Finding below as a separate heading.

There exist two grounds for me to dismiss Petitioner’s hearing request. First, his failure
to comply with my initial pre-hearing order and to respond to the order to show cause
establish that he has abandoned his request for hearing. Second, he has lost his right to a
hearing due to his failure to comply with the orders that I issued in this case.

1. I dismiss Petitioner’s hearing request because he has abandoned it.

An administrative law judge may dismiss a party’s request for hearing where that party
has abandoned it. 42 C.F.R. § 498.69(a). “Abandonment” occurs when a party fails to
appear at a pre-hearing conference or hearing without previously showing good cause for
failing to do so and where that party fails to respond with good cause to an administrative
law judge’s order to show cause. 42 C.F.R. § 498.69(b).

The regulation doesn’t define what is meant by a “hearing”. However, it is clear from my
initial pre-hearing order that the filing of a pre-hearing brief and proposed evidence
(which includes the written direct testimony of proposed witnesses) is part of the hearing
in the sense that it is the commencement of a stage in the process where the parties
3

present their substantive arguments and evidence to the administrative law judge. Thus,
failure by Petitioner to file his pre-hearing exchange pursuant to my order is just as much
a failure to appear at a hearing as would be failure by him to appear at an in-person
session where I received oral testimony. Consequently, Petitioner’s failure to file his pre-
hearing exchange and his failure to make any response to my order to show cause is
abandonment within the meaning of 42 C.F.R. § 498.69(b).

2. I dismiss Petitioner’s hearing request because he no longer has a right
to a hearing.

An administrative law judge may dismiss a party’s hearing request where that party has
no right to a hearing. 42 C.F.R. § 498.70(b). Petitioner had a right to a hearing in this
case because CMS made a determination to impose remedies against him and because he
timely requested a hearing. But, that right was not given to Petitioner unconditionally. A
party loses his or her right to a hearing where he or she fails completely to comply with
the orders of the administrative law judge. Petitioner forfeited his right to a hearing by
failing to comply — at even the most basic level — with my initial pre-hearing order in this
case and by failing to respond to the order to show cause that I sent to him.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: )
)

Van Wert Manor, ) Date: June 19, 2008
(CCN: 36-5246), )
)
Petitioner, )
)

-Vv.- ) Docket No. C-08-69

) Decision No. CR1806
Centers for Medicare & Medicaid )
Services. )
)
DECISION

Petitioner, Van Wert Manor (Petitioner or facility), is a long term care facility located in
Van Wert, Ohio that is certified to participate in the Medicare program as a provider of
services. Petitioner challenges the Centers for Medicare & Medicaid Services’ (CMS’s)
determination that, at the time of a July 24, 2007 Life Safety Code (LSC) survey, it was
not in substantial compliance with program participation requirements because its fire
alarm system did not function as required. Petitioner also complains that the penalties
imposed — a three month denial of payment for new admissions (DPNA) and the loss of
its nurse aide training program for two years — are disproportionately harsh.

The parties have agreed that this matter may be decided based on their written
submissions. For the reasons discussed below, I conclude that the facility was not in
substantial compliance with Medicare participation requirements. I have no authority to
review CMS’s selection of remedies in this case.

I. Background

To participate in the Medicare program, facilities periodically undergo surveys to
determine whether they comply with applicable statutory and regulatory requirements.
The Secretary of Health and Human Services contracts with state survey agencies to
conduct those surveys. Social Security Act (Act) § 1864(a); 42 C.F.R. § 488.20. The
2

regulations require that each facility be surveyed at least once every 12 months, and more
often, if necessary, to ensure that identified deficiencies are corrected. 42 C.F.R.

§ 488.20(a). Ifa facility is not in substantial compliance with program requirements,
CMS may impose a remedy, including a DPNA. 42 C.F.R. § 488.406. The facility may
not then appeal CMS’s choice of remedy. 42 C.F.R. § 488.408(g)(2).

When a facility is found to be out of substantial compliance for three months or longer,
CMS must impose a DPNA. 42 C.F.R. § 488.417. Ifa facility is subject to a DPNA, its
Nurse Aide Training and/or Competency Evaluation Program (NATCEP) may not be
approved. Act § 1819(f)(2)(B).

In this case, based on surveys completed on April 12, 2007 and May 24, 2007, CMS
determined that the facility was not in substantial compliance with the LSC because
(among other deficiencies) its fire alarm system did not operate properly. CMS Exhibits
(Exs.) 3, 14, 15, 16. Petitioner does not challenge the deficiency findings from these
surveys. Joint Motion for a Decision on the Written Record J 1, 2 (March 6, 2008). A
surveyor from the Ohio Department of Health (State Agency) re-surveyed the facility on
July 24, 2007. Based on her findings, CMS again determined that the facility had not
achieved substantial compliance because its fire alarm system did not operate properly.
Petitioner appeals this determination.

CMS has imposed a three-month DPNA, effective July 12, 2007, which precludes
Petitioner from conducting NATCEP for two years. CMS Ex. 5; see Act § 1819(f)(2)(B);
42 C.F.R. § 488.417.

By joint motion, the parties agree that this matter will be decided based on their written
submissions, without an in-person hearing. Joint Motion for a Decision on the Written
Record § 3 (March 6, 2008); Order (March 7, 2008). CMS filed 16 proposed exhibits
which it identifies as CMS Ex. 1- CMS Ex. 16. Petitioner filed six proposed exhibits
marked P. Exs. A - F. To conform to Civil Remedies procedures, we have re-marked
them as P. Ex. 1 — P. Ex. 6. In the absence of objections, I admit into evidence CMS Exs.
1-16, and P. Exs. 1-6.

II. Issues

The sole issue before me is whether, at the time of the July 24, 2007 survey, the facility
was in substantial compliance with the requirements of the LSC.
III. Discussion

The facility was not in substantial compliance with 42
C.F.R. § 483.70 and the LSC because its fire alarm system
did not work properly.’

A facility must be designed, constructed, equipped, and maintained to protect the health
and safety of its residents, personnel, and the public. 42 C.F.R. § 483.70. With respect to
fire safety, facilities “must meet the applicable provisions of the 2000 edition of the
[LSC] of the National Fire Protection Association [NFPA].” 42 C.F.R. § 483.70(a)(1).
The LSC is a set of fire protection requirements designed to provide a reasonable degree
of safety from fires.

The LSC requires that alarm systems automatically actuate [set off] the control functions

necessary to make the premises safer for its occupants. LSC § 9.6.5.1; CMS Ex. 10, at 8.
Among other functions, the system must release the hold-open devices for doors. LSC

§ 9.6.5.2; CMS Ex. 10, at 8. Magnetic hold-open devices normally keep doors in an open
position, but smoke barrier doors must be closed in the event of a fire.

The LSC also requires that facilities install, test and maintain a fire alarm system, in
accordance with the applicable requirements of NFPA 72 (National Fire Alarm Code).
LSC § 9.6.1.4; CMS Ex. 10, at 7. NFPA 72 requires that all door hold-open release
devices be monitored for integrity. NFPA 72 § 3-9.6.3; CMS Ex. 11, at 6.

Resetting or silencing the fire alarm control units should be possible only from the control
unit at the protected premises, and not from a remote site. NFPA 72 § 3-8.1.3 (CMS Ex.
11, at 3).

Here, after twice failing its LSC surveys, the facility opted to upgrade its fire alarm panel.
P. Ex. 2. On July 24, 2007, State Agency surveyor, Debra Bick, accompanied by the
facility’s administrator and two maintenance employees, twice tested the alarm system
when it was in the silence mode. CMS Ex. 13, at 2-3 (Bick Decl. ff 11, 12). But the
system did not operate properly. The magnetic hold-open devices on smoke barrier
doors re-energized and kept the doors in the open position. CMS Ex. 1, at 2-3; CMS Ex.
2, at 2-3. The alarm system should have released the hold-open devices so that the doors
would close.

' [make this one finding of fact/conclusion of law.
4

The next day, the system’s installers returned to the facility and determined that the
system had not been programmed properly. They re-programmed the relay operation, and
thereafter the system apparently functioned properly. P. Ex. 3; CMS Ex. 8, at 3; CMS Ex.
13, at 3 (Bick Decl § 14).

Petitioner argues that the LSC requires that the alarm system be “installed, tested, and
maintained,” not that it be functional at all times. Petitioner urges me to apply a standard
similar to that applied in accident cases: in the event of an incident, the regulations do not
impose absolute liability but instead impose upon facilities an affirmative duty designed
to achieve favorable outcomes “to the highest practicable degree.” P. Brief (Br.) at 4;
See, Woodstock Care Center, DAB No. 1726, at 25-30 (2000), aff'd Woodstock Care
Center v. U.S. Dept. of Health and Human Services, 363 F.3d 583 (6th Circe. 2003).

l agree that some alarm system failures are probably unavoidable, and it would not be
appropriate to impose penalties for an isolated malfunction that is promptly identified and
corrected. But this was not an isolated malfunction. The facility has not demonstrated a
properly functioning alarm system since the April 12 survey. A requisition order dated
March 16, 2007, calls for by-pass parts to “defeat magnet hold during alarm panel in re-
set/silence mode.” CMS Ex. 8, at 1. Indeed, the malfunction described by Surveyor Bick
is very similar to that found by federal surveyor Gary Cable during the May survey.
Surveyor Cable explains that he instructed the maintenance man to silence the audible
alarm devices, but to leave the alarm panel in active alarm status. When the maintenance
man then set off the alarm, Surveyor Cable observed that the doors’ magnetic hold-open
devices had been re-magnetized, which allowed the doors to remain in the open position.
CMS Ex. 14, at 2 (Cable Decl. { 6).

Moreover, I also agree with CMS that repeated programming errors — as unquestionably
occurred here — do not fall into the category of isolated, unforseen and unavoidable
malfunctions for which a facility might not be held accountable. If anything, the facility’s
having earlier discovered a malfunction caused by programming errors, heightened its
responsibility to correct the problem and to ensure that it not recur.

> Although Petitioner suggests in a footnote that it was compliant on May 24,
2007, and should not have been cited for a deficiency at that time, it has explicitly waived
that argument. Compare, P. Br. at 3,n.1 with Joint Motion for a Decision on the Written
Record § 2 (“Petitioner is not challenging any other deficiency findings.”). CMS’s
determination of noncompliance therefore stands as the final agency determination on the
issue. 42 C.F.R. § 498.20(b).
5

Finally, the alarm system’s malfunction created the widespread potential for more than
minimal harm. Smoke barrier doors are designed to stay closed during a fire, forestalling
the spread of smoke. An alarm system that allows them to remain open jeopardizes the
the health and safety of facility residents and staff. CMS Ex. 13, at 3 (Bick Decl. ¥ 15).

IV. Conclusion

For all of the reasons discussed above, I uphold CMS’s determination that Petitioner was
not in substantial compliance with program participation requirements at the time of its
July 24, 2007 survey which authorizes CMS to impose remedies. I have no authority to
review CMS’s determination to impose a remedy or CMS’s choice of remedies.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Decision No. CR1805
Centers for Medicare & Medicaid
Services.

In the Case of: )
)

Byrd Haven Nursing Home )

(CCN: 04-5209), ) Date: June 13, 2008

)

Petitioner, )

)

-V.- ) Docket No. C-08-369

)

)

)

)

DECISION DISMISSING
REQUEST FOR HEARING

For the reasons set forth below, I conclude that Petitioner, Byrd Haven Nursing Home, is
not entitled to a hearing because the Centers for Medicare and Medicaid Services (CMS)
withdrew the enforcement remedies provided for in 42 C.F.R. § 488.406. I grant CMS’s
motion to dismiss pursuant to 42 C.F.R. § 498.70(b).

Petitioner has no right to a hearing if CMS does not impose a remedy.”

Petitioner is a skilled nursing facility located in Searcy, Arkansas participating in the
Medicare program as a provider of services. On January 25, 2008, the Arkansas
Department of Human Services (state agency) conducted a survey of Petitioner and found
the Petitioner not in substantial compliance with federal regulations. Hearing Request.
By letter dated February 13, 2008, the state agency informed Petitioner that CMS had
imposed a per-instance civil money penalty in the amount of $3000, $1500 per instance
for noncompliance with 42 C.F.R. § 483.10(b)(11) and 42 C.F.R. § 483.25. The letter
also informed Petitioner that a denial of payment for all new Medicare and Medicaid
admissions would go info effect on April 25, 2008. Hearing Request.

“ [make this one finding of fact/conclusion of law.
On March 26, 2008, Petitioner timely filed its request for a hearing. By letter dated April
23, 2008, CMS notified Petitioner that it was rescinding the civil money penalty. CMS
Ex. 2. On April 24, 2008, CMS moved to have this case dismissed. Petitioner has not
responded to CMS’s motion.

The hearing rights of a long-term care facility are established by federal regulations at 42
C.F.R. Part 498. A provider dissatisfied with CMS's initial determination is entitled to
further review, but administrative actions that are not initial determinations are not
subject to appeal. 42 C.F.R. § 498.3(d). The regulations specify which actions are
“initial determinations” and sets forth examples of actions that are not. A finding of
noncompliance that results in the imposition of a remedy specified in 42 C.F.R. § 488.406
is an initial determination for which a facility may request an administrative law judge
(ALJ) hearing. 42 C.F.R. § 498.3(b)(13). No right to a hearing exists pursuant to 42
C.F.R. § 498.3(b)(13), unless CMS actually imposes one of the specified remedies.
Lutheran Home — Caledonia, DAB No. 1753 (2000); Schowalter Villa, DAB No. 1688
(1999); Arcadia Acres, Inc., DAB No. 1607 (1997). The remedy, not the citation ofa
deficiency, triggers the right to a hearing. Schowalter Villa, DAB No. 1688 (1999);
Arcadia Acres, Inc., DAB No. 1607 (1997). Where, as here, CMS withdraws the
remedies, Petitioner no longer has a hearing right because the determination that is
subject to a hearing no longer exists. Fountain Lake Health & Rehabilitation, Inc., DAB
No. 1985 (2005).

Because CMS has rescinded all remedies, Petitioner has no right to an ALJ hearing. An
ALJ may dismiss a hearing request where a party has no right to a hearing. 42 C.F.R.
§ 498.70(b). I therefore grant CMS’s motion to dismiss and order this case dismissed.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: )
)
Cynthia Merriman, ) Date: June 11, 2008

)
Petitioner, )
)

-Vv.- ) Docket No. C-08-308

) Decision No. CR1803
)
The Inspector General, )
)
Respondent. )
)

DECISION

I sustain the determination of the Inspector General (I.G.) to exclude Petitioner, Cynthia
Michelle Walker, a/k/a Cynthia Michelle Merriman, a/k/a Cynthia Michelle Outerbridge,
from participating in Medicare and other federally funded health care programs for a
minimum of five years. The exclusion in this case is mandated by Petitioner’s conviction
of a crime that is described at section 1128(a)(1) of the Social Security Act.

I. Background

Petitioner, a nursing assistant, requested a hearing to challenge the I.G.’s determination to
exclude her. The case was assigned to me for a hearing and a decision. | held a pre-
hearing conference at which I directed the parties to file briefs and proposed exhibits. I
advised the parties also that each had the right to request that I receive testimony in
person. I told them that I would convene an in-person hearing if I decided that a party
sought to offer relevant testimony that did not duplicate something that was stated ina
document in evidence.
2

The L.G. filed a brief and 10 proposed exhibits, which he designated as I.G. Ex. 1 - I.G.
Ex. 10. Petitioner, who is pro se, filed a brief. Additionally, she filed two statements, one
by her husband and one by her, but contained in the same document. I am designating
these two statements as P. Ex. 1. I receive into evidence I.G. Ex. 1 - I.G. Ex. 10, and P.
Ex. 1.

The I.G. did not request that I convene an in-person hearing. In her brief Petitioner
answered “no” to the question asking her whether she believed an in-person hearing was
necessary but “yes” to the question asking her whether she had testimony that she wished
to offer in person. She elaborated on this answer by stating:

I wish that I could be there in person to say how much | am sorry for doing
what I did and will never do it again in [my] life.

Petitioner’s brief at 3.

I conclude that an in-person hearing is unnecessary. I accept Petitioner’s statement and
that of her husband as being true. However, it is irrelevant to my decision. As I discuss
below, Petitioner’s conviction of a criminal offense described in section 1128(a)(1) of the
Act mandates her exclusion and I am powerless to rescind it based on her assertion of
remorse, or on husband’s assertion that she is of good character.

II. Issues, findings of fact and conclusions of law

A. Issue
The issue in this case is whether Petitioner was convicted of a criminal offense described
at section 1128(a)(1) of the Act mandating her exclusion from Medicare and federally
financed health care programs for a minimum of five years.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision in this
case. I set forth each Finding below as a separate heading.

1. Petitioner was convicted of a criminal offense as is described at section
1128(a)(1) of the Act.

The I.G. asserts, and the Petitioner does not dispute, the following facts. On August 4,
2006, Petitioner pled guilty in a Colorado State court to a misdemeanor charge of theft in
violation of Colorado State law. I.G. Ex. 7, at 2. The guilty plea related to a five-count
3

criminal information that had been filed against Petitioner on December 8, 2005. I.G. Ex.
6. The criminal charges against Petitioner were the culmination of an investigation in
which it was determined that, during the course of her employment at a nursing facility,
Petitioner stole the wallet and credit cards of a Medicare beneficiary who, at the time, was
receiving care at the facility. I.G. Ex. 3, at 1; LG. Ex. 4, at 2. Petitioner subsequently
used the resident’s stolen credit card to purchase merchandise at a local Wal-Mart store.
1.G. Ex. 2, at 2-4.

Section 1128(a)(1) of the Act mandates that the I.G. exclude any individual who is
convicted of a criminal offense related to the delivery of an item or service under the
Medicare program. The facts that I describe above, on their face, establish that Petitioner
was convicted of such a crime and that, consequently, her exclusion is mandated by law.
The nexus between the crime and Medicare is evident. The nursing facility resident
whose wallet and credit cards were stolen by Petitioner was a Medicare beneficiary and
the crime would not have been possible but for the fact that this individual was receiving
Medicare items and services (skilled nursing care) at the facility which employed
Petitioner.

Petitioner asserts that she is remorseful for her crime and I accept her representation as
true. I also accept as true her husband’s assertion that Petitioner’s crime does not reflect
her true character. However, the law mandates an exclusion, without exception, for any
individual who is convicted of a crime described at section 1128(a)(1). The law leaves
me without authority to rescind the I.G.’s determination based on Petitioner’s testimony
or that of her husband.

2. An exclusion of at least five years is mandatory.

The Act requires that the I.G. exclude for at least five years any individual who is
convicted of a crime described in section 1128(a)(1). The exclusion of five years that the
LG. imposed against Petitioner is reasonable as a matter of law inasmuch as it mandated
and is for the minimum period.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: )
)
Robert Lifson, M.D., ) Date: June 11, 2008

)
Petitioner, )
)

-V.- ) Docket No. C-08-209

) Decision No. CR1802
Centers for Medicare & Medicaid )
Services. )
)

DECISION

Petitioner, Robert Lifson, M.D., is a physician who participated in the Medicare program as a
provider of services. The Centers for Medicare & Medicaid Services (CMS) has revoked his
Medicare billing privileges because he allegedly submitted false claims to the Medicare
program. Petitioner appeals. CMS has moved for summary judgment, arguing that no material
facts are in dispute and that it is entitled to judgment as a matter of law. I agree and affirm
CMS’s revocation of Petitioner’s Medicare billing privileges.

CMS is entitled to summary judgment because it has brought forth
evidence that Petitioner submitted false claims to the Medicare program,
in contravention of the Social Security Act, regulations, and the terms of
his provider agreement, and Petitioner has not brought forth evidence
sufficient to establish a genuine factual dispute on that issue.”

“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... .” Livingston Care Center, DAB No. 1871 (2003).
The moving party may show the absence of a genuine factual dispute by showing that the
non-moving party has presented no evidence “sufficient to establish the existence of an

“ I make this one finding of fact/conclusion of law.
2

element essential to that party’s case, and on which that party will bear the burden of
proof at trial.” Livingston Care Center v. Dep’t of Health and Human Services, 388 F.3d
68, 173 (6" Cir. 2004). To avoid summary judgment, the non-moving party must then
act affirmatively by tendering evidence of specific facts showing that a dispute exists.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n.11 (1986). See
also Vandalia Park, DAB No. 1939 (2004); Lebanon Nursing and Rehabilitation Center,
DAB No. 1918 (2004).

n this case, CMS alleges that, from January 2005 through August 2006, Petitioner Lifson
illed the Medicare program for services that he did not provide. In some cases, the
eneficiaries were dead at the time he claimed to have provided the services. He also
illed for office visits that he could not have provided because the beneficiaries were
ospitalized at the time. In other instances, beneficiaries denied receiving the services for
which he billed. CMS Exhibits (Exs.) 5, 6, 7.

Billing Medicare for services not provided justifies termination of a provider agreement.
Social Security Act (Act), section 1866(b)(2); 42 C.F.R. § 424.535(a)(1). When
Petitioner entered into his provider agreement, he acknowledged that “any deliberate

omission, misrepresentation or falsification of any information . . . in any communication
supplying information to Medicare . .. may be punished by [among other penalties]
denial or revocation of Medicare identification number(s)... .” CMS Ex. 4, at 1.

Petitioner explicitly agreed to abide by Medicare laws, regulations and program
instructions, and acknowledged that payment of a Medicare claim is conditioned on
compliance with the law, regulations, and program instructions. CMS Ex. 4, at 1.

For his part, Petitioner Lifson does not deny the allegations of false claims, but asserts
that he was not responsible for erroneous billing done in his name. In his written
declaration he characterizes himself as the too-trusting victim of clinic staff. According
to Petitioner, through an internet employment company, he was hired to “open, supervise,
and manage a general medical clinic.” Petitioner (P.) Ex. 2, at 1. His job was to insure
quality, but physicians assistants generally provided the services to beneficiaries. P. Ex.
2, at 2 (Lifson Decl. 6, 8, 9). For his part, Petitioner was available for telephone
consultations, and made weekly visits to the clinic where he reviewed approximately 10%
of the medical charts. In his view, this is all that was required of him. P. Ex. 2, at 2,3
(Lifson Decl. ff 9, 10, 16). Clinic staff helped Petitioner fill out his Medicare
application. P. Ex. 2, at 2 (Lifson Decl. | 4). He denies ever submitting a superbill to
Medicare, and asserts that he would not even know how to do so. Instead that
responsibility was delegated to untrustworthy individuals who “misused [Petitioner’s]
license.” P. Ex. 2, at 2, 3 (Lifson Decl. JJ 13, 15, 17).

3

For summary judgment purposes, I accept all of Petitioner’s factual allegations.

However, based upon these facts, CMS is entitled to judgment as a matter of law.
Petitioner Lifson admits that he knowingly allowed clinic staff to use his billing number
and he is therefore responsible for the claims submitted in his name. As the Departmental
Appeals Board observed in a related context, an employee’s knowledge of the submission
of a false Medicare claim is imputed to the employer “even absent actual knowledge
because self-imposed ignorance of the subordinate’s actions is not a shield.” Thomas M.
Horras and Christine Richards, DAB No. 2015, at 15 (2006), citing United States v.
Cabrera-Diaz, 106 F. Supp. 2d 234, 239 (D.P.R. 2000).

Because Petitioner has “conceded all of the material facts” and “proffered testimonial
evidence only on facts which, even if proved, clearly would not make any substantive
difference in the result,” CMS is entitled to summary judgment (see Michael J. Rosen,
M.D., DAB No. 2096, at 4 (2007)), and I affirm CMS’s revocation of his Medicare billing
privileges.

/s/
Carolyn Cozad Hughes
Administrative Law Judge