Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:
Hassan M. Ibrahim, M.D., DATE: November 20, 1996
Petitioner,

Docket No. C-96-008
Decision No. CR445

-vo-

The Inspector General.

DECISION

I decide that the Inspector General (I.G.) is authorized to
exclude Petitioner, Hassan Ibrahim, M.D. (Petitioner), from
participating in Medicare and State health care programs,
including Medicaid, pursuant to section 1128(b)(5) of the
Social Security Act (Act). I decide also that the five-year
exclusion imposed by the I.G. is not reasonable. I modify
the exclusion so that Petitioner may apply to the I.G. for
reinstatement after three years, or upon his reinstatement by
the New York State Department of Social Services (Department
of Social Services) to participate in the New York Medicaid
program, whichever date occurs first.

I. Background

On September 20, 1995, the I.G. notified Petitioner that he
was being excluded from participating in Medicare and State
health care programs, including Medicaid. The I.G. advised
Petitioner that he was being excluded pursuant to section
1128(b) (5) of the Act, because Petitioner had been excluded
or suspended by a federal or State health care program for
reasons bearing on his professional competence, professional
performance, or financial integrity. The I.G. advised
Petitioner that she was excluding Petitioner for five years
in light of the fact that Petitioner had been excluded by the
Department of Social Services from participating in the New
York Medicaid program for a period of five years. Petitioner
requested a hearing, and the case was assigned to me for a
hearing and a decision.
2

I held a prehearing conference in the case. At that
prehearing conference, I gave the I.G. the opportunity to
file a brief asserting that summary disposition should be
issued in favor of the I.G. on the issue of the I.G.'s
authority to exclude Petitioner. I established a schedule
for the exchange of briefs and proposed exhibits. The
parties complied with this schedule. Shortly after the
parties completed their submissions, they advised me that
they were attempting to settle the case. I stayed the case
while the parties attempted to settle it. However, in
October 1996, the parties advised me that they were unable to
settle the case, and they requested that I decide it based on
their submissions.

The I.G.'s motion asserts that the case can be decided
dispositively based on the I.G.'s arguments and exhibits. I
interpret the I.G.'s motion as a request that I decide not
only the I.G.'s authority to exclude Petitioner, but also
whether the exclusion imposed by the I.G. is reasonable. It
is apparent that Petitioner interpreted the I.G.'s motion in
this way, because, in Petitioner's brief, Petitioner
addressed the issue of whether the exclusion was reasonable.
I conclude, therefore, that the parties have asked me to
decide all of the issues in this case based on their
submissions, and not just whether the I.G. has the authority
to exclude Petitioner. I base my decision in this case on
the parties’ submissions and on the applicable law.

II. Issues, findings of fact and conclusions of law

The issues in this case are whether the I.G. was authorized
to exclude Petitioner pursuant to section 1128(b) (5) of the
Act, and whether the five-year exclusion imposed by the I.G.
is reasonable. I make the following findings of fact and
conclusions of law (Findings) to support my decision that the
I.G. is authorized to exclude Petitioner, but that the
exclusion must be modified. I discuss each of my Findings in
detail, below.

1. Pursuant to section 1128(b)(5) of the Act, the I.G.
may exclude an individual who has been suspended or
excluded from participation, or otherwise sanctioned,
under any federal or State health care program, for
reasons bearing on that individual’s professional

1 The I.G. submitted 11 proposed exhibits (I.G. Exs.
1-11). Petitioner submitted 2 proposed exhibits (P. Exs. 1
- 2). Neither party objected to my receiving any of these
proposed exhibits into evidence. Therefore, I am receiving
as evidence I.G. Exs. 1 - 11 and P. Exs. 1 - 2.
3

competence, professional performance, or financial
integrity.

2. An individual who withdraws voluntarily from
participating in a federal or State health care program
in order to avoid the imposition of a formal sanction
against that individual, is “otherwise sanctioned“
within the meaning of section 1128(b)(5) of the Act.

3. Prior to July 1996, section 1128(b)(5) of the Act
did not establish a minimum or a maximum term of
exclusion for an individual who was excluded pursuant to
that section. Implementing regulations established a
benchmark exclusion of three years for an individual who
was excluded under section 1128(b) (5), unless the
presence of an aggravating factor or factors established
a basis for an exclusion of more than three years, or
unless the presence of a mitigating factor or factors
established a basis for an exclusion of less than three
years.

4. The Department of Social Services determined to
exclude Petitioner from participating in the New York
Medicaid program for a period of five years.

5. Petitioner requested a hearing from the
determination to exclude him from the New York Medicaid
program. Petitioner then agreed with the Department of
Social Services to settle his case by withdrawing
voluntarily from participating in the New York Medicaid
program. The agreement permitted Petitioner to provide
care to Medicaid recipients as a salaried employee of a
hospital. The agreement also permitted Petitioner to
request reinstatement to the New York Medicaid program
at any time.

6. The determination to exclude Petitioner from the New
York Medicaid program made by the Department of Social
Services was for reasons bearing on Petitioner’s
professional competence, professional performance, or
financial integrity.

7. Petitioner was “otherwise sanctioned“ by the
Department of Social Services, and the I.G. had
authority to exclude Petitioner from participating in
Medicare and Medicaid.

8. The I.G. did not prove the presence of aggravating
factors in this case.
4

9. Petitioner proved the presence of a mitigating
factor, in that he was not excluded or suspended from
participating in a State health care program.

10. The five-year exclusion which the I.G. imposed
against Petitioner is not reasonable.

11. It is reasonable to modify the exclusion so that
Petitioner may apply to the I.G. for reinstatement after
three years, or on the date that Petitioner is
reinstated in the New York Medicaid program, whichever
date occurs first.

III. Discussion
A. Governing law (Findings 1 - 3)

1. The I.G.’s authority to exclude pursuant to
section 1128(b) (5) of the Act (Findings 1 - 2)

The I.G. excluded Petitioner pursuant to section 1128(b) (5)
of the Act. This section authorizes the Secretary of the
United States Department of Health and Human Services
(Secretary) or her delegate, the I.G., to exclude any
individual or entity that is suspended or excluded from
participation, or otherwise sanctioned, under any federal
health care program or any State health care program, for
reasons bearing on that individual’s or entity’s professional
competence, professional performance, or financial integrity.

The I.G.’s authority to impose an exclusion pursuant to
section 1128(b)(5) of the Act derives from an action taken by
a federal health care program or a State health care program.
In any case where the I.G. imposes an exclusion under section
1128(b) (5), the issue of the I.G.’s authority to exclude will
be decided based on the following questions. First, was the
excluded individual or entity suspended, excluded from
participation, or otherwise sanctioned by a federal health
care program or a State health care program? Second, if the
individual was excluded, suspended, or otherwise sanctioned,
was the adverse action against that individual taken for
reasons bearing on that individual’s professional competence,
professional performance, or financial integrity?

The answers to these questions lie in the actions taken by
the federal health care program or State health care program
because the authority to exclude under section 1128(b) (5)
derives from those actions. The I.G. is not required to look
behind the action taken by a federal health care program or a
State health care program in order to determine whether the
5

actions were fair to the excluded individual, or supported by
evidence of misconduct.

Neither the Act nor the implementing regulations define the
statutory terms “excluded‘ or “suspended... These terms have
plain meanings. They describe circumstances in which a
federal health care program or a State health care program
takes an adverse action against an individual’s privilege of
doing business with, or pursuant to, such a program. Nor
does the Act define the term “or otherwise sanctioned.“
However, that term is defined in implementing regulations.
The term “or otherwise sanctioned“ is defined to mean:

all actions that limit the ability of a person to
participate in the program at issue regardless of
what such an action is called, and includes
situations where an individual or entity
voluntarily withdraws from a program to avoid a
formal sanction.

42 C.F.R. § 1001.601(a) (2).

As I shall discuss in more detail, below, there is an issue
in this case of whether Petitioner’s voluntary withdrawal
from providing some, but not all, services covered by the New
York Medicaid program, in order to avoid the imposition of a
suspension or an exclusion by that program, meets the
regulation’s definition of “or otherwise sanctioned. I
conclude that the regulation’s definition of “or otherwise
sanctioned“ encompasses that circumstance. An agreement by
an individual to limit his or her participation in a State
health care program in order to avoid the imposition of a
more encompassing exclusion is an action that limits the
ability of the individual to participate in the State health
care program, within the meaning of 42 C.F.R. §
1001.601(a) (2).

2. The basis for determining the length of an
exclusion imposed pursuant to section 1128(b) (5) of
the Act (Finding 3)

Prior to July 1996, section 1128(b) (5) of the Act did not
mandate a minimum period of exclusion for any individual whom
the I.G. determined ought to be excluded pursuant to that
section. Regulations established a framework for determining
the length of any exclusion to be imposed pursuant to section
1128(b) (5). The regulations established a benchmark
exclusion period of three years for any exclusion imposed
pursuant to section 1128(b)(5). 42 C.F.R. § 1001.601(b) (1).
The I.G. was authorized to impose an exclusion for more than
three years if any of the aggravating factors described in 42
C.F.R. § 1001.601(b) (2) were present in a case. The I.G. was
6

authorized to impose an exclusion for less than three years
if any of the mitigating factors described in 42 C.F.R. §
1001.601(b) (3) were present in a case.

On July 31, 1996, Congress amended section 1128. The
amendments are not on their face retroactive, and, therefore,
do not govern this case. The amendments include an amendment
to section 1128(c)(3) of the Act which mandates that, in the
case of any exclusion imposed pursuant to either sections
1128(b) (4) or 1128(b) (5), the period of exclusion shall not
be less than the period during which the excluded
individual’s or entity’s license to provide health care is
revoked, suspended, or surrendered, or the individual or
entity is excluded or suspended from a federal or State
health care program. Congressional Record -- House H9491
(July 31, 1996).

B. The relevant facts (Findings 4 - 5)

Petitioner is a physician. Currently, Petitioner resides in,
and practices medicine in, Shreveport, Louisiana.

On July 18, 1991, the Department of Social Services advised
Petitioner that it proposed excluding him from participating
in the New York Medical Assistance program, the New York
State Medicaid program, for a period of five years. I.G. Ex.
2 at 1- 2. The Department of Social Services based its
proposal to exclude Petitioner on allegations that
Petitioner: submitted false reimbursement claims; failed to
maintain records necessary to fully disclose the medical
necessity for and the nature and extent of the medical care,
services, and supplies that Petitioner had furnished;
furnished or ordered medical care, services, or supplies that
were substantially in excess of the needs of Medicaid
recipients; and, furnished medical care, services, or
supplies that failed to meet professionally recognized
standards of health care, or which were beyond the scope of
Petitioner’s professional qualifications or license. Id. at
1. The Department of Social Services advised Petitioner that
its allegations were based on an audit of services that
Petitioner had provided to Medicaid recipients. Id. at 2;
see I.G. Ex. 1.

On August 16, 1991, Petitioner submitted a response to the
audit on which the Department of Social Services had proposed
to exclude Petitioner. I.G. Ex. 9. His responses generally
countered the findings made in the audit. Id.; see I.G. Ex.
1.

On April 22, 1994, the Department of Social Services sent a
notice to Petitioner in which it advised Petitioner that he
was being excluded from participating in the New York
7

Medicaid program for a period of five years. I.G. Ex. 3.

The Department of Social Services advised Petitioner that it
had reviewed Petitioner’s response to the 1991 audit that had
been conducted of Petitioner. I.G. Ex. 3 at 2. The
Department of Social Services advised Petitioner that it had
revised its findings, based on Petitioner’s response to the
1991 audit, and it provided Petitioner with the revised
findings. I.G. Ex. 3 at 2; see I.G. Ex. 4.

The Department of Social Services notice of exclusion
essentially adopted all but one of the findings of misconduct
which were stated in the preliminary notice of intent to
exclude that the Department of Social Services had sent to
Petitioner. See I.G. Ex. 3 at 1- 2. The Department of
Social Services informed Petitioner that its determination to
exclude Petitioner was based on findings that Petitioner:
submitted a false claim; failed to maintain necessary or
required medical records; and furnished medical care,
services, or supplies that failed to meet professionally
recognized standards for health care, or which were beyond
the scope of Petitioner’s professional qualifications or
license. I.G. Ex. 3 at 1- 2. However, the Department of
Social Services did not exclude Petitioner based on a finding
that Petitioner had provided unnecessary services, as was
alleged in the preliminary notice.

Eventually, the Department of Social Services and Petitioner
entered into an agreement which supplanted the exclusion that
had been imposed by the Department of Social Services. I.G.
Ex. 8. The agreement was signed by Petitioner on August 14,
1995, and on behalf of the Department of Social Services on
December 18, 1995. Id. at 2. The agreement recited that
Petitioner had requested a hearing from the State exclusion.
It stated further that Petitioner agreed to voluntarily
withdraw from participating in the New York Medicaid program.
Id. at 1. Petitioner agreed that he would not bill the
program for services, nor would he cause orders or
prescriptions to be paid by the New York Medicaid program.
Id. Petitioner did not agree to having engaged in any
practices which the Department of Social Services might find
to be unacceptable. Id.

I infer from the terms of the agreement that it permits
Petitioner to continue providing New York Medicaid items or
services as a salaried employee of a hospital, so long as
Petitioner gives the Department of Social Services notice of
his employment by that hospital. The Department of Social
Services agreed not to prohibit reimbursement to an “Article
28 facility” employing Petitioner as a salaried employee for
Medicaid items or services provided by Petitioner, providing
that Petitioner gave the Department of Social Services notice
of his employment at an “Article 28 facility.” I.G. Ex. 8 at
8

1. The agreement does not define what is meant by an
“Article 28 facility.” Petitioner avers that an “Article 28
facility” is a hospital, and the I.G. has not disputed this
assertion. Petitioner’s brief at 1. For purposes of this
decision, I accept as correct Petitioner’s assertion that an
“Article 28 facility” is a hospital.

I infer that the agreement enables Petitioner to apply to the
New York Medicaid program at any time for reinstatement. The
agreement provides that Petitioner is eligible to apply for
reinstatement to the New York Medicaid program. I.G. Ex. 8
at 1. The agreement states no minimum period during which
Petitioner must not participate in the New York Medicaid

program.

Cc. The I.G.’s authority to exclude Petitioner (Findings
6 - 7)

Petitioner withdrew from participating in the New York
Medicaid program after the Department of Social Services had
determined to exclude Petitioner for reasons bearing on
Petitioner’s professional competence, professional
performance, and financial integrity. The determination of
the Department of Social Services that Petitioner had
submitted a false claim for Medicaid services plainly relates
to Petitioner’s financial integrity. The determination of
the Department of Social Services that Petitioner violated
record keeping requirements on its face relates to
Petitioner’s professional performance as a physician. The
determination of the Department of Social Services that
Petitioner provided services which did not comply with
professionally recognized standards of health care or which
were beyond the scope of Petitioner’s license relate both to
Petitioner’s professional competence and to his professional
performance.

Petitioner argues that the Department of Social Services
determination to exclude him may be distinguished from State
determinations in other cases in that, in this case, the
Department of Social Services allegedly did not find
Petitioner to have committed any fraud against the New York
Medicaid program. In fact, the Department of Social Services
found that Petitioner had submitted a false claim, which,
arguably, is a fraud against the New York Medicaid program.
But, even if Petitioner’s purported distinction is accurately
stated, it begs the question of whether the Department of
Social Services made a determination to exclude Petitioner
for any of the reasons enumerated in section 1128(b)(5) of
the Act. As I find above, the determination plainly was
premised on reasons that authorize exclusion under section
1128(b) (5).
9

Petitioner’s central argument seems to be that he was not
really excluded by the Department of Social Services.
Petitioner asserts that the agreement he ultimately entered
into with the Department of Social Services does not exclude
him from participating in the New York Medicaid program in
its entirety or for a fixed period of time. Rather,
according to Petitioner, he has only resigned voluntarily
from participating in that program as a fee-for-service
provider. Petitioner notes that he may work as a salaried
employee of a hospital, which can bill for Petitioner's
services rendered through the New York Medicaid program.

Although Petitioner’s assertions of the terms of his
agreement with the Department of Social Services are correct,
they do not establish that the I.G. lacks authority to
exclude Petitioner pursuant to section 1128(b)(5) of the Act.
Petitioner would never have entered into his agreement with
the Department of Social Services had the Department of
Social Services not determined to exclude Petitioner for
reasons bearing on Petitioner’s professional competence,
professional performance, or financial integrity.

Petitioner’s voluntary withdrawal from the New York Medicaid
program to avoid an exclusion from that program establishes
that Petitioner was “otherwise sanctioned” within the meaning
of section 1128(b)(5) of the Act and 42 C.F.R. §
1001.601(a)(2). It does not matter that the agreement
permitted Petitioner to continue to participate in the New
York Medicaid program in a limited way, as a salaried
employee of a hospital. As I discuss above, the regulation’s
definition of “otherwise sanctioned” encompasses the
situation where an agreement entered into to avoid imposition
of a State exclusion permits the sanctioned individual to
continue to engage in limited, but not full, participation in
a State health care program.

The agreement between Petitioner and the Department of Social
Services was signed by Petitioner on August 14, 1995, prior
to the date that the I.G. excluded Petitioner. It was not
accepted by the Department of Social Services until December
18, 1995, after the date of the I.G.’s exclusion of
Petitioner. I.G. Ex. 8. The I.G.’s September 20, 1995
notice of exclusion was predicated on the Department of
Social Services' April 22, 1994 determination to exclude
Petitioner, which determination predated the settlement
agreement between Petitioner and the Department of Social
Services. I.G. Ex. 6; see I.G. Ex. 3. The exclusion notice,
therefore, does not recite as a basis for excluding
Petitioner, that Petitioner was “otherwise sanctioned.”
However, the I.G. made the argument in her brief that she had
authority to exclude Petitioner on the ground that Petitioner
was “otherwise sanctioned.”
10

The I.G. was not remiss in failing to assert in her notice of
exclusion that Petitioner was “otherwise sanctioned.” The
I.G.’s notice to Petitioner reflects accurately the state of
events as of the date of the notice. As of the date of the
notice, September 20, 1995, Petitioner was excluded from
participating in the New York Medicaid program.

Petitioner has not argued that he has been prejudiced by the
I.G.’s failure to provide him with a notice which states
accurately the basis for excluding Petitioner, premised on
the settlement agreement that postdates the I.G.’s original
notice of exclusion. Notwithstanding, I have considered
whether the 1.G.’s failure to provide Petitioner with a
revised notice of exclusion denies Petitioner adequate notice
of the reasons for his exclusion. I conclude that it does
not.

Petitioner had adequate notice of the I.G.’s argument that
Petitioner was "otherwise sanctioned" within the meaning of
42 C.F.R. § 1001.601(a)(2). The I.G. provided Petitioner
with notice in her brief of her revised theory of authority
to exclude Petitioner. Petitioner had the opportunity to
respond to that theory or to argue that he had not received
adequate notice of it. Petitioner did not argue that he had
received inadequate notice of the I.G.’s revised theory of
authority.

D. Whether the exclusion is reasonable (Findings 8 -
11)

The regulation which implements section 1128(b)(5) of the Act
provides that, in the absence of aggravating or mitigating
factors, an exclusion of three years will be imposed. 42
C.F.R. § 1001.601(b). The I.G.’s determination to exclude
Petitioner for five years, two years more than the three-year
benchmark, is based on the April 22, 1994 Department of
Social Services determination to exclude Petitioner for five
years. I.G. Ex. 6; see 1.G. Ex. 3. A State exclusion of
more than three years is an aggravating factor which may
justify an exclusion by the I.G. of more than three years.

42 C.F.R. § 1001.601(b) (2) (ii).

The premise for the five-year exclusion no longer exists.
After the I.G. imposed her exclusion, Petitioner and the
Department of Social Services entered into an agreement which
requires no term of exclusion, and which permits Petitioner
to apply at any time to the Department of Social Services for
reinstatement in the New York Medicaid program. Thus,
although an aggravating factor arguably was present as of the
date that the exclusion was imposed by the I.G., that
aggravating factor is no longer present.
11

Indeed, Petitioner’s agreement with the Department of Social
Services establishes the presence of a mitigating factor that
did not exist at the time that the I.G. imposed her
exclusion. A mitigating factor exists where a State suspends
or excludes an individual for less than the three-year
benchmark period. 42 C.F.R. § 1001.601(b)(3)(i). The
settlement agreement between Petitioner and the Department of
Social Services effectively rescinds Petitioner's exclusion
from the New York Medicaid program. Petitioner is not
presently excluded from that program, although he is an
“otherwise sanctioned” individual.

The regulations do not specifically address how an
administrative law judge should evaluate the reasonableness
of an exclusion under section 1128(b)(5) of the Act where an
aggravating factor which might justify a lengthier exclusion
than the benchmark three-year period is present as of the
date that the exclusion is imposed, but no longer is present
as of the date of the hearing and decision of the case. Nor
do the regulations deal with the emergence of a mitigating
factor at the time of adjudication, which is not present at
the date of the exclusion.

I interpret the 42 C.F.R. Part 1001 regulations, which
implement section 1128 of the Act, to require generally that
the administrative law judge adjudicate the reasonableness of
an exclusion based on the presence or absence of aggravating
or mitigating factors at the time of adjudication. The
regulations in 42 C.F.R. Part 1001 are not intended to
deprive an excluded individual of the de novo hearing that is
guaranteed to that individual under section 205(b) of the
Act. The hearing is not intended to be an appellate review
of the I.G.’s exclusion determination.

Therefore, the posture of this case is that there now exists
a mitigating factor which did not exist at the time of the
I.G.’s exclusion of Petitioner. There is no State exclusion
of Petitioner, although Petitioner is an “otherwise
sanctioned” individual. No aggravating factors are present
at this time.

The five-year exclusion that the I.G. imposed against
Petitioner is unreasonable, when it is evaluated in the
context of the present posture of this case. There is no
basis for me to sustain an exclusion of more than three
years, given the absence of any aggravating factors. Indeed,
the presence of a mitigating factor is evidence supporting an
exclusion which may run for less than three years.

In imposing her five-year exclusion of Petitioner, the I.G.,
in effect, concluded that it was reasonable to rely on the
Department of Social Services determination that Petitioner
12

would not be trustworthy to provide care to program
recipients, for a period of five years. The I.G. has adduced
no evidence to show that her exclusion is reasonable
independent of that which the Department of Social Services
relied on. Now, however, the Department of Social Services
has stipulated that Petitioner may, in fact, be considered to
be trustworthy to provide care at any time. Given that the
I.G. is not relying on anything other than the findings of
the Department of Social Services, I conclude that
Petitioner’s exclusion ought to be modified to be consistent
with what the Department of Social Services has agreed to do
in Petitioner’s case.

I modify Petitioner’s exclusion to permit him to apply to the
I.G. for reinstatement upon his reinstatement to the New York
Medicaid program. That is consistent with the terms of
Petitioner’s settlement agreement. However, I also impose a
three-year limit on the I.G.’s exclusion of Petitioner. I do
that because there exist no aggravating factors in this case,
and in light of the possibility that Petitioner might not be
reinstated to the New York Medicaid program within three
years.

I have considered the Congressional policy embodied in the
1996 amendments to section 1128 of the Act, even though those
amendments are not binding in this case. My modification of
the exclusion is not inconsistent with that policy. The 1996
amendments require that an exclusion imposed under section
1128(b) (5) be for a period that is not less than the federal
or State suspension or exclusion upon which the I.G.’s
exclusion is based. Here, there is no federal or State
suspension or exclusion on which the I.G. may premise an
exclusion. Petitioner was not suspended or excluded, but is
an “otherwise sanctioned” individual. In any event, the
exclusion, as modified, will last at least as long as
Petitioner’s resignation from the New York Medicaid program,
up to the three-year benchmark established by 42 C.F.R. §
1001.601.

The consequence of my modification of the I.G.’s exclusion is
that Petitioner may apply to the I.G. for reinstatement upon
his reinstatement to the New York Medicaid program. However,
in view of the absence of any aggravating factors, Petitioner
may apply to the I.G. for reinstatement at the end of three
years, if he has not been reinstated by the New York Medicaid
program by then.

My modification of the exclusion establishes only the
circumstances under which the I.G. must consider Petitioner’s
application for reinstatement. It does not direct
reinstatement at any time. The I.G. is not obligated to
accept Petitioner’s application for reinstatement. 42 C.F.R.
13

§ 1001.3002. A determination by the I.G. not to accept an
application for reinstatement is not reviewable. 42 C.F.R. §
1001.3004. The I.G. is not required to reinstate Petitioner
even if he has been reinstated to participate in the New York
Medicaid program. And, the I.G. is not required to reinstate
Petitioner at the end of three years.

Iv. Conclusion

I conclude that the I.G. has authority, pursuant to section
1128(b) (5) of the Act, to exclude Petitioner. I conclude
further that the five-year exclusion imposed by the I.G. is
not reasonable. I modify the exclusion so that Petitioner
may apply to the I.G. for reinstatement at the end of three
years or upon his reinstatement to participate in the New
York Medicaid program, whichever occurs first.

/s/

Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

In the Case of:
Rafael Convalescent Hospital, DATE: November 19, 1996
Petitioner,

Docket No. C-96-292
Decision No. CR444

Vv.

Health Care Financing
Administration.

eee eee ener ney

DECISION

I decide that Rafael Convalescent Hospital (Petitioner) has no
right to a hearing. Therefore, I dismiss Petitioner's request
for a hearing.

I. Background

On January 26, 1996, Petitioner requested a hearing concerning
the results of a survey of Petitioner that Petitioner alleged was
conducted jointly by the California Department of Health Services
(California survey agency) and by the Health Care Financing
Administration (HCFA). Petitioner's hearing request was assigned
to me for disposition. HCFA moved to dismiss Petitioner's
request for a hearing, on the ground that Petitioner had no right
to a hearing. Petitioner opposed HCFA's motion.!

II. Issues, findings of fact and conclusions of law

The issue in this case is whether Petitioner has a right to a
hearing. I make the following findings of fact and conclusions
of law (Findings) to support my decision that Petitioner does not

' HCFA submitted five exhibits (HCFA Ex. 1 - 5) in support
of its motion. Petitioner submitted eight exhibits (P. Ex. 1 -
8) in opposition to HCFA's motion. Neither party objected to my
receiving into evidence the other party's proposed exhibits. I
receive into evidence HCFA Ex. 1 - 5 and P. Ex. 1 - 8.
2

have a right to a hearing. I discuss each Finding in detail,
below.

1. Petitioner participates in the Medicare program as a
skilled nursing facility (SNF), and in the California
Medicaid program as a nursing facility (NF).

2. On November 14, 1995, the California survey agency
informed Petitioner that, based on a survey that it had
conducted of Petitioner, it had found that Petitioner was
not in substantial compliance with federal requirements for
nursing homes participating in the Medicare and Medicaid
programs.

3. On November 14, 1995, the California survey agency
informed Petitioner that, if Petitioner did not attain
substantial compliance with Medicare participation
requirements, the California survey agency would recommend
to HCFA that HCFA impose the following remedies against
Petitioner:

a. A civil money penalty;
b. A denial of payment for new admissions; and

c. Termination of Petitioner's participation in
Medicare.

4. On February 13, 1996, the California survey agency
informed Petitioner that it had determined that Petitioner
had attained substantial compliance with Medicare and
Medicaid participation requirements. The California survey
agency made no recommendation to HCFA that HCFA impose as a
remedy or remedies a civil money penalty, a denial of
payment for new admissions, or termination of Petitioner's
participation in Medicare.

5. Regulations which govern the participation in Medicare
of SNFs and NFs provide that a SNF or a NF is entitled to a
hearing from a determination by HCFA which results in the
imposition of a remedy against the SNF or NF by HCFA.

6. A SNF or a NF is not entitled to a hearing where HCFA
has made no determination concerning whether the SNF or NF
is complying with Medicare participation requirements.

7. A SNF or a NF is not entitled to a hearing where HCFA
has imposed no remedy against it.

8. HCFA made no determination concerning whether Petitioner
was complying with Medicare participation requirements.
3

9. Neither the California survey agency nor HCFA imposed
any remedies against Petitioner.

10. Petitioner has no right to a hearing.

11. I do not have authority to hear and decide Petitioner's
argument that surveys conducted of Petitioner did not comply
with requirements governing surveys.

12. I do not have authority to hear and decide Petitioner's
argument that actions by the California survey agency or
HCFA may deny Petitioner its rights under the United States
Constitution.

III. Discussion
A. The relevant facts (Findings 1 - 4)

On November 6, 1995, the California survey agency conducted a
survey of Petitioner's facility to determine whether Petitioner
was complying substantially with federal requirements for nursing
homes participating in Medicare and Medicaid. HCFA Ex. 1 at 1.
Based on this survey, the California survey agency informed
Petitioner on November 14, 1995, that Petitioner was not in
substantial compliance with participation requirements. Id. The
California survey agency told Petitioner that it must submit to
the California survey agency a plan of correction which showed
how Petitioner would correct the deficiencies. Id. The
California survey agency advised Petitioner that, if Petitioner
did not achieve substantial compliance with participation
requirements, the California survey agency would recommend to
HCFA that HCFA impose remedies, which might include the
following:

e A civil money penalty of $300.00 a day, effective
November 6, 1995;

® Denial of payment for new admissions, if
Petitioner did not achieve substantial compliance
within three months from November 6, 1995; and

e Termination of Petitioner's participation in
Medicare, effective May 6, 1996, if Petitioner did
not achieve substantial compliance by that date.

Id. at 2.

On November 30, 1995, Petitioner submitted a plan of correction
to the California survey agency. HCFA Ex. 2 at 2. On January
24, 1996, Petitioner, through its legal counsel, wrote to HCFA.
HCFA Ex. 2. Petitioner recited that, on January 3, 1996, it had
4

participated with the California survey agency in an informal
dispute resolution conference. Id. at 2. Petitioner averred
that, at the conference, it had produced extensive documentation
and several hours of testimony to prove that it had been in
substantial compliance with participation requirements. Id.
However, the California survey agency had not accepted most of
Petitioner's assertions of substantial compliance. Id.

Petitioner asserted that, if HCFA imposed enforcement remedies
against Petitioner, then Petitioner would request a hearing to
contest the findings of noncompliance that had been made by the
California survey agency. HCFA Ex. 2 at 3. Petitioner
characterized the potential remedies concerning which it would
seek a hearing as including: prohibiting Petitioner's nurse aide
training program for two years, and the issuance of a civil money
penalty. Id.

On February 13, 1996, the California survey agency notified
Petitioner that, based on a resurvey that it had conducted of
Petitioner's facility on February 5, 1996, Petitioner had been
found to be in substantial compliance with federal participation
requirements for nursing homes participating in Medicare or
Medicaid. HCFA Ex. 3 at 1. The California survey agency advised
Petitioner also that, based on the resurvey, Petitioner continued
to manifest some deficiencies which did not establish a failure
by Petitioner to comply substantially with participation
requirements, but which Petitioner should correct. Id.

I infer from the February 13, 1996 notice that the California
survey agency did not recommend to HCFA that HCFA impose any of
the possible remedies that the California survey agency
enumerated in its November 14, 1995 notice to Petitioner. HCFA
Ex. 3; see HCFA Ex. 1. The gist of the November 14, 1995 notice
is that the California survey agency would not recommend to HCFA
that HCFA impose any of the remedies enumerated in that notice if
Petitioner attained substantial compliance with participation
requirements. HCFA Ex. 1. The certification in the February 13,
1996 notice that Petitioner had attained substantial compliance
therefore must be read consistent with the November 14, 1995
notice as a statement by the California survey agency that it
would not recommend that HCFA impose any of the previously
enumerated remedies.

I infer also that HCFA made no determination that Petitioner
failed to comply with Medicare participation requirements, nor
did it impose against Petitioner any of the remedies that were
enumerated in the California survey agency’s November 14, 1995
notice. There is no evidence that the California survey agency
communicated its findings to HCFA. There is no evidence that
HCFA reviewed or acted on the findings made by the California
survey agency. HCFA never sent to Petitioner any notice
5

indicating that HCFA had considered, much less accepted, the
findings made by the California survey agency.

Petitioner argues, in effect, that the California survey agency
and HCFA jointly determined that Petitioner was not complying
substantially with participation requirements. Under this
theory, a determination by the California survey agency
concerning Petitioner's compliance is also a determination by
HCFA. However, this theory is not supported by the evidence. It
is true that HCFA employees participated in the November 6, 1995
survey of Petitioner. P. Ex. 2. Notwithstanding, there is no
evidence that HCFA made a determination about Petitioner's
compliance or noncompliance with participation requirements based
on the observations made by the survey participants, including
HCFA employees.

On March 22, 1996, Petitioner, through its legal counsel, wrote
again to HCFA. HCFA Ex. 5. Petitioner advised HCFA that it was
revising its request for hearing, in light of the finding by the
California survey agency that, effective February 5, 1996,
Petitioner was in substantial compliance with participation
requirements. Id. at 1. Petitioner asserted that it had been
harmed by a finding of the California survey agency that, prior
to February 5, 1996, Petitioner had provided care of a
substandard quality. Id. Petitioner asserted additionally that
it disputed the remedies which Petitioner asserted had been
imposed against it and which Petitioner averred were associated
with the finding that Petitioner had provided care of a
substandard quality. Id. at 1 - 2.

According to Petitioner, it had been harmed particularly by the
California survey agency’s failure to announce an extended survey
of Petitioner, and by the California survey agency’s alleged
application of arbitrary criteria in its evaluation of
Petitioner. HCFA Ex. 5 at 1 - 2. Petitioner asserted that it
had been harmed by a wrongful prohibition of its nurse aide
training, and, for that reason, it intended to pursue its hearing
rights. Id. at 2.

The evidence does not establish that either the California survey
agency or HCFA imposed a prohibition on Petitioner from
conducting nurse aide training. However, for purposes of this
decision, I find that as a consequence of the initial findings of
noncompliance made by the California survey agency, Petitioner
may have its authorization to conduct nurse aide training
suspended.
6

B. Whether Petitioner is entitled to a hearing (Findings
5 - 10)

Petitioner is not entitled to a hearing, because HCFA made no
determination concerning Petitioner's compliance with Medicare
participation requirements. Moreover, even if HCFA did make a
determination concerning Petitioner's compliance with Medicare
participation requirements, it imposed no remedy against
Petitioner. In the absence of a remedy, Petitioner is not
entitled to a hearing.

The regulations which establish hearing rights for a provider are
contained in 42 C.F.R. Parts 488 and 498. The regulations
establish that, as a necessary prerequisite to a hearing, there
must be an initial determination by HCFA affecting a provider's
participation in Medicare. 42 C.F.R. § 498.3(a) and (b). The
regulation defines an "initial determination" to be a conclusion
by HCFA concerning any of several specifically enumerated
circumstances which may affect a provider's eligibility to
participate in Medicare. 42 C.F.R. § 498.3(b)(1) - (13). The
regulations do not suggest that a finding made by a State survey
agency is a determination by HCFA, unless that finding is
affirmatively accepted by HCFA or is at least ratified by HCFA
after the fact.

There is no evidence that HCFA accepted or ratified the findings
made by the California survey agency concerning Petitioner's
compliance with Medicare participation requirements. Therefore,
HCFA made no initial determination concerning Petitioner's
compliance and Petitioner has no right to a hearing.

However, even assuming that HCFA made an initial determination
concerning Petitioner's compliance, HCFA imposed no remedy
against Petitioner. A SNF or a NF may request a hearing
concerning a determination by HCFA that the SNF or NF is not
complying substantially with Medicare participation requirements
only where HCFA actually imposes a remedy against the SNF or NF.
42 C.F.R. §§ 488.408(g) (1), 498.3(b) (12); Fort Tryon Nursing
Home, DAB CR425 (1996); Ruth Taylor Institute, DAB CR430 (1996).

The word "remedy" is defined in 42 C.F.R. § 488.406. An action
taken by HCFA is a "remedy" if the action is one of those actions
which falls within the definition of a remedy. Remedies are
defined to include: termination of participation; appointment of
temporary management; denial of payment; denial of payment for
new admissions; imposition of a civil money penalty; imposition
of State monitoring of performance; directed transfer of
residents; directed closure of a facility and transfer of the
facility's residents; imposition of a directed plan of
correction; directed in-service training; and alternative or
additional State remedies that are approved by HCFA. 42 C.F.R. §
488.406(a). If an action taken by HCFA is not one of these
7

remedies, then it is not a "remedy," and the provider has no
right to a hearing from the action.

The record in this case establishes that the California survey
agency told Petitioner that it would recommend that HCFA impose
any of three actions against Petitioner that are remedies within
the meaning of 42 C.F.R. § 488.406, if Petitioner did not attain
compliance with Medicare participation requirements. These
possible remedies are: termination of Petitioner's participation
in Medicare, denial of payments for new admissions by Petitioner,
and imposition of a civil money penalty against Petitioner. 42
C.F.R. § 488.406(a), (a) (2), (a)(3). However, the record
establishes also that the California survey agency never imposed
any of the aforesaid remedies and that it never recommended to
HCFA that HCFA impose any of the aforesaid remedies or take any
other action defined to be a remedy under 42 C.F.R. § 488.406.
Moreover, HCFA never imposed a remedy against Petitioner.

Petitioner asserts that the possible loss of its nurse aide
training program, as a consequence of the California survey
agency's determination that Petitioner was not complying
substantially with participation requirements, is a remedy from
which it has a right to a hearing. I do not agree with this
assertion. The regulation which defines those initial
determinations from which a provider has a right to a hearing
specifically states that loss of nurse aide training by a SNF or
a NF is not an initial determination by HCFA from which the SNF
or NF has a right to a hearing. 42 C.F.R. § 498.3(d) (12); Ruth

Taylor Institute, DAB CR430, at 11.
c. Petitioner’s other arguments (Findings 11 - 12)

Petitioner asserts that, to the extent that HCFA failed to review
and approve the findings made by the California survey agency, it
failed to comply with an internal HCFA directive that State

2? fhe regulations appear to provide that, in some
circumstances, a State agency may impose one or more of the
remedies enumerated in 42 C.F.R. § 488.406 without the approval
of HCFA. 42 C.F.R. §§ 488.400, 488.402. Arguably, a provider
would not have a right to a federal administrative hearing from a
determination by a State agency to impose a remedy which was not
reviewed and approved by HCFA, or, at least, ratified by HCFA
after the fact. That appears to be the case, because, pursuant
to 42 C.F.R. § 498.3, the right to a hearing emanates only from a
determination made by HCFA. However, it is unnecessary for me to
decide whether Petitioner would have a right to a hearing froma
remedy imposed by the California survey agency, absent a
determination by HCFA to impose a remedy. In this case, no
remedy was imposed against Petitioner, either by the California
survey agency or by HCFA.
8

survey agency findings of substandard care be reviewed and
approved by HCFA. Petitioner's opening brief at 7 - 8. I have
no authority to hear and decide the merits of this argument. My
authority to hear and decide cases is based on a determination
made by HCFA which results in the imposition of a remedy. 42
C.F.R. §§ 488.408(g) (1), 498.3(b) (12). Where HCFA makes no
determination, I have no authority to find that HCFA ought to
have made a determination.

Petitioner argues also that it would be denied a constitutional
right to a hearing if it were to lose its nurse aide training
program, but not be permitted a hearing as to the loss of that
program. Again, I am without authority to hear and decide this
assertion. My authority to hear and decide cases involving HCFA
is limited to those cases which arise from determinations
described in 42 C.F.R. § 498.3, which result in a remedy being
imposed against a provider. I have no authority to hear and
decide a provider's assertion that it has been denied a hearing
in violation of the United States Constitution, where no right to
a hearing is provided by the regulations.

Iv. Conclusion

I conclude that Petitioner is not entitled to a hearing.
Therefore, I dismiss Petitioner's request for a hearing.
/s/

Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:
Kings View Hospital, Date: November 5, 1996
Petitioner,

Docket No. C-96-233
Decision No. CR442

-v oc

Health Care Financing
Administration.

DECISION

I decide that Petitioner, Kings View Hospital, terminated its
participation in Medicare, effective October 11, 1991. I
decide additionally that the Health Care Financing
Administration (HCFA) determined correctly to recertify
Petitioner to participate in Medicare, effective August 11,
1993.

I. Background

The following background facts are not disputed by the
parties. Petitioner is a psychiatric hospital, located in
Reedly, California. Prior to October 11, 1991, Petitioner
was certified by HCFA to participate in the Medicare program
as a psychiatric hospital. By letter dated April 20, 1995,
HCFA advised Petitioner that HCFA had determined that,
between October 11, 1991 and April 8, 1993, none of
Petitioner’s beds were licensed by the State of California as
acute psychiatric beds. HCFA advised Petitioner that there
was no basis for HCFA to have recognized Petitioner as a
psychiatric hospital during this period, because of
Petitioner’s failure to have a license to operate acute
psychiatric care beds during the period. HCFA determined
that Petitioner had terminated its participation in Medicare
beginning October 11, 1991, based on Petitioner’s failure to
maintain a license to operate as a psychiatric hospital,
effective that date.
2

In a previous letter, dated April 20, 1994, HCFA advised
Petitioner that it had accepted Petitioner’s agreement to
participate as a psychiatric hospital, effective August 11,
1993. When the April 20, 1994 and April 20, 1995 letters
from HCFA are read together, it is apparent that HCFA
determined that Petitioner should not have been certified to
participate in Medicare as a psychiatric hospital between
October 11, 1991 and August 11, 1993.

On May 25, 1995, Petitioner requested a hearing from HCFA’s
determination that, between October 11, 1991 and August 11,
1993, Petitioner was not certified to participate in Medicare
as a psychiatric hospital. Petitioner asserted that HCFA
should not have decertified Petitioner from participating in
Medicare. Petitioner asserted additionally as a secondary
position that, if Petitioner was not properly certified by
HCFA to participate in Medicare effective October 11, 1991,
then it should have been certified to participate in Medicare
effective April 8, 1993 and thereafter.

On April 30, 1996, HCFA advised Petitioner that, after review
of Petitioner’s hearing request by the Department of Health
and Human Services Office of Regional Counsel, HCFA had
determined to forward Petitioner’s hearing request to the
Departmental Appeals Board. The case was assigned to me for
a hearing and a decision. I held a prehearing conference by
telephone, at which HCFA advised me that it was not disputing
that Petitioner was entitled to a hearing. The parties
eventually agreed that the case could be heard and decided
based on written submissions, including exhibits and briefs.

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

The issue in this case is whether Petitioner ought to have
been certified to participate in Medicare at any time between
October 11, 1991 and August 11, 1993. I make the following
findings of fact and conclusions of law (Findings) to support
my decision that HCFA correctly determined: that Petitioner
terminated its certification effective October 11, 1991; and
to recertify Petitioner, effective August 11, 1993. I
discuss each Finding below, at Part III of this decision.

1. In order to meet the statutory definitions of a
hospital and of a psychiatric hospital, for purposes of
participation in Medicare, an entity must be licensed as
may be required under applicable State law. In lieu of
a license, the entity may be approved under applicable
State law as meeting the requirements for a license.
3

2. An entity terminates its participation in Medicare
as a hospital if that entity ceases to meet the
statutory definition of a hospital.

3. An entity whose participation in Medicare is
terminated may not participate in Medicare again until
it has been recertified by HCFA as meeting participation
requirements.

4. In order to be recertified to participate in
Medicare, an entity whose previous participation in
Medicare is terminated must apply for participation and
must be surveyed by or on behalf of HCFA to determine
whether the entity meets Medicare participation
requirements.

5. The earliest date that an applicant for
certification whose previous participation in Medicare
is terminated may participate is the date of completion
of the survey, assuming that the applicant meets all
participation requirements on that date.

6. Under California law, the effect of placing an
inpatient hospital bed in suspension is to place in
suspense the license to operate that hospital bed. If
all of a facility’s inpatient hospital beds are placed
in suspense, then the effect is to place in suspense the
license of that facility to operate its inpatient
hospital beds.

7. Effective October 11, 1991, the State of California,
acting at Petitioner’s request, placed in suspense all
37 of the inpatient hospital beds operated by
Petitioner.

8. The effect of placing all of Petitioner’s inpatient
beds in suspense was to place in suspense Petitioner’s
California license to operate its inpatient hospital
beds. Petitioner was not permitted to operate as a
hospital, under California licensing requirements, from
October 11, 1991 to April 8, 1993.

9. By having all of its inpatient hospital beds placed
in suspense, Petitioner ceased to meet the statutory
definitions of a hospital and of a psychiatric hospital,
effective October 11, 1991.

10. Effective April 8, 1993, the State of California
granted Petitioner a license to operate eight acute care
psychiatric beds. The April 8, 1993 license provided
that the license for four of the eight beds would remain
in suspense until June 30, 1994.
4

11. HCFA properly determined that Petitioner terminated
its participation in Medicare, effective October 11,
1991.

12. Petitioner applied for recertification by HCFA and,
on August 11, 1993, was surveyed on behalf of HCFA to
determine whether Petitioner met Medicare participation
requirements. Based on the survey results, HCFA
determined that Petitioner met Medicare participation
requirements, effective August 11, 1993.

13. HCFA properly determined that Petitioner should be

recertified to participate in Medicare, effective August
11, 1993.

III. Discussion
A. Governing law (Findings 1 - 6)

1. The requirement that an entity have a State
license in order to meet the statutory definitions
of a hospital and of a psychiatric hospital
(Finding 1)

An entity must either be licensed under State law as a
hospital, to the extent that a license is required under
State law, or receive authority to operate from a State in
lieu of a license, in order to meet the statutory definition
of a hospital for purposes of participating in Medicare.
Social Security Act (Act), section 1861(e)(7). A
“psychiatric hospital” is defined in section 1861(f)(1) and
(2) of the Act to be an entity which meets the definition of
a “hospital” contained in section 1861(e) of the Act, and
which provides psychiatric services primarily.

Thus, the statutory definition of a psychiatric hospital in
section 1861(f) of the Act incorporates the State license
requirement contained in section 1861(e)(7) of the Act.

2. Termination of participation by an entity that
no longer meets the statutory definition of a
hospital (Finding 2)

An entity which participates in Medicare as a hospital no
longer meets the statutory definition of a hospital where
that entity ceases to be authorized under State law to
provide inpatient services. In that circumstance, the entity
terminates its participation in Medicare. The entity’s
termination of its participation in Medicare is effective on
the date that the entity ceases to meet the statutory
definition of a hospital.
5

As I discuss above, the definitions of a hospital and of a
psychiatric hospital under the Act include the requirement
that the entity be licensed under State law, to the extent
that a license is required. Therefore, when a psychiatric
hospital loses its State license, or when that license is
placed in a state of suspense, then the psychiatric hospital
is no longer a hospital as defined by section 1861(e) (7) of
the Act, or a psychiatric hospital, as defined by section
1861(f) of the Act, and it ceases to qualify to participate
in Medicare.

Petitioner argues that, even if an entity that participates
in Medicare as a hospital ceases to meet the statutory
definition of a hospital, that entity’s participation may not
terminate until HCFA provides the entity with notice of
termination as is required by 42 C.F.R. § 489.53(c). I am
not persuaded by this argument. HCFA is obligated to give a
provider notice in advance of effectuating a determination by
HCFA to terminate a provider’s participation in Medicare.

Id. But the regulation does not require HCFA to hold in
abeyance a termination of participation, until the notice
requirements of the regulation are met, where the provider no
longer meets the definition of a provider under the Act.

The regulation requiring advance notice of a determination by
HCFA to terminate a provider’s participation lists 14
circumstances which might justify a determination by HCFA to
terminate a provider’s participation. 42 C.F.R. §

489. 53 (a) (1) - (14). All of these circumstances comprise
situations in which the provider fails to comply with a
requirement of participation. None of those circumstances
describe instances where the entity no longer meets the
definition of a provider. In that latter circumstance, there
is no need for HCFA to terminate the provider’s
participation. By no longer meeting the definition of a
provider, the hospital that loses its State authority to
operate has ceased to be a hospital within the meaning of the
Act.

3. The circumstances under which an entity whose
participation in Medicare is terminated may
participate again in Medicare (Findings 3 - 5)

An entity whose participation in Medicare is terminated may
not participate again unless HCFA finds that: the reason for
termination has been removed and there is reasonable
assurance that it will not recur; and the entity has
fulfilled, or has made satisfactory arrangements to fulfill,
all of the statutory and regulatory responsibilities of its
previous agreement with HCFA. 42 C.F.R. § 489.57(a), (b).
6

The regulation which governs reinstatement of an entity whose
participation is terminated does not spell out how that
entity may satisfy the requirements of the regulation, in
order to qualify for reinstatement. See 42 C.F.R § 489.57.
It is apparent from the regulation that it vests in HCFA the
discretion to determine the manner in which an entity whose
participation is terminated may be recertified for
participation.

An entity must apply to HCFA to be certified to participate
in Medicare. 42 C.F.R. § 489.10(a). In order to be
certified, an applicant for participation first must be
surveyed in order to determine whether that applicant meets
all Medicare participation requirements. 42 C.F.R. §§
488.10, 489.10(d). HCFA has delegated to State survey
agencies the authority to conduct surveys on HCFA’s behalf.
Id. HCFA will accept an applicant’s participation agreement
on the date that a survey of that applicant is completed,
assuming that the applicant meets all participation
requirements on that date. 42 C.F.R. § 489.13(a). There is
no provision in the regulations governing applications for
participation and surveys which would enable HCFA to accept
an application for participation earlier than the date of
completion of the survey.

The regulations which govern applications for participation
and surveys of applicants do not distinguish between
applicants who have not participated previously and
applicants who have participated previously, but whose
participation is terminated. The regulations do not suggest
that a previous participant that applies for recertification
will be treated any differently than an applicant for
provider status that has not participated previously.
Therefore, a previous participant may not qualify to
participate at any date earlier than completion of the State
agency survey that HCFA has conducted to determine whether
the applicant meets participation requirements.

4. The effect under California law of placing
either a hospital license or licensed beds in
suspense (Finding 6)

The State agency in California which is responsible for the
granting of licenses to operate hospitals is the State of
California Department of Health Services, Licensing and
Certification (California licensing agency). HCFA Ex. 5 at
1.' Under California law, a licensed hospital may

' HCFA offered 12 exhibits in support of its
arguments (HCFA Exs. 1 - 12). Petitioner offered six
designated exhibits in support of its arguments (P. Exs. 1 -
7

voluntarily request the California licensing agency that its
entire license, or licensed beds, be put in a state of
suspension. HCFA Ex. 9 at 1 - 2.

The effect under California law of placing a hospital license
in suspense is that the hospital loses its authority to
operate during the suspension period. HCFA Ex. 5 at 2. The
effect under California law of placing licensed hospital beds
in suspension is that the hospital loses its authority to
operate the beds that are in suspense during the suspension
period. Id. A hospital may not operate as an inpatient
hospital under California law where all of its licensed beds
are placed in suspension. Id@. Thus, under California law,
if all of a hospital’s licensed inpatient beds are in
suspense, then the result -- that the hospital may not
operate as an inpatient facility -- is the same as if the
hospital’s license to operate as an inpatient facility is in
suspense. Id.

B. The relevant facts (Findings 7, 10, 12)

I find that Petitioner had no license authority to operate
acute care psychiatric beds from October 11, 1991 until April
8, 1993. Effective October 11, 1991, Petitioner voluntarily
eliminated 38 of its acute care psychiatric beds. It placed
the remaining 37 beds in suspense on that date, and did not
ask that any of these beds be activated on any date prior to
April 8, 1993. Effective April 8, 1993, four of the beds
that were in suspense were activated.

On October 16, 1991, Petitioner’s Acting Executive Director
wrote on behalf of Petitioner to the California licensing
agency. HCFA Ex. 1. Petitioner represented that, as of that
date, Petitioner was licensed for 77 acute inpatient beds.
Id. Petitioner asserted that it was in the process of
converting 38 of the 77 beds to residential beds under
Community Care licensing and that it wished to drop those 38

6). In addition, Petitioner submitted a declaration, and a
supplemental declaration, of Michael Waters. Petitioner did
not designate Mr. Waters’ declaration or his supplemental
declaration as exhibits, although Petitioner plainly intends
that both be received into evidence. I am designating Mr.
Waters’ declaration as P. Ex. 7 and I am designating Mr.
Waters’ supplemental declaration as P. Ex. 8. I am receiving
into evidence HCFA Exs. 1 - 12 and P. Exs. 1 - 8.

After the parties had completed their submissions, and after

I closed the record in this case, HCFA offered an additional

exhibit, HCFA Ex. 13. HCFA offered this exhibit untimely and
therefore I am not receiving it into evidence.
8

beds from its acute care bed license. Id. Petitioner
asserted also that it wished to request application to
suspend its license for the remaining 37 beds for the next
year. Id. Petitioner averred that it planned to close its
inpatient program effective October 11, 1991. Id.’

The California licensing agency issued a license to
Petitioner for 37 acute care psychiatric beds, effective on
October 11, 1991 through June 30, 1992. HCFA Ex. 2 at 1.
However, consistent with what Petitioner had requested, the
license recited that the license for the 37 acute care
psychiatric beds would be in suspense from October 11, 1991
until October 10, 1992. Id.

On March 11, 1992, the California Department of Health
Services wrote to Petitioner, advising it that it had been
notified that Petitioner’s facility closed on October 11,
1991. HCFA Ex. 8.* Petitioner was advised that its
certification to participate in the Medi-Cal program
terminated effective October 11, 1991. Id. Petitioner was
advised additionally that, if it wished to participate in
Medi-Cal, it would have to apply for participation and
successfully complete the requisite survey process. Id.

The California licensing agency then issued a license to
Petitioner, which was effective on July 1, 1992, and until
April 7, 1993. HCFA Ex. 2 at 2. This license, again, was
for 37 acute care psychiatric beds. Id. However, as with
the previously issued license, the license recited that the
license for the 37 psychiatric beds would be in suspense
effective October 11, 1991 through October 10, 1992. Id.

In one respect, the license that was issued effective July 1,
1992 was incorrect. While the license recited that
Petitioner’s 37 acute care psychiatric beds would remain in
suspense through October 10, 1992, the intent of the
California licensing agency was to issue a license that would
state that the 37 beds were in suspense through April 7,

2? Even though Petitioner was licensed for 77 acute
beds, 38 beds were to be dropped from its acute care license
and 37 beds were to be suspended. This accounts for 75 beds,
not 77. However, it is apparent from Petitioner's
communications with the California licensing agency that
Petitioner did not intend to maintain any inpatient beds
after October 11, 1991. HCFA Ex. 1.

3 It is evident that the California Department of
Health Services operates both as the California licensing
agency and as the State agency responsible for certification
of participants in Medi-Cal, the California Medicaid program.
9

1993. HCFA Ex. 2 at 2; HCFA Ex. 5 at 3. However, although
there was an error in the license effective July 1, 1992, I
do not find that the consequence of that error was to
activate any of Petitioner’s acute care psychiatric beds.
Petitioner did not request a license to activate any of these
beds prior to April 8, 1993, nor did it receive a license to
do so.

On March 18, 1993, Petitioner filed a license application
with the California licensing agency. HCFA Ex. 3.
Petitioner applied for a license to operate as a psychiatric
acute care unit. Id. at 1. Petitioner averred that the
requested capacity of its facility was to be eight beds, four
of which would remain in suspense. Id. On May 2, 1993,
Petitioner advised the California licensing agency that,
effective May 9, 1993, it intended to officially open its
acute care unit for any necessary admissions from its
residential treatment program. HCFA Ex. 4 at 2. Petitioner
stated that its acute care unit would consist of four beds.
Id.

Effective April 8, 1993, the California licensing agency
issued a new license to Petitioner to operate as an acute
psychiatric hospital. HCFA Ex. 2 at 3. This license, which
expired on June 30, 1993, was for eight acute care
psychiatric beds, four of which would be in suspense. Id.
Effective July 1, 1993, the California licensing agency
issued an additional license to Petitioner to operate a
psychiatric hospital. HCFA Ex. 2 at 4. This license, which
expired on June 30, 1994, was for eight acute care
psychiatric beds, four of which were to remain in suspense
throughout the duration of the license. Id. The California
licensing agency issued an additional license to Petitioner,
effective July 1, 1994, with an expiration date of June 30,
1995. HCFA Ex. 2 at 5. This license also was for eight
acute care psychiatric beds, four of which would remain in
suspense through the expiration date of the license. Id.

In August 1993, Petitioner filed an application to
participate in Medicare and Medi-Cal as a psychiatric
hospital. HCFA Ex. 7. Petitioner was surveyed and, based on
the survey, was certified to participate in Medicare and
Medi-Cal, effective August 11, 1993. See HCFA Ex. 6.

Although Petitioner had no authority from the State of
California to operate inpatient acute care psychiatric beds
from October 11, 1991 until April 8, 1993, Petitioner
continued to provide some inpatient services to Medicare
beneficiaries throughout the period. P. Exs. 3, 4, 7.
Petitioner provided outpatient hospital services as well, to
Medicare beneficiaries during the period from October 11,
1991 until April 8, 1993. P. Ex. 7 at 3.
10

Cc. Application of the law to the facts (Findings 8, 9,
11 3

Petitioner ceased to meet the statutory definition of a
psychiatric hospital on October 11, 1991. As I find above,
the Act’s definition of a psychiatric hospital includes the
requirement that any such hospital be licensed as may be
required under applicable State law. Act, sections

1861(e) (7), 1861(f). In California, the consequence of a
hospital placing all of its beds in suspense is that the
hospital is not licensed to provide inpatient care for the
period when the beds are in suspense. Thus, by placing all
37 of its inpatient beds in suspense from October 11, 1991
until April 8, 1993, Petitioner ceased to be licensed to
provide inpatient psychiatric care.‘ And, because Petitioner
was not licensed to provide inpatient care, Petitioner no
longer met the statutory definition of a psychiatric hospital
as of October 11, 1991. Petitioner did not again meet the
definition of a psychiatric hospital until April 8, 1993,
when the license to operate four of Petitioner’s acute care
beds was taken out of suspense.

Petitioner terminated its participation in Medicare effective
October 11, 1991. It became eligible to participate in
Medicare, again effective April 8, 1993, when it regained the
authority to operate four inpatient acute care psychiatric
beds. However, under applicable HCFA regulations, Petitioner
could not be recertified to participate in Medicare until it
was surveyed. HCFA certified Petitioner to participate in
Medicare effective August 11, 1993, the date that the survey
was completed. Under applicable regulations, August 11, 1993
is the earliest date that Petitioner could be recertified to
participate in Medicare. 42 C.F.R. § 489.13.

The fact that Petitioner provided inpatient and outpatient
hospital services after October 11, 1991 is irrelevant to
deciding the question of whether Petitioner terminated its
participation as a provider. Petitioner could not have
participated as a provider if it no longer met the statutory
definition of a provider. That Petitioner may have provided
some services that may qualify as hospital services if they
are provided by a hospital, does not mean that Petitioner
participated in Medicare after it no longer met the statutory
definition of a hospital or of a psychiatric hospital.

4 Petitioner has not alleged that it received

approval from the California licensing agency, in lieu of a
license, to operate inpatient beds.
11

Petitioner asserts that HCFA could not terminate Petitioner’s
participation in Medicare without first providing Petitioner
with notice of the determination to terminate Petitioner’s
participation, pursuant to 42 C.F.R. § 489.53(c). I have
addressed this argument above, at Part III.A.2. of this
decision. HCFA had no duty to provide Petitioner with notice
of Petitioner’s termination of participation because HCFA did
not terminate Petitioner’s participation in Medicare.
Petitioner terminated its participation in Medicare by
ceasing to meet the statutory definition of a hospital or of
a psychiatric hospital.

Petitioner argues that it is inequitable and unlawful to
retroactively terminate Petitioner’s participation in
Medicare. Petitioner asserts that it incurred substantial
expenses for services that it provided to Medicare
beneficiaries during the period from October 11, 1991 until
the date that it was recertified to participate. Petitioner
argues that a termination which is retroactive to October 11,
1991 would operate to cause an unlawful forfeiture by
Petitioner of the cost reimbursement that it received for the
services it provided to Medicare beneficiaries.

I am not persuaded by Petitioner’s arguments. First, there
is no retroactive termination by HCFA of Petitioner’s
participation in Medicare. HCFA did not terminate
Petitioner’s participation in Medicare. Petitioner
terminated its participation in Medicare by requesting the
State licensing agency to place in suspense Petitioner’s
license to operate acute care beds.

Petitioner cannot claim credibly to have been surprised by
HCFA’s conclusion that Petitioner terminated its
participation in Medicare, effective October 11, 1991.
Petitioner knew, on or about March 11, 1992, that the State
of California considered Petitioner not to be doing business
as a hospital, and not a Medi-Cal participant, effective
October 11, 1991. HCFA Ex. 8. Petitioner was advised that,
in order to be recertified to participate in Medi-Cal,
Petitioner would have to reapply and be surveyed. Id. There
is nothing in the record of this case which suggests that
Petitioner is so naive or unsophisticated as not to realize
the implications of this communication. It is true that the
March 11, 1992 letter did not specifically mention the
Medicare program. On the other hand, Petitioner would have
had to know that the criteria which govern participation
under State Medicaid programs and Medicare are, in many
respects, identical. At the least, the March 11, 1992 letter
put Petitioner on notice that, effective October 11, 1991,
Petitioner’s eligibility to participate in Medicare was open
to question.
12

Nor can Petitioner assert credibly that it is entitled to
continue to provide services to Medicare beneficiaries and
claim reimbursement for those services as if it is certified
to participate in Medicare, where it has, on its own
volition, ended its participation in Medicare. That is
particularly the case where the services Petitioner provided
after October 11, 1991 contravened the terms of Petitioner’s
California license. Petitioner has not offered any
explanation of how it could lawfully supply inpatient
hospital services after October 11, 1991, much less claim
reimbursement for those services, when it had voluntarily
placed in suspense all of the beds that were licensed to
provide inpatient services.

I make no findings in this decision as to the validity of the
reimbursement claims or cost claims Petitioner made between
October 11, 1991 and August 11, 1993. The validity of these
claims is not an issue in this case. Nor do I make any
finding that Petitioner is obligated to refund the monies it
may have received for those claims. I do not have the
authority to consider these issues, in any event. The
authority to hear and decide cost reimbursement disputes is
delegated to the Provider Reimbursement Review Board. The
authority to conduct administrative hearings involving
specific provider reimbursement claims under either Part A or
Part B of Medicare is delegated to the Office of Hearings and
Appeals of the Social Security Administration.

Finally, I am not persuaded by Petitioner’s argument that
HCFA should have recertified it to participate in Medicare
effective April 8, 1993, the effective date that Petitioner
received a license from the California licensing agency to
operate inpatient beds. As I discuss at Part III.A.3. of
this decision, the earliest date at which an entity whose
participation is terminated may be recertified to participate
is the date of completion of a certification survey. In this
case, the date of completion of the survey was August 11,
1993.

IV. Conclusion

I conclude that Petitioner terminated its participation in
Medicare effective October 11, 1991. I conclude further that
HCFA properly determined to recertify Petitioner to
participate in Medicare effective August 11, 1993.

/s/

Steven T. Kessel
Administrative Law Judge