Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Leo Parrino,
Petitioner,
v.
The Inspector General.
Docket No. C-14-582
Decision No. CR3287

Date: July 9, 2014

DECISION

The Inspector General (I.G.) of the U.S. Department of Health and Human Services
(HHS) notified Petitioner, Leo Parrino, that he was being excluded from participation in
Medicare, Medicaid, and all other federal health care programs for a minimum period of
five years under 42 U.S.C. § 1320a-7(a)(1). Petitioner requested a hearing before an
administrative law judge to dispute the exclusion. For the reasons stated below, I
conclude that the I.G. has a basis for excluding Petitioner from program participation and
that the five-year exclusion is mandated by law.

I. Background

By letter dated December 31, 2013, the I.G. notified Petitioner that he was being
excluded from Medicare, Medicaid, and all federal health care programs for a minimum
period of five years pursuant to section 1320a-7(a)(1). The I.G. advised Petitioner that
the exclusion was based on his conviction in the United States District Court, Western
District of Kentucky (District Court), of a criminal offense related to the delivery of an
item or service under the Medicare or a state health care program, including the
performance of management or administrative services relating to the delivery of items or
services, under any such program. I.G. Exhibit (Ex.) 1.
Petitioner timely filed a request for hearing (RFH) and this case was assigned to me for
hearing and decision. On February 19, 2014, I convened a prehearing conference by
telephone, the substance of which is summarized in my Order and Schedule for Filing
Briefs and Documentary Evidence (Order), dated February 21, 2014. See 42 C.F.R.

§ 1005.6. Pursuant to the Order, the I.G. filed a brief (I.G. Br.) and four exhibits (I.G.
Exs. 1-4). Petitioner filed a response brief (P. Br.). The I.G. filed a reply brief.

IL. Decision on the Record
Petitioner did not object to the I.G.’s proposed exhibits. Therefore, I admit I.G. Exs. 1-4

into the record. Because both parties indicated that a hearing is not necessary in this case
(LG. Br. at 7; P. Br. at 4-5), I decide this case on the basis of the written record.

II. Issue

The sole issue before me is whether the I.G. has a basis for excluding Petitioner from
participating in Medicare, Medicaid, and all other federal health care programs for five
years pursuant to 42 U.S.C. § 1320a-7(a)(1). See 42 C.F.R. § 1001.2007(a)(1)-(2).

IV. Findings of Fact, Conclusions of Law, and Analysis!

HHS must exclude an individual from participation in Medicare, Medicaid and all other
federally-funded health care programs if the individual was convicted under federal or
state law of a criminal offense related to the delivery of an item or service under
Medicare or a state health care program. 42 U.S.C. § 1320a-7(a)(1). Therefore, the
essential elements necessary to support an exclusion based on 42 U.S.C. § 1320a-7(a)(1)
are: (1) the individual to be excluded must have been convicted of a criminal offense;
and (2) the criminal offense must have been related to the delivery of an item or service
under Title XVIII of the Social Security Act (Medicare) or any state health care program.
A state health care program includes Medicaid. 42 U.S.C. § 1320a-7(h)(1); 42 C.F.R.
§ 1001.2 (definition of State health care program).

A, Petitioner pled guilty in a federal court to a misdemeanor count of
introducing misbranded inhalation drugs into interstate commerce, the court
accepted the plea, and the court sentenced Petitioner to probation and
ordered Petitioner to pay restitution of $14,098.24 to the Centers for
Medicare & Medicaid Services.

Petitioner is a pharmacist. Under the terms of a plea agreement dated September 8, 2011,
he agreed to plead guilty to a misdemeanor count of introducing misbranded drugs into

' My findings of fact and conclusions of law are set forth in italics and bold font.
interstate commerce, in violation of 21 U.S.C. §§ 331(a), 333(a)(1), and 352(a). See I.G.
Exs. 2, at 1; 4, at 1-2.? As part of the plea agreement, Petitioner agreed to the following
factual basis for the plea:

Leo Parrino was employed as a pharmacist at National
Respiratory Services (“NRS”) between April 2002 through
October 31, 2006. Thereafter he served as a consulting
pharmacist at NRS for the state of Michigan for several
months. It was his responsibility to prepare medication for
patients and ensure that the appropriate medications were sent
out to patients. During the course of his employment and
thereafter as a consultant, Parrino assisted in causing
compounded medications to be sent out to patients which
were sub-potent and misbranded. Once these medication
requests were filled, that information was supplied to others
who used it for billing purposes. This is a strict liability
statute.

LG. Ex. 2, at 2.

The District Court accepted Petitioner’s plea and entered judgment against him on May
15, 2013. LG. Exs. 3, at 1-8; 4. The judgment described the nature of Petitioner’s
violation of 21 U.S.C. §§ 331(a), 333(a)(1) and 352(a), as follows:

Aided and abetted by others, introduced and delivered for
introduction into interstate commerce, and caused to be
introduced and delivered for introduction into interstate
commerce, inhalation drugs that were misbranded, in that, the
defendant introduced compounded inhalation drugs into
interstate commerce that bore false and misleading labeling
representing them to be of greater strength and potency than
they actually had[.]

1.G. Ex. 4, at 2. The District Court sentenced Petitioner to one year of probation, a $25
assessment, and payment of $14,098.24 in restitution to the Centers for Medicare &
Medicaid Services. I.G. Exs. 3, at 6-7; 4.

> The plea agreement reached between Petitioner and the United States indicates that
there was a misdemeanor Information filed with the District Court. Neither party
submitted the Information as evidence in this case.
B. Petitioner’s conviction requires exclusion under 42 U.S.C. § 1320a-7(a)(1)
because his criminal conduct related to the delivery of an item or service
under Medicare.

1. Petitioner was convicted of a criminal offense for the purposes of
42 U.S.C. § 1320a-7(a)(1).

In order for Petitioner to be excluded, he must be “convicted of a criminal offense.”

42 U.S.C. § 1320a-7(a)(1). An individual is considered “convicted” when a judgment of
conviction has been entered by a federal, state, or local court or a plea of guilty or no
contest has been accepted in a federal, state, or local court. 42 U.S.C. § 1320a-7(i)(1),
(3). In the present matter, the District Court issued a judgment of conviction and
sentenced Petitioner pursuant to that conviction. I.G. Ex. 4. Moreover, Petitioner pled
guilty and that plea was accepted by the District Court. IG. Exs. 2-4. Based on these
facts and Petitioner’s admission that he was convicted (P. Br. at 1), I conclude that
Petitioner was convicted of a criminal offense for purposes of exclusion under 42 U.S.C.
§ 1320a-7(a)(1).

2. Petitioner’s conviction requires exclusion under section 42 U.S.C.
§ 1320a-7(a)(1) because his criminal conduct related to the delivery of
an item or service under Medicare.

In order for Petitioner to be excluded under 42 U.S.C. § 1320a-7(a)(1), Petitioner’s
criminal conviction must be related to the delivery of an item or service under Medicare
or a state health care program. Although the term “related to” is not defined in the
statute, it is well established “that an offense is ‘related to’ the delivery of an item or
service under a covered program if there is a . . . nexus between the offense and the
delivery of an item or service under the program.” James Randall Benham, DAB No.
2042 (2006) (internal citations omitted);° cf: Friedman v. Sebelius, 686 F.3d 813, 820
(D.C. Cir. 2012) (describing the phrase “related to” in another part of section 1320a-7 as
“deliberately expansive words,” “the ordinary meaning of [which] is a broad one,” and
one that is not subject to “crabbed and formalistic interpretation”) (internal quotes
omitted). In determining whether an offense is related to the delivery of an item or
service under Medicare or a state health care program, it is not the label of the statute that
controls. See Lyle Kai, R.Ph., DAB No. 1979 (2005) quoting Berton Siegel, D.O., DAB
No. 1467, at 7 (1994); see also Dewayne Franzen, DAB No. 1165 (1990). Therefore, to
determine whether Petitioner’s offense is related to the delivery of an item or service
under Medicare, it is necessary to examine the underlying conviction documents.

> Administrative decisions cited in this decision are accessible on the internet at:
http://www.hhs.gov/dab/decisions/index.html.
Petitioner was convicted of introducing misbranded inhalation drugs into interstate
commerce. Neither the language of the statutory sections under which Petitioner was
convicted specifically states that his crime had any relationship to the Medicare program.
However, a review of the record reveals that there is a sufficient connection between
Petitioner’s criminal conduct and the Medicare program.

As Petitioner admits, “the overarching case of which [Petitioner] was a small part, was
one against his employer, National Respiratory Services, and their owners and managers
for fraud against the Medicare and Medicaid programs of the United States Government.”
RFH at 3. This is consistent with the plea agreement in which Petitioner stated that he
understood “that the United States will inform the court that it should order payment of
restitution in an amount of $15,727.17, jointly and severally with the co-defendants,
payable to the Centers for Medicare and Medicaid Services.” I.G. Ex. 2, at 3. The
District Court later ordered Petitioner to pay restitution to the “Centers for Medicare and
Medicaid Services.” I.G. Ex. 4, at 4.

Significantly, the District Court reviewed the case in order to ensure that there was
sufficient evidence that Petitioner should pay restitution, stating at the sentencing

earing: “I’m going to order that [Petitioner] pay restitution in the amount that was
agreed to as the corrected amount of $14,098.24 . .. . the proof on that seems clear
enough to the Court to come down with a particular number.” I.G. Ex. 3, at 6. It is worth
noting that the District Court declined to order restitution for a co-defendant because “I
think the proof was more difficult for the U.S. as to [the co-defendant].” LG. Ex. 3, at 8.

In exclusion cases, restitution has long been considered a reasonable measure of program
loss. See Craig Richard Wilder, DAB No. 2416, at 9 (2011); Jason Hollady, M.D., DAB
No. 1855 (2002). If an individual has been convicted of a criminal offense, then proof
that any sentence based on that conviction included the payment of restitution to a
protected program or the agency in charge of that program provides significant proof that
there is a connection between the conviction and the delivery of an item or service under
the program. Blessing Okuji, DAB CR2343, at 6 (2011); Alexander Nepomuceno Jamias,
DAB CR1480 (2006). The District Court ordered Petitioner to pay restitution to the
Centers for Medicare & Medicaid Services, which administers the Medicare program. In
the absence of evidence to the contrary, this order of restitution proves that a nexus exists
between Petitioner’s criminal conviction and the delivery of items or services under the
Medicare program.

C. Petitioner’s other arguments are unavailing.

Petitioner argues that the I.G.’s decision to exclude him under 42 U.S.C. § 1320a-7(a)(1)
is “unlawful, arbitrary, and capricious.” P. Br. at 1. Petitioner alleges that, unlike the
owners and managers of the company who were more culpable, he was just an employee
with no intent to commit any crimes. He contends that the I.G. is depriving him of
“valuable property rights, his pharmacy license, without due process of law” and that the
1.G.’s construction of the statutory scheme regarding exclusions also violates notions of
fundamental fairness and equal application of the laws. RFH at 4; P. Br. at 2. Petitioner
further argues that if his exclusion is warranted, the I.G. should have applied the
permissive exclusion provisions under 42 U.S.C. § 1320a-7(b) rather than the mandatory
exclusion provision of 42 U.S.C. § 1320a-7(a)(1). RFH at 2-5. In Petitioner’s view, it is
unfair that the I.G. must exclude him based on his misbranding offense for which no
mens rea was required when, under the permissive exclusion provisions of 42 U.S.C.

§ 1320a-7(b), the I.G. may exclude an individual who has been convicted of one of the
enumerated offenses (e.g., fraud, theft, embezzlement), all of which “require some
culpable mental state.” P. Br. at 2-3. Petitioner contends that if the mandatory exclusion
applies to his offense, then all the offenses under the permissive exclusion provisions
would be subsumed into 42 U.S.C. § 1320a-7(a)(1), rendering 42 U.S.C. § 1320a-7(b)
null or at least redundant. Petitioner also cites several U.S. Supreme Court cases in
support of his argument that the constitutionality of strict liability offenses comes in
question when they are associated with substantial penalties. P. Br. at 2-3.

Petitioner’s arguments are without merit. Although 42 U.S.C. § 1320a-7(a)(1) broadly
includes any criminal convictions (i.e., felony or misdemeanor), it is narrow in that those
convictions must be related to the Medicare and Medicaid (i.e., state health care
programs) programs. Most of the permissive exclusions do not have the requirement that
they be related to the Medicare or Medicaid programs. Despite this, it is still possible
that a single conviction may cause the convicted individual to be subject to exclusion
under both a mandatory and permissive exclusion. In such a case, the I.G. is required to
impose a mandatory exclusion pursuant to 42 U.S.C. § 1320a-7(a)(1). Gregory J. Salko,
M.D., DAB No. 2437, at 4 (2012), citing Timothy Wayne Hensley, DAB No. 2044, at 15
(2006) (and cases cited therein); Craig Richard Wilder, DAB No. 2416, at 7; Lorna Fay
Gardner, DAB No. 1733, at 6 (2000).

Further, Petitioner argues that exclusion should not be permitted when the excluded
individual was convicted of a strict liability offense because such offenses lack criminal
intent or knowledge. However, nowhere in the statutory language of 42 U.S.C. § 1320a-
7(a)(1) is there any mention of intent. Therefore, criminal intent does not need to be an
element in the offense for which the excluded individual was convicted. DeWayne
Franzen, DAB No. 1165 (1990) (“Section 1128(a)(1) [42 U.S.C. § 1320a-7(a)(1)] does
not require that the individual must intend to commit a criminal offense, or indeed fraud,
for an exclusion to be proper.”); see also Lyle Kai, R.Ph., DAB No. 1979 (2005),

aff'd, Kai v. Leavitt, Civ. No. 05-00514 BMK (D. Haw. 2006) (upholding the I.G.’s
mandatory exclusion of a pharmacist pursuant to 42 U.S.C. § 1320a-7(a)(1) because a
criminal conviction could be program-related even if the excluded individual did not
personally engage in the scheme or was not aware of the underlying Medicaid billing
fraud scheme involving mislabeled pharmaceuticals.); see also Friedman, 686 F.3d at
813, 822-824 (D.C. Cir. 2012) (rejecting an argument, made in a permissive exclusion

case, that exclusion cannot be predicated on the conviction of a criminal offense that did
not include mens rea).

Moreover, to the extent that Petitioner suggests in his brief that he was not really guilty of
the criminal offenses to which he pled guilty, I consider such an argument to constitute an
impermissible collateral attack upon his conviction. I may not review the basis of a
conviction, or consider a collateral attack on that conviction on procedural or substantive
grounds. 42 C.F.R. § 1001.2007(d); Joann Fletcher Cash, DAB No. 1725 (2000); Lyle
Kai, R.Ph., DAB No. 1979, at 8 (2005), aff'd, Kai v. Leavitt, Civ. No. 05-00514 BMK
(D. Haw. 2006).

With respect to Petitioner’s argument that his exclusion violates his due process rights, I
do not have jurisdiction to consider that argument. However, I note that Petitioner made
the argument in order to preserve his right to raise this argument in federal court, which
has jurisdiction to review constitutional issues.

D. Petitioner must be excluded for the statutory minimum of five years under
42 U.S.C. § 1320a-7(c)(3)(B).

Petitioner concedes that if I conclude that the I.G. had a basis for excluding him under
42 U.S.C. § 1320a-7(a)(1), then the five-year exclusion period is mandated because it is
the statutory minimum period. P. Br. at 1. Petitioner is correct. Because I made such a
conclusion, Petitioner must be excluded for a minimum period of five years. 42 U.S.C.
§ 1320a-7(c)(3)(B); 42 C.F.R. § 1001.102(a).

V. Conclusion

For the foregoing reasons, I affirm the I.G.’s determination to exclude Petitioner from
participating in Medicare, Medicaid, and all federal health care programs for the statutory
five-year minimum period pursuant to 42 U.S.C. § 1320a-7(a)(1), (c)(3)(B).

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Safeway Inc.
d/b/a Safeway Fuel Station 2640,

Respondent.

Docket No. C-14-1108
FDA Docket No. FDA-2014-H-0618

Decision No. CR3286

Date: July 10, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint (Complaint)
against Safeway Inc. d/b/a Safeway Fuel Station 2640 (Respondent), which alleges facts
and legal authority sufficient to justify imposing a $500 civil money penalty. Respondent
did not answer the Complaint, nor did Respondent request an extension of time within
which to file an answer. Therefore, I enter a default judgment against Respondent and
assess a civil money penalty of $500.

CTP initiated this case by serving the Complaint on Respondent and filing a copy of the
Complaint with the Food and Drug Administration’s (FDA) Division of Dockets
Management. The Complaint alleges that Respondent’s staff impermissibly sold
regulated tobacco products to minors and failed to verify that a cigarette purchaser was of
sufficient age, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21
U.S.C. § 301 et seq., and its implementing regulations, Cigarettes and Smokeless
Tobacco, 21 C.F.R. Part 1140 (2012). CTP seeks a civil money penalty of $500.
On May 21, 2014, CTP served the Complaint on Respondent by United Parcel Service,
pursuant to 21 C.F.R. §§ 17.5 and 17.7.' In the Complaint and accompanying cover
letter, CTP explained that within 30 days, Respondent must take one of the following
three actions: pay the penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that if it failed to take one of these
actions within 30 days, an Administrative Law Judge could issue an initial decision
ordering Respondent to pay the full amount of the proposed penalty. 21 C.F.R. § 17.11.

Pursuant to 21 C.F.R. § 17.11(a), 1 am required to “assume the facts alleged in the
complaint to be true, and, if such facts establish liability under [the Act],” issue an initial
decision and impose a civil money penalty. Accordingly, I must determine whether the
allegations in the Complaint establish violations of the Act.

Specifically, CTP alleges that:

e Respondent owns Safeway Fuel Station 2640, an establishment that sells tobacco
products and is located at 13308 Meridian East, Puyallup, Washington 98373.
Complaint 3.

¢ On September 27, 2012, CTP issued a Warning Letter to Respondent regarding
alleged violations of 21 C.F.R. Part 1140 that occurred at Respondent’s
establishment on July 16, 2012. The letter stated that failure to correct the
violations may result in a civil money penalty action, or other regulatory action by
the FDA. August 12, 2013 Complaint § 10.

¢ On August 16, 2013, CTP initiated a civil money penalty action dated August 12,
2013, against Respondent, CRD Docket Number C-13-1145, “for [multiple]
violations of 21 C.F.R. Part 1140 within a twelve-month period.” Those violations
included a violation of 21 C.F.R. § 1140.14(a) and (b)(1) on July 16, 2012, and
one violation of 21 C.F.R. § 1140.14(a) for selling tobacco products to a minor on
January 17, 2013. Complaint ¥ 10; August 12, 2013 Complaint § 1

e Rick Whidden settled the claims on Respondent’s behalf when “[he] admitt[ed]
that the violations described in the Complaint filed in FDA Docket Number FDA-
2013-H-0940, CRD Docket Number C-13-1145 occurred, waiv[ed] his ability to
contest the violations in the future, and stat[ed] that he understood that the

1CTP initiated a previous action against Respondent by filing an Administrative
Complaint for civil money penalties with CRD dated August 12, 2013 (August 12, 2013
Complaint). CTP attached the August 12, 2013 Complaint to the Complaint it filed when
it initiated the present matter.
violations may be counted in determining the total number of violations for
purposes of future enforcement actions.” Complaint { 11

e During a subsequent inspection of Respondent’s establishment FDA-
commissioned inspectors documented that ‘a person younger than 18 years of age
was able to purchase package of Marlboro cigarettes on November 14, 2013, at
approximately 10:25 AM.” Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is misbranded
if distributed or offered for sale in any state in violation of regulations issued under
section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). The
Secretary issued the regulations at 21 C.F.R. Part 1140 under section 906(d) of the Act.
21 U.S.C. § 387(a); 21 U.S.C. § 387£(d)(1); 75 Fed. Reg. 13, 229 (Mar. 10, 2010). The
regulations prohibit the sale of cigarettes to any person younger than 18 years of age. 21
C.F.R. § 1140.14(a). The regulations also require retailers to verify, by means of photo
identification containing a purchaser’s date of birth, that no cigarette purchasers are
younger than 18 years of age. 21 C.F.R. § 1140.14(b)(1).

Taking the above alleged facts as true, Respondent committed four violations of

21 C.F.R. Part 1140 within a twenty-four month period. Specifically, on

July 16, 2012, January 17, 2013, and November 14, 2013, Respondent unlawfully sold a
regulated tobacco product to a minor. 21 C.F.R. § 1140.14(a). Additionally, on July 16,
2012, Respondent failed to verify the age of a person purchasing tobacco products by
means of photographic identification containing the bearer’s date of birth. 21 C.F.R. §
1140.14(b)(1). Therefore, Respondent’s actions and omissions constitute violations of
law that merit a civil money penalty. Accordingly, I find that a civil money penalty in
the amount of $500 is permissible and order it imposed. 21 C.F.R. § 17.2.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Margaret Louise Yohannes

a/k/a Margaret L. Hereford

a/k/a Margaret L. Christine
(OI File No. H-11-4-3064-9),

Petitioner,
v.

The Inspector General.

Docket No. C-14-475
Decision No. CR3285
Date: July 8, 2014
DECISION

The Inspector General (1.G.) of the United States Department of Health and Human
Services excluded Petitioner, Margaret L. Christine,’ for five years from participation in
Medicare, Medicaid, and all other federal health care programs pursuant to 42 U.S.C.

§ 1320a-7(a)(4), effective December 20, 2012. Petitioner requested a hearing before an
administrative law judge to dispute the exclusion. For the reasons stated below, I
conclude that the I.G. has a basis for excluding Petitioner because Petitioner was
convicted of a felony offense related to the unlawful distribution of a controlled
substance as defined under state law. Further, I affirm the length of the exclusion
because five years is the minimum mandated by law.

' Petitioner has been known by three names throughout the events surrounding this case.
The LG. originally excluded her as “Margaret Louise Yohannes a.k.a. Margaret L.
Hereford.” 1.G. Exhibit 1, at 1. Petitioner appealed the I.G.’s exclusion using her present
name, “Margaret L. Christine.” Request for Hearing at 1. I will refer to her as
“Petitioner” hereafter.
I. Background

By letter dated November 30, 2012, the I.G. notified Petitioner that she was being
excluded from Medicare, Medicaid, and all federal health care programs pursuant to

42 U.S.C. § 1320a-7(a)(4) for the statutory minimum period of five years. I.G. Exhibit
(Ex.) 1, at 1. The I.G. advised Petitioner that she was being excluded because she had
been convicted of a felony “in the Montana Thirteenth Judicial District Court,
Yellowstone County, Montana, of a criminal offense related to the unlawful manufacture,
distribution, prescription, or dispensing of a controlled substance as defined under
Federal or State law.” I.G. Ex. 1, at 1.

According to a November 20, 2013 letter from Charles Grant, Exclusions Director,
Office of Investigations, Office of the Inspector General, Petitioner did not receive the
1.G.’s exclusion letter in a timely fashion. As a result, the IG. gave Petitioner 60 days
from the date of Mr. Grant’s letter in which to appeal the I.G.’s exclusion. See Request
for Hearing, Supporting Documents (DAB E-File Doc. No. 1b).

Petitioner timely filed her request for hearing with the Civil Remedies Division (CRD)
and the CRD Director administratively assigned this case to me for hearing and decision.
On February 5, 2014, I convened a prehearing conference by telephone, the substance of
which is summarized in my Order and Schedule for Filing Briefs and Documentary
Evidence (Order) of February 7, 2014. See 42 C.F.R. § 1005.6. Pursuant to the Order,
the I.G. submitted the L.G.’s brief (I.G. Br.) together with ten exhibits (1.G. Exs. 1-10).
Petitioner submitted a response brief (P. Br.). The I.G. then submitted a Reply brief.

II. Decision on the Record

Petitioner did not object to any of the I.G.’s proposed exhibits. Therefore, I admit I.G.
Exs. 1-10 into the record.

Neither the Petitioner nor the I.G. indicated that a hearing was necessary. P. Br. at 2; LG.
Br. at 9. Therefore, I issue this decision on the basis of the written record.

III. Issue

The sole issue before me is whether the I.G. has a basis for excluding Petitioner for five
years from participating in Medicare, Medicaid, and all other federal health care
programs pursuant to 42 U.S.C. § 1320a-7(a)(4).

IV. Jurisdiction

I have jurisdiction to decide this issue. 42 C.F.R. §§ 1001.2007(a)(1), 1005.2(a); see also
42 U.S.C. § 1320a-7(f).
V. Findings of Fact, Conclusions of Law, and Analysis”

A, The I.G. has proven each of the required elements under 42 U.S.C.
§ 1320a-7(a)(4); therefore, there is a basis for Petitioner’s exclusion.

The I.G. cites 42 U.S.C. § 1320a-7(a)(4) as the basis for Petitioner’s mandatory
exclusion. I.G. Ex. 1. The statute provides:

(a) Mandatory exclusion

The Secretary shall exclude the following individuals and entities from
participation in any Federal health care program (as defined in section
1320a—7b(f) of this title):

oe Rk

(4) Felony conviction relating to controlled substance

Any individual or entity that has been convicted for an offense
which occurred after August 21, 1996, under Federal or State law, of
a criminal offense consisting of a felony relating to the unlawful
manufacture, distribution, prescription, or dispensing of a controlled
substance.

Thus, the elements the I.G. must prove to sustain Petitioner’s exclusion pursuant to
section 1320a-7(a)(4) in this case are: (1) Petitioner was convicted of a felony criminal
offense that occurred after August 21, 1996, under Federal or State law, and (2)
Petitioner’s offense was related to the unlawful manufacture, distribution, prescription, or
dispensing of a controlled substance.

I. Petitioner pled guilty to one count of Criminal Distribution of
Dangerous Drugs, a felony violation under Montana law, and a
Montana state court accepted her plea and entered judgment
against her.

On June 2, 2009, the Yellowstone County, Montana, County Attorney’s office filed a
three-count criminal Information against Petitioner. LG. Ex. 6. Count I of the
Information, entitled Criminal Distribution of Dangerous Drugs (Felony), alleged that
Petitioner “gave away, clonazepam, a Schedule IV dangerous drug . . . to [an individual]
when [Petitioner] was not exempt from prosecution for possession,” a felony offense
under Mont. Code Ann. § 45-9-101. I.G. Ex. 6, at 1-2. On May 3, 2010, Petitioner

° My findings of fact and conclusions of law are set forth in italics and bold font.
entered a guilty plea in the Thirteenth Judicial District Court (District Court),
Yellowstone County, Montana, to Count I of the Information. I.G. Ex. 7. The factual
basis for Petitioner’s plea, as admitted in the agreement, was that “[i]n approximately
October 2008,” Petitioner “gave [an individual] . . . a few tablets of clonazepam, a
Schedule IV Dangerous Drug, knowing it was illegal to do so.” I.G. Ex. 7, at 2.

On August 13, 2010, the District Court entered judgment against Petitioner for a single
felony count of Criminal Distribution of Dangerous Drugs. LG. Ex. 8, at 1. The court
dismissed the remaining counts against the Petitioner, delayed imposing a sentence for
five years, imposed a $750.00 fine, and placed her on probation. I.G. Ex. 8, at 1-2.

2. Petitioner must be excluded under 42 U.S.C. § 1320a-7(a)(4)
because she was convicted of a criminal offense related to the
unlawful distribution of a controlled substance.

The I.G. must exclude an individual from participation in all Federal health care
programs if the individual has been (1) convicted of a felony criminal offense (2) relating
to the unlawful distribution of a controlled substance. 42 U.S.C. § 1320a-7(a)(4).

For purposes of exclusion, Petitioner was “convicted” of a felony offense. An individual
is “convicted” of a criminal offense “when a judgment of conviction has been entered
against the indiviudal . . . by a Federal, State, or local court... .” Jd. § 1320a-7(i)(1).
Further, an individual is also “convicted” of a criminal offense when “a plea of guilty . . .
by the individual . . . has been accepted by a Federal, State, or local court.” Id. § 1320a-
7(i)(3). As previously discussed, Petitioner pled guilty to a felony offense under
Montana law, and a Montana state court accepted her plea and issued a judgment of
conviction. See I.G. Exs. 7-8. Based on the the evidence of record and on the fact that
Petitioner does not contest that she was convicted of a felony (P. Br. at 1), I conclude that
the first element under 42 U.S.C. § 1320a-7(a)(4) has been satisfied.

I must next determine if Petitioner’s conviction was related to the unlawful distribution of
a controlled substance. In cases, such as the present one, where the excluded individual
was convicted under state law, the term “controlled substance” is “defined under . . .

State law.” 42 C.F.R. § 1001.101(d).

Petitioner pled guilty to a violation under Montana law of Mont. Code Ann. § 45-9-101,
Criminal Distribution of Dangerous Drugs. See I.G. Exs. 7-8. Title 45 does not define
“controlled substance.” Elsewhere, however, Montana law defines a “controlled
substance” as “any substance designated as a dangerous drug pursuant to Title 50, chapter
32, parts 1 and 2.” See Mont. Code Ann. §§ 44-12-101, 37-18-602; see also Mont. Code
Ann. § 45-2-101(32) (defining an “intoxicating substance,” in part, as “a controlled
substance, as defined in Title 50, chapter 32”). Title 50, chapter 32 of the Montana Code
Annotated, which defines “dangerous drugs” and identifies clonazepam as a “dangerous
drug,” is entitled “Controlled Substances.” Clonazepam has been designated a
“dangerous drug” under Montana law, Mont. Code Ann. § 50-32-229(2)(i), therefore it is
a “controlled substance” under Montana law. In pleading guilty, Petitioner admitted that
she “gave [an individual] . . . a few tablets of clonazepam, a Schedule IV Dangerous
Drug, knowing it illegal to do so.” I.G. Ex. 7, at 2. Further, Petitioner concedes that her
conviction was “related to the unlawful manufacture, distribution, prescription, or
dispensing of a controlled substance.” P. Br. at 2. Therefore, Petitioner pled guilty to
unlawfully distributing a controlled substance and I conclude that the second element
under 42 U.S.C. § 1320a-7(a)(4) is satisfied.

B. Petitioner must be excluded for a minimum of five years.

I have concluded that a basis exists to exclude Petitioner pursuant to 42 U.S.C. § 1320a-
7(a)(4), therefore, Petitioner must be excluded for a minimum of five years. 42 U.S.C.
§ 1320a-7(c)(3)(B).

Petitioner asks that I “consider making an exception to this rule for [her].” P. Br. at 4.
She details her efforts to adhere to the terms of her probation, acknowledges the “charges
brought against [her],” and asks for “a fresh start on life with [her] career.” P. Br. at 4.
While Petitioner’s efforts are laudable and I have considered her arguments, I do not have
the authority to make an exception for her in this case. See 42 C.F.R. §§ 1001.102(a),
1001.2007(a)(1)-(2).

VI. Conclusion

For the foregoing reasons, I affirm the I.G.’s determination to exclude Petitioner for five
years from participating in Medicare, Medicaid, and all federal health care programs
pursuant to 42 U.S.C. § 1320a-7(a)(4).

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Advanced Medical Services, PLLC,
(PTAN: MI4731, NPI: 1619275583),

Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-691
Decision No. CR3284
Date: July 2, 2014
DECISION

Petitioner, Advanced Medical Services, PLLC, was operational during the period
February 23, 2011 to October 2012, and there is no basis for the revocation of
Petitioner’s Medicare enrollment and billing privileges.
I. Background and Procedural History
Advanced Medical Services, PLLC, owned by Zakiya O. Antoine, D.O., was initially
enrolled as a supplier of medical services under the Medicare program effective February
23, 2011. Centers for Medicare & Medicaid Services (CMS) Exhibit (Ex.) 3. The
Medicare contractor, Wisconsin Physicians Service Insurance Corporation (WPS),
notified Petitioner by letter dated October 8, 2012, that its Medicare billing privileges

were revoked effective February 23, 2011. WPS cited 42 C.F.R. § 424.535(a)(1) and (5)
as the basis for revocation.’ WPS also notified Petitioner that it was subject to a two-year

' The 2012 revision of the Code of Federal Regulations (C.F.R.) is cited, unless
otherwise indicated.
bar to reenrollment pursuant to 42 C.F.R. § 424.535(c). CMS Ex. 3 at 1; CMS Ex. | at 7-
8.

Petitioner requested reconsideration of the initial determination to revoke by letter dated
November 20, 2012. CMS Ex. | at 4-5. WPS notified Petitioner by letter dated February
20, 2013, that the revocation was upheld on reconsideration. CMS Ex. | at 1-2.

Petitioner requested review by an administrative law judge (ALJ) by letter dated April 8,
2013. On April 29, 2013, the case was assigned to me for hearing and decision, and an
Acknowledgement and Prehearing Order (Prehearing Order) was issued at my direction.
CMS filed a motion for summary judgment, a memorandum in support of the motion, and
CMS Exs. 1, 2, and 3, on May 29, 2013.” Petitioner filed its prehearing brief, which
included its opposition to the CMS motion for summary judgment, with Petitioner’s
exhibits (P. Exs.) 1 through 7,° on June 28, 2013. On July 15, 2013, CMS filed a reply
brief. On August 2, 2013, Petitioner filed a motion for leave to file a sur-reply
accompanied by its sur-reply. Petitioner filed an amended sur-reply on August 4, 2013.
The motion for leave to file the sur-reply was granted and the amended sur-reply was
accepted and considered. On October 22, 2013, I issued my ruling denying CMS’s
motion for summary judgment and ordering the parties to file a joint status report
advising me of their availability for hearing and requesting subpoenas for witnesses.
CMS did not request any subpoenas. Petitioner requested subpoenas for G. Kemoli

> On November 8, 2013, CMS filed a substitute CMS Ex. 1 (Departmental Appeals
Board electronic filing system (DAB e-File) #27), which included color rather than black
and white copies of pictures taken by the investigator. CMS also filed on November 8,
2013, a motion for leave to file an amended CMS Ex. 1, which included more
photographs than either CMS Ex. | or the substituted CMS Ex. 1, and an amended
exhibit list (DAB e-File #28). The amended CMS Ex. | (DAB e-File #28) was the
document admitted as evidence at hearing and considered in this decision and CMS Ex. 1
(DAB e-File #6) and substituted CMS Ex. 1 (DAB e-File #27) were not admitted or
considered. Transcript (Tr.) 26-27, 30-34, 136-48.

> The documents Petitioner filed as proposed exhibits were not properly marked as
required by the Prehearing Order and the Civil Remedies Division Procedures (CRDP).
However, the exhibits were not returned to Petitioner for correction because there was no
potential for confusion due to the absence of correct markings. Petitioner’s exhibits are
listed in DAB e-File as AMS Ex. | through AMS Ex. 7 (DAB e-File #9-15), but they are
referred to as P. Ex. | through 7 in this decision as they were at hearing. Tr. 35-36.
Sagala, DC; Marion Armstrong; Jerry Whitehead, and Brenda Wright. Petitioner’s
request for subpoenas for these witnesses was granted.*

A hearing was convened by video teleconference on December 11, 2013, and a transcript
was prepared. CMS offered CMS Exs. | (amended) through 3 that were admitted as
evidence. Tr. 24-27, 30-34, 136-48. Petitioner offered P. Exs. 1 through 7. P. Exs. 1
through 4 and 6 and 7 were admitted over CMS’s objection, which is discussed in more
detail hereafter. Tr. 34-66. CMS called as witnesses Adam Barnett, an investigator for
Cahaba Safeguard Administrators, LLC, and Special Agent (SA) James Grzeszezak with
the U.S. Department of Health and Human Services, Office of the Inspector General.
Petitioner elicited the testimony of three Medicare beneficiaries who were patients of Dr.
Antoine: Jerry Whitehead, Brenda Wright, and Marion Armstrong. Dr. Antoine also
testified as the owner and operator of Advanced Medical Services, PLLC.

CMS’s post-hearing brief (CMS Br.) was filed February 28, 2014, and its post-hearing
reply (CMS Reply) and Proposed Findings of Fact and Conclusions of Law were filed on
March 30, 2014. Petitioner’s post-hearing brief® (P. Br.) was filed on March 1, 2014; its
post-hearing reply (P. Reply) on March 30, 2014; and its Proposed Findings of Fact and
Conclusions of Law on March 31, 2014.

The CMS objection to Petitioner’s documentary evidence warrants some discussion in
this decision. CMS objected to the admission of P. Exs. 1 through 4 and 6 and 7, citing
42 C.F.R. §§ 405.874(c)(3) and 498.56(e)(5). The CMS argument is that the evidence
was not submitted before the reconsideration determination was issued and Petitioner is
precluded from introducing new evidence before me. The objection was overruled at
hearing for the reason stated on the record. Tr. 37-66. CMS raises a similar objection in
its post-hearing brief. CMS argues that because Petitioner did not file documents with its

* Petitioner also requested subpoenas to compel the testimony of Shirley Kuhl, a WPS
employee, who issued the notice assigning Petitioner’s provider transaction number
(PTAN); Paul Bamrah, an employee of WPS who signed the initial determination to
revoke Petitioner’s enrollment in Medicare; and Shawn Cook, a WPS employee who
issued the unfavorable reconsideration determination. Petitioner failed to identify any
relevant testimony that these witnesses could offer at hearing and the requests for
subpoenas for those individuals were denied. Ruling Upon Requests for Subpoena and
Notice of Hearing, dated November 5, 2013.

> Petitioner’s post-hearing brief is incorrectly titled “Advanced Medical Services PLLC’s
Pre-Hearing Brief.”
reconsideration request, “as a matter of law, Petitioner’s Exhibits 1-7° should be
excluded.” CMS erroneously cites 42 C.F.R. §§ 405.874(c)(3) and 498.56(e)(5) as
authority supporting its position. CMS Br. at 10 n.1. The initial determination was made
on October 8, 2012, and the reconsideration determination was made on February 20,
2013. Based on the dates of the initial and the reconsideration determinations, the 2012
revision of the C.F.R., which was issued on October 1, 2012, was in effect when those
determinations were made. The 2012 revision of the C.F.R. does not include 42 C.F.R.

§ 405.874(c)(3), which last appeared in the 2011 revision. The regulatory language
found in 42 C.F.R. § 405.874(c)(3) (2011 revision) is found in 42 C.F.R. § 405.803 in the
2012 revision of the C.F.R. The CMS reference to 42 C.F.R. § 498.56(e)(5) is also in
error as there is no such subsection in either the 2011 or 2012 revision of the C.F.R.
Furthermore, the language CMS quotes as if from 42 C.F.R. § 498.56(e)(5) does not
appear in 42 C.F.R. § 498.56(e)(5) (2012 revision). More importantly, the CMS position
is unsupported by the regulations actually in effect.

Pursuant to 42 C.F.R. § 405.803(a), the procedures applicable in this case are those
established by 42 C.F.R. pt. 498. The following regulation applies in provider and
supplier-related cases:

(e) Provider and supplier enrollment appeals: Good cause
requirement—
(1) Examination of any new documentary evidence. After a
hearing is requested but before it is held, the ALJ will
examine any new documentary evidence submitted to the
ALJ by a provider or supplier to determine whether the
provider or supplier has good cause for submitting the
evidence for the first time at the ALJ level.
(2) Determining if good cause exists—
(i) If good cause exists. If the ALJ finds that there is
good cause for submitting new documentary evidence
for the first time at the ALJ level, the ALJ must
include evidence and may consider it in reaching a
decision.
(ii) If good cause does not exist. If the ALJ
determines that there was not good cause for
submitting the evidence for the first time at the ALJ
level, the ALJ must exclude the evidence from the

® P. Ex. 5 was excluded at hearing because it was not relevant and that document is not
considered in the decision of this case. Tr. 62-66.
proceeding and may not consider it in reaching a
decision.
(2) Notification to all parties. As soon as possible, but no
later than the start of the hearing, the ALJ must notify all
parties of any evidence that is excluded from the hearing.

42 C.F.R. § 498.56(e) (emphasis and incorrect numbering of subsections as in original).
The regulation is clear on its face that it applies only to documentary evidence and that
“new documentary evidence” is evidence offered for the first time at the ALJ-level. No
definition of good cause was established by CMS when it promulgated this regulation on
behalf of the Secretary of Health and Human Services (Secretary). The regulation
requires that the ALJ examine any new documentary evidence to determine if good cause
exists for submission of the evidence for the first time at the ALJ-level. I am bound to
follow the Secretary’s regulations and apply them harmoniously and consistently with the
Constitution, the Social Security Act (the Act), and the Secretary’s other regulations.

I consider the adequacy of the notice that Petitioner received regarding the submission of
evidence on reconsideration, in determining whether Petitioner should be barred from
presenting evidence for the first time before me. Fundamental notions of due process
suggest that Petitioner should not be deprived of an opportunity to submit evidence for
consideration if Petitioner was not informed when to submit evidence in support of its
request for reconsideration or be barred from doing so subsequently. In this case, the
regulations, the WPS notice of initial determination, and the hearing officer’s failure to
comply with the regulations, all operated to deprive Petitioner of the opportunity to
submit evidence at reconsideration. The October 8, 2012 notice of revocation from WPS
advised Petitioner that it could request reconsideration before a contractor hearing
officer; that reconsideration is an independent review by an individual not involved in the
initial determination; that reconsideration had to be requested within 60 calendar days of
the postmark on the October 8 notice letter; that Petitioner must state the issues and facts
with which it disagreed and the reasons for the disagreement; and that Petitioner “may”
submit additional information that may have a bearing on the decision. CMS Ex. | at 8.
There is no description of the procedures that would be followed on reconsideration;
whether the additional information had to be submitted with the request for
reconsideration or at some later point in the reconsideration process; or a warning that
failure to submit more information at a specific time in the reconsideration stage could
serve to bar submission of the evidence to the ALJ. The regulations that control
reconsideration do not specify when evidence must be submitted to the hearing officer on
reconsideration. The regulations provide that when a request for reconsideration is
properly filed, then CMS receives written evidence and statements relevant to the matters
at issue and submitted within a reasonable time after the request for reconsideration is
filed. 42 C.F.R. §§ 498.22 and 498.24(a). Further, 42 C.F.R. § 405.803(d) provides that
“Ti}f supporting evidence is not submitted with the appeal request, the contractor contacts
the provider or supplier to try to obtain the evidence.” Petitioner’s reconsideration

request was received by WPS on November 28, 2012. The reconsideration hearing
officer acknowledged Petitioner’s request for reconsideration by letter dated December 7,
2012. The letter contained only two sentences — the first acknowledging the request and
noting the date it was received, and the second noting that the reconsideration would be
conducted and a determination issued within 90 days of the date of Petitioner’s request.
The acknowledgment letter does not advise Petitioner that additional evidence had to be
submitted or that failure to do so would preclude submission of evidence in any future
proceedings. The reconsideration hearing officer failed to request in his letter that
Petitioner provide any evidence supporting the reconsideration request as required by 42
C.F.R. § 405.803(d). CMS Ex. 1 at 3. The initial determination letter, the letter
acknowledging receipt of Petitioner’s reconsideration request, and the reconsideration
determination do not show that Petitioner was ever advised of a date by which additional
evidence had to be submitted for reconsideration or that failure to timely submit evidence
during the reconsideration process could bar future consideration of such evidence. CMS
Ex. | at 1-3, 7-8. The regulations controlling reconsideration at 42 C.F.R. §§ 498.22 and
498.24 do not clearly establish a procedure for submission of evidence on
reconsideration. The WPS notice letters did not clearly establish a procedure for
submitting evidence on reconsideration. Additionally, the regulation establishing the
right to request reconsideration clearly states that if a provider or supplier fails to submit
evidence with the reconsideration request, the reconsideration hearing officer would
request that evidence be submitted, thereby giving the provider or supplier another
opportunity to submit evidence on reconsideration. 42 C.F.R. § 405.803. In this case, the
hearing officer failed to provide Petitioner with an opportunity to submit evidence prior
to issuance of the reconsideration determination. The hearing officer failed to comply
with 42 C.F.R. § 405.803(d), despite the fact that Petitioner’s request for reconsideration
clearly stated that there was other evidence that could support Petitioner’s assertion that it
was “operational” at the time of the site visits (CMS Ex. | at 4-5). The hearing officer’s
failure to comply with the regulations and the failure to give Petitioner notice of when
evidence had to be submitted on reconsideration are both a legally sufficient basis and
beyond Petitioner’s control and constitute good cause for the submission of new
documentary evidence to me. The CMS objection is overruled.

II. Discussion
A. Applicable Law

Section 1831 of the Act (42 U.S.C. § 1395j) establishes the supplementary medical
insurance benefits program for the aged and disabled known as Medicare Part B.
Payment under the program for services rendered to Medicare-eligible beneficiaries may
only be made to eligible providers of services and suppliers. Act §§ 1835(a) (42 U.S.C.
§ 1395n(a));1842(h)(1) (42 U.S.C. § 1395(u)(h)(1)).
Administration of the Part B program is through contractors such as WPS. Act § 1842(a)
(42 U.S.C. § 1395u(a)). The Act requires the Secretary to issue regulations that establish
a process for the enrollment of providers and suppliers, including the right to a hearing
and judicial review in the event of denial or non-renewal. Act § 1866(j) (42 U.S.C.

§ 1395cc(j)).

Pursuant to 42 C.F.R. § 424.505, a supplier such as Petitioner must be enrolled in the
Medicare program to be reimbursed for services provided to Medicare beneficiaries.
Participation in Medicare imposes obligations upon a supplier. Suppliers must submit
complete, accurate and truthful responses to all information requested in the enrollment
application. 42 C.F.R. § 424.510(d)(2). Pursuant to 42 C.F.R. §§ 424.502 and
424.510(d)(3), a supplier’s application to enroll in Medicare must be signed by an
authorized official, i.e. one with authority to bind the supplier both legally and
financially. The regulation provides that the signature attests to the accuracy of
information provided in the application. The signature also attests to the fact that the
supplier is aware of and agrees to abide by all applicable statutes, regulations, and
program instructions. 42 C.F.R. § 424.510(d)(3). Suppliers must meet basic
requirements depending on their type of service. 42 C.F.R. §§ 424.505, .516, .517.
Suppliers are also subject to additional screening requirements depending upon the type
of service they provide. 42 C.F.R. § 424.518.

Once enrolled, the supplier receives billing privileges and is issued a billing number that
is required to receive payment for services rendered to a Medicare beneficiary. 42 C.F.R.
§ 424.505. The supplier is subject to a five-year revalidation of enrollment cycle and
CMS is authorized to perform off-cycle revalidations for a number of reasons. CMS has
the right to perform on-site inspections of a provider or supplier to verify that the
enrollment information submitted to CMS or its agents is accurate and to determine
compliance with Medicare enrollment requirements. 42 C.F.R. § 424.510(d)(8).

CMS or its Medicare contractor has been delegated authority to revoke an enrolled
provider or supplier’s Medicare enrollment and billing privileges and any provider or
supplier agreement for any of the reasons listed in 42 C.F.R. § 424.535(a). In this case
Petitioner was notified that its enrollment and billing privileges were being revoked
pursuant to 42 C.F.R. § 424.535(a)(1) and (5), because CMS determined Petitioner was
not in compliance with Medicare enrollment requirements and, upon site review,
Petitioner was not operational to furnish Medicare covered items or services. A
revocation based on a determination that a provider or supplier is not operational is
effective on “the date that CMS or its contractor determined that the provider or supplier
was no longer operational.” 42 C.F.R. § 424.535(g).

A provider whose Medicare enrollment or billing privileges has been revoked may ask
for reconsideration of that revocation by CMS or its contractor. 42 C.F.R. §§ 424.545(a),
498.5(1), 498.22(a). A provider or supplier dissatisfied with the reconsideration
determination may request a hearing before an ALJ and further review by the
Departmental Appeals Board (the Board). 42 C.F.R. §§ 424.545, 498.3(b)(17), 498.5. A
hearing on the record, also known as an oral hearing, is required under the Act.
Crestview Parke Care Ctr. v. Thompson, 373 F.3d 743, 748-51 (6th Cir. 2004).

The Secretary’s regulations do not address the allocation of the burden of proof or the
standard of proof. However, the Board has addressed the allocation of the burden of
proof in many decisions. The standard of proof is a preponderance of the evidence.

CMS has the burden of coming forward with the evidence and making a prima facie
showing of a basis, in this case, for revocation of Petitioner’s enrollment. Petitioner
bears the burden of persuasion to rebut the CMS prima facie showing by a preponderance
of the evidence or to establish any affirmative defense. Batavia Nursing & Convalescent
Inn, DAB No. 1911 (2004); Batavia Nursing & Convalescent Ctr., DAB No. 1904
(2004), aff'd, 129 F. App’x 181 (6th Cir. 2005); Emerald Oaks, DAB No. 1800 (2001);
Cross Creek Health Care Ctr., DAB No. 1665 (1998); Hillman Rehab. Ctr., DAB No.
1611 (1997) (remand), DAB No. 1663 (1998) (aft. remand), aff'd, Hillman Rehab. Ctr. v.
United States, No. 98-3789 (GEB), 1999 WL 34813783 (D.N.J. May 13, 1999).

“Prima facie” means generally that the evidence is “[s]ufficient to establish a fact or raise
a presumption unless disproved or rebutted.” Black’s Law Dictionary 1228 (8th ed.
2004). Thus, CMS has the initial burden of coming forward with sufficient evidence to
show that its decision to revoke Petitioner’s Medicare participation and billing privileges
is legally sufficient under the statute and regulations. CMS makes a prima facie showing
of noncompliance if the credible evidence CMS relies on is sufficient to support a
decision in its favor absent an effective rebuttal by Petitioner.

B. Issues

Whether there was a basis for revocation of Petitioner’s Medicare
enrollment and its billing privileges.

C. Findings of Fact, Conclusions of Law, and Analysis

My conclusions of law are set forth in bold text followed by my findings of fact and
analysis. The findings of fact are based on the exhibits admitted and testimony obtained
at the hearing. I have carefully considered all the evidence and the arguments of both
parties, though not all may be specifically discussed in this decision. I discuss in this
decision the credible evidence given the greatest weight in my decision-making. I also
discuss any evidence that I find is not credible or worthy of weight. The fact that
evidence is not specifically discussed should not be considered sufficient to rebut the
presumption that I considered all the evidence and assigned such weight or probative
value to the credible evidence that I determined appropriate within my discretion as an
ALJ. There is no requirement for me to discuss the weight given every piece of evidence
considered in this case, nor would it be consistent with notions of judicial economy to do
so. Charles H. Kock, Jr., Admin L. and Prac. § 5:64 (3d ed. 2013).

1. Petitioner was operational within the meaning of 42 C.F.R.
§ 424.502.

2. There is no basis for the revocation of Petitioner’s billing privileges
and enrollment in Medicare pursuant to 42 C.F.R. § 424.535(a)(1) and
(5).

3. Ihave no authority to grant equitable relief.
a. Facts

On March 9, 2011, Zakiya O. Antoine, D.O., signed an application to enroll Petitioner,
her new corporation, in Medicare. CMS Ex. 2. The address for Petitioner was listed in
the application as 23300 Greenfield Road, Suite 205C, Southfield, Michigan, 48037
(Greenfield Road). CMS Ex. 2. WPS notified Petitioner by letter dated August 23, 2011,
that Petitioner’s application to enroll in Medicare was approved with the effective billing
date of February 23, 2011. CMS Ex. 3.

There is no dispute that Adam Barnett, an investigator for Cahaba Safeguard
Administrators, a Medicare program integrity contractor, requested that SA Grzeszezak
do a site visit of Petitioner’s practice location. Tr. 109-10. There is also no dispute that
SA Grzeszezak attempted to conduct site visits at Petitioner’s address on Greenfield Road
on August 10, September 12, and September 21, 2012. CMS Ex. 1 at 9-11; Tr. 109. The
first site visit occurred on August 10, 2012, at approximately 11 a.m. when SA
Grzeszezak went to Greenfield Road to see if Petitioner was physically at that location.
He went to the first floor of the building to view the building directory, he did not find
Advanced Medical Services listed on the building directory, and he took a photo of the
directory. He then went to the second floor of the building to locate suite 205C but did
not find it. During the August 10 site visit, he took four photos — two of the exterior of
the building and two of the building directory. He returned to Greenfield Road for a
second site visit on September 12, 2012, between 10 a.m. and 11 a.m., at the request of
Mr. Barnett because the photos that were taken by him on August 10 were not “legible,”
in particular the photo of the building directory. On September 12, he took a series of
photos that were submitted to Mr. Barnett. Tr. 110-13; CMS Ex. | at 10-11. He was
then contacted by Mr. Barnett to go back a third time to see if there was any foot traffic at
suite 205C, and to check whether the door of suite 205C would open. His third site visit
was on September 21, 2012, at approximately 10 a.m. During the third site visit, he did
not find a door for suite 205C. He did observe a sign “205 Northland Chiropractic
Centre” and a sign “200/205 Dr. G. Kemoli Sagala.” He monitored the area for foot
traffic and then attempted to enter suite 200/2005, but the door was locked. He knocked

10

on the door to suite 205 but there was no response. He then spoke with people at other
businesses on the same floor but none recognized Petitioner’s name. He then telephoned
the building leasing manager, Tom Kadoo, and asked if he had heard of Petitioner. Mr.
Kadoo stated he had not heard of Petitioner and that suite 200/205 was leased to
Northland Chiropractic.” Tr. 114-17; CMS Ex. 1 at 9-11. On cross-examination, he
testified that he did not ask other tenants if they knew Petitioner’s owner, Zakiya
Antoine. Tr. 128-29. Because Tom Kadoo was not present to testify at hearing and not
available for cross-examination, I will not infer based on the statement recorded by and
testified to by SA Grzeszczak that Tom Kadoo did not know Zakiya Antoine or that she
did not use office space in his building. Tr. 143-47. The testimony of SA Grzeszczak is
credible; however, the hearsay statements of Tom Kadoo lack sufficient indicia of
reliability to be accepted as credible and as a basis for drawing inferences adverse to
Petitioner.

Adam Barnett testified that it was determined to revoke Petitioner’s enrollment and
billing privileges as of the effective date of enrollment because SA Grzeszezak was told
by the leasing manager, Tom Kadoo, that he never heard of Petitioner. Tr. 89; CMS Ex.
lat9.

Petitioner called three witnesses to testify. The witnesses were Medicare beneficiaries
who testified that they had received medical treatment from Dr. Antoine during 2011 and
2012 at the Greenfield Road location.

Jerry Whitehead testified that he was referred to Dr. Antoine in April 2011. He testified
that he received medical treatment from Dr. Antoine at the Greenfield Road location
beginning in the summer of 2011, twice per month, every second Wednesday of the
month, for approximately eight months. He identified the photos in CMS Ex. | at 10 and
11, as the exterior of the Greenfield Road building, doorway, and building directory. P.
Ex. 3; Tr. 166, 169, 170, 177-78, 180-84. He testified that he did not recall seeing a sign
with Petitioner’s name. He testified that there were several rooms in the suite; there was
an office and waiting area with a secretary, a table and chairs; and he would receive
medical treatment from Dr. Antoine in an examination room that had an examining bed.

7 Tn response to my questioning, SA Grzeszczak testified that he entered suite 200/205 in
December 2012 when executing a search warrant in another case. He recalled that there
were six offices in the suite but with no numbers on or at the doors. He testified that
some of the rooms were examination rooms with chiropractic equipment and one room
had x-ray equipment. Tr. 124-27. Except to the extent his description of suite 200/205 is
consistent with and corroborates the testimony of Petitioner’s witnesses, I give no weight
to this testimony as his observations occurred well after the end of the period in question.
11

Tr. 207-09. He stated in his June 12, 2013 affidavit that he saw Dr. Antoine at the
Greenfield Road location in suite 205, examination room C, and that he was still a patient
of hers. P. Ex. 3.

Brenda Wright testified for Petitioner that she recognized the photos marked as CMS Ex.
1 at 10 and 11; that she had been receiving medical treatment from Dr. Antoine on a
monthly basis beginning in October 201 lat the Greenfield Road location; that she saw
Dr. Antoine for approximately one year at the Greenfield Road location before Dr.
Antoine moved to her current location. She testified that at the Greenfield Road location
she would enter suite 205 which had a sign for Northland Chiropractic; there was a girl
sitting at a desk with whom she would check in; and she would sit in the waiting area
until she was called to the examination room where she saw Dr. Antoine. Tr. 218-19,
221-22, 226-28. She stated in her June 13, 2013 affidavit that she saw Dr. Antoine at the
23300 Greenfield Road address in suite 205, examination room C, and that she was still a
patient of hers. P. Ex. 4.

Marion Armstrong identified the photographs admitted as CMS Ex. 1 at 10 and 11 as the
location where she would see Dr. Antoine. She testified that she received medical
treatment from Dr. Antoine at that location, twice a month beginning in December 2011;
that upon entering the suite there was a lady at the desk and that Megan was Dr.
Antoine’s assistant; and the suite consisted of different rooms where she would be
examined by Dr. Antoine. Tr. 233-34; 236-39, 245-49. In her June 12, 2013 affidavit,
Ms. Armstrong stated that she saw Dr. Antoine at the Greenfield Road location in suite
205, examination room C, and that as of June 12, 2013, she was still a patient of hers. P.
Ex. 2.

Dr. Antoine testified that Advanced Medical Services had a practice location at 23300
Greenfield Road, suite 205C. She testified she had an agreement with Dr. Sagala to use
the space which was within his office space. She testified that she saw patients in the
space one to two days per week between about February 23, 2011 and sometime in
October 2012. She testified that her patients were given the business phone number of
Dr. Sagala’s office so that they could call the office scheduling staff to make an
appointment with her, or ask a question about their treatment or medication. Office staff
called her cell phone number to relay any message or inquiry. Dr. Antoine also had her
own scheduling staff that she hired directly, Megan and Mandy, which is consistent with
the testimony of Ms. Armstrong. Dr. Antoine testified that she also saw patients at their
iomes based on referrals from home health agencies and also from a visiting physician’s
organization. P. Ex. 1; Tr. 234, 264-79. She testified that from February 23, 2011
through the end of October 2012, she had a desk, chairs, a file cabinet with a lock, paper
shredders, trash cans, exam tables, stethoscopes, sphygmomanometers, a scale, and a
printer at Greenfield Road, suite 205. Tr. 283-85. P. Ex. 1 reflects that the arrangement
with Dr. Sagala was an oral agreement. Dr. Antoine’s statement at P. Ex. | and her
testimony at hearing that she had a practice location at 23300 Greenfield Road, suite

12

205C, are consistent with and supported by the CMS evidence, CMS Exs. 2 and 3,
Petitioner’s enrollment application signed March 9, 2011 and the August 23, 2011 CMS
determination enrolling Petitioner in Medicare.

b. Analysis

WPS revoked Petitioner’s enrollment and billing privileges retroactive to the date of
Petitioner’s enrollment in Medicare, because WPS determined that Petitioner was never
operational at the address on Greenfield Road listed in the enrollment application. WPS
cited 42 C.F.R. § 424.535(a)(1) and (5) in the initial determination, but it is clear that the
factual basis for the revocation was the conclusion that Respondent was not operational at
the Greenfield Road location. CMS Ex. | at 7-8. In fact, the ZPIC Revocation Request
Form (ZPIC Form) clearly shows that Mr. Barnett requested revocation based on 42
C.F.R. § 424.535(a)(5) and his conclusion that Petitioner was not operational from the
effective date of Petitioner’s enrollment. CMS Ex. | at 9-10; Tr. 89. It is also clear from
the reconsideration determination that revocation was approved based on the
determination that Petitioner was not operational at the Greenfield Road location since
the date of her enrollment. CMS Ex. | at 2. The pertinent regulation provides:

(a) Reasons for revocation. CMS may revoke a currently
enrolled provider or supplier’s Medicare billing privileges
and any corresponding provider agreement or supplier
agreement for the following reasons:

oe Rk

(5) On-site review. CMS determines, upon on-site review,
that the provider or supplier is no longer operational to
furnish Medicare covered items or services, or is not meeting
Medicare enrollment requirements under statute or regulation
to supervise treatment of, or to provide Medicare covered
items or services for, Medicare patients. Upon on-site
review, CMS determines that—

(i) A Medicare Part A provider is no longer
operational to furnish Medicare covered items or
services, or the provider fails to satisfy any of the
Medicare enrollment requirements.

(ii) A Medicare Part B supplier is no longer
operational to furnish Medicare covered items or
services, or the supplier has failed to satisfy any or all
of the Medicare enrollment requirements, or has failed
13

to furnish Medicare covered items or services as
required by the statute or regulations.

42 C.F.R. § 424.535(a)(5). Petitioner was a physician practice, which makes Petitioner a
Medicare Part B supplier subject to 42 C.F.R. § 424.535(a)(5)(ii). In this case the only
basis cited for revocation under 42 C.F.R. § 424.535(a)(5)(ii) was that Petitioner was not
operational to furnish Medicare covered items or services. There is no allegation,
finding, or conclusion that Petitioner failed to satisfy any other Medicare enrollment
requirement or failed to furnish Medicare covered items or services as required by
Medicare. The term “operational” has a specific definition under the regulations:

Operational means the provider or supplier has a qualified
physical practice location, is open to the public for the
purpose of providing health care related services, is prepared
to submit valid Medicare claims, and is properly staffed,
equipped, and stocked (as applicable, based on the type of
facility or organization, provider or supplier specialty, or the
services or items being rendered), to furnish these items or
services.

42 C.F.R. § 424.502.

There is no dispute regarding the law to be applied or that the case turns on whether
Petitioner met the definition of operational during the period February 23, 2011 to
October 2012. The regulations and CMS policy applicable to physicians and physician
practices do not establish specific requirements for a physician’s physical practice
location, except that the definition of “operational” requires that it be a physical location,
open to the public, and properly staffed, equipped, and stocked to deliver the type of
services the physician is licensed and enrolled to provide. The regulations and CMS
policy do not require that a physician’s practice location be open to the public at specific
times or have signs identifying the location of the practice or the hours the location is
open to the public. The regulations and policies also do not specify requirements that
must be satisfied for a physician to be found prepared to submit valid Medicare claims,
other than the requirements for licensure, Medicare enrollment, and the ability to deliver
covered items or services to a qualified Medicare beneficiary. 42 C.F.R. §§ 410.20,
410.26; Medicare Program Integrity Manual, CMS Pub. 100-08 (MPIM), ch. 15,
§15.4.4.10.

My review of whether or not CMS had a basis to revoke Petitioner’s participation in
Medicare is de novo. The decision in this case turns on issues of fact, including the
credibility of documentary and testimonial evidence, and not issues of law. I conclude
that the CMS evidence — specifically CMS Exs. | at 9-12; 2; and 3; and the testimony of
SA Grzeszezak — is credible and sufficient to establish a prima facie case that Petitioner

14

was not operational within the meaning of 42 C.F.R. §§ 424.502 and 424.535(a)(5)(ii).
However, I further conclude, that Petitioner’s evidence is credible and unrebutted and
amounts to a preponderance of the evidence showing Petitioner was, in fact, operational
within the meaning of the regulations.

The CMS position is that revocation was appropriate because Petitioner had no qualified
physical practice location at the Greenfield Road location, which is the location listed in
the enrollment form, and there was no evidence presented to show that Petitioner was
ever operational at that location. CMS Br. at 8. The CMS position is based on the
investigation of SA Grzeszczak as reported in the ZPIC Form prepared by Mr. Barnett.
There is no question that the ZPIC form provided the factual basis for WPS and CMS to
revoke Petitioner’s Medicare enrollment and billing privileges. CMS Br. at 6, 7-8; CMS
Ex. | at 1-2, 9-11. It is clear from his testimony that Mr. Barnett completed the ZPIC
form based upon the information of SA Grzeszezak. Tr. 75-81, 86-88; CMS Ex. 1 at 9.
The ZPIC form and SA Grzeszczak’s testimony are sufficient evidence, without
consideration of Petitioner’s evidence, to constitute a prima facie showing that Petitioner
was not operational at the Greenfield Road location. There is no dispute that SA
Grzeszezak visited the correct building, and the correct floor in the building; there were
no signs indicating the presence of Petitioner in that building or on that floor; and the
people he interviewed were not aware of an entity with Petitioner’s name operating in
that building or on that floor. However, SA Grzeszczak’s evidence is weak and readily
subject to rebuttal.

SA Grzeszezak admittedly had limited information to work with when he went to the
Greenfield Road location on three occasions. Furthermore, he testified that he conducted
a visit rather than an investigation. Tr. 113. SA Grzeszczak did not know, for example,
that Petitioner was solely owned and operated by Dr. Antoine and he admitted in
testimony that he never asked other tenants or the leasing manager about their knowledge
of Dr. Antoine. Tr. 128-30. SA Grzeszczak’s testimony was credible. However, both
his investigation and the facts he gathered were limited. He made three trips to the
building where Petitioner reportedly operated on August 10, September 12 and
September 21, 2012. During the first site visit on October 12, he observed the external
activity of the office building, went to look at the building directory on the first floor, and
took four photos (two of the exterior of the building and two of the building directory),
all of which were indiscernible. He did not attempt to enter suite 205 during this visit.
Because he did not find Petitioner’s name on the building directory, he concluded on
minimal evidence that Petitioner was not operational at that location. On September 12,
2012, he returned to the Greenfield Road location at the request of Mr. Barnett for
additional information. SA Grzeszczak took additional photos and observed external
activity of the office building, but, again, he did not attempt to enter suite 205. Tr. 111-
12, 113, 114. On September 21, 2012, SA Grzeszezak returned to the Greenfield Road
location a third time at the request of Mr. Barnett to make additional observations and to
attempt to enter room 205C. Tr. 114. He could not locate room 205C and when he

15

attempted to enter suite 205 the door was locked. Tr. 114-15. He spoke with some of the
other building tenants, asking if they knew of Advanced Medical Services, and they
could only confirm that suite 205 was a chiropractic office. Tr. 116. At hearing he was
unable to provide the names of the tenants he spoke with because he did not take any
contemporaneous notes or make any written report of these discussions. Tr. 117, 118.

He interviewed the building leasing manager by phone but mentioned only the name of
Advanced Medical Services and not Dr. Antoine as its owner and operator. He failed to
establish the leasing manager’s basis for knowledge and, thus, the information is entitled
to little weight. He did not ask Mr. Kadoo how long he had been the building leasing
manager but inferred it had been several years based only on Mr. Kadoo’s tone. Tr. 116-
17. He also did not ask Mr. Kadoo how long he had been handling the lease for
Northland Chiropractic; if he knew of any other business operating out of suite 205; or
whether there were any subleases. Tr. 119, 120. Mr. Kadoo was not called as a witness
to corroborate SA Grzeszczak’s testimony, nor was he available for cross-examination.
SA Grzeszezak did not ask the other building tenants on the same floor if they knew Dr.
Zakiya Antoine because he was not aware that she was listed on the Medicare enrollment
application as the sole owner and operator of Petitioner. Tr. 128-30; CMS Ex. 2 at 3, 7.
He did not attempt to call the telephone number listed under the practice location in the
enrollment application in an attempt to locate the correct office. CMS Ex. 2 at 8. SA
Grzeszezak did not interview Dr. Sagala, the owner and operator of Northland
Chiropractic, which had offices in suite 200/205 even though his photographs clearly
show that Dr. Sagala operated in suites 200 and 205. Therefore, he did not ask Dr.
Sagala about any office arrangements with Advanced Medical Services or Dr. Antoine.
Tr. 127.

Although the evidence developed by SA Grzeszczak is sufficient to make a prima facie
showing, the evidence he developed is not conclusive or determinative of the issue of
whether Petitioner was not operational. Rather, the CMS prima facie case is subject to
rebuttal by evidence presented by Petitioner that shows it is more likely than not that she
was, in fact, operational within the meaning of the regulations.

Petitioner focused her case on showing that she had an arrangement to use an office at the
Greenfield Road location to deliver qualified services to qualified Medicare beneficiaries
and that she was, therefore, operational. Petitioner presented credible testimony from
patients that Petitioner was in fact operational. Petitioner’s witnesses testified under oath,
and all three witnesses were able to credibly identify the photos contained in CMS Ex. 1
and were able to identify them as photos of the Greenwood Road practice location where
they were treated by Dr. Antoine. Tr. 169; 218; 233. Although the witnesses’ memories
were not strong regarding the exact dates of their medical appointments that occurred up
to three years prior, they credibly testified that Petitioner’s Greenfield Road location was
where they received medical treatment from Dr. Antoine on a regular basis during the
relevant period. Dr. Antoine credibly testified at hearing as the owner and operator of
Advanced Medical Services. She stated that suite 205 was occupied by Northland

16

Chiropractic Centre PC and operated by Dr. Sagala, a chiropractor. She explained why
there was no listing of Advanced Medical Services in the building directory for suite
205C. In her reconsideration request she stated that the office space for Advanced
Medical Services at the Greenfield Road location was subleased from Northland
Chiropractic Centre since February 23, 2011; she explained that her office was
sometimes closed when there were no scheduled patients or when care was being
delivered by Dr. Antoine at other medical offices or patient homes; and she stated in her
reconsideration request that the locations where she delivered services were reflected on
her claims. CMS Ex. 1 at 4-5; Tr. 270, 272. Petitioner’s enrollment application notes
“23300 Greenfield Road” as its practice location and Dr. Antoine’s contact phone
number was listed in the application. CMS Ex. 2 at 3, 8.

I find that the testimony of Dr. Antoine and her patients show Petitioner was in fact
operational at the Greenfield Road location during the period February 2011 through
October 2012. The fact Petitioner had no sign or posted hours of operation is evidence
but not determinative of the issue of whether Petitioner was open to the public. Whether
a facility is open to the public for the purpose of providing health care-related services is
only one of the criteria established by 42 C.F.R. § 424.502 for deciding whether a
supplier is operational. An analysis of whether a facility is “operational” within the
meaning of 42 C.F.R. § 424.502 also requires consideration of evidence related to the
other factors listed in the regulatory definition of “operational,” such as whether or not
Petitioner was prepared to submit valid Medicare claims, and whether the facility was
properly staffed, equipped, and stocked to furnish items or services the supplier was
authorized to furnish by its Medicare enrollment. Petitioner provided credible testimonial
evidence from four witnesses, including Dr. Antoine, that Petitioner was open to the
public; the office was staffed and furnished to provide medical services; and Petitioner
was prepared to and submitting claims to Medicare during the relevant period. Although
CMS argues that Petitioner never presented evidence of a lease for the Greenfield Road
location covering the relevant period (CMS Br. at 7, 9, 12; CMS Reply at 5), CMS cites
no law or policy that requires that a physician or physician’s practice have a written lease.
Further, Petitioner presented evidence that she had a verbal sublease agreement with Dr.
Sagala. Tr. 264, 267; P. Ex. 1. The evidence of an oral sublease is unrebutted.

I conclude that Petitioner met its burden of showing by a preponderance of the credible
evidence that it had a practice location at 23300 Greenfield Road, suite 205 room C, that
was operational between February 23, 2011 and October 2012, including the dates of the
site visits. The sole basis for Petitioner’s revocation was its failure to be “operational.”
The preponderance of the evidence shows that Petitioner was, in fact, operational.
Accordingly, CMS did not have a legal basis to revoke Petitioner’s Medicare enrollment
and billing privileges.

Petitioner requests payment for unpaid claims plus interest and compensation for
financial losses due to the revocation of Petitioner’s enrollment and billing privileges. P.
17

Br. at 16; P. Reply at 26. I express no opinion as to whether CMS may owe Petitioner
any money as that is not a matter within my jurisdiction. Further, neither an ALJ nor the
Board has the authority to grant equitable relief but is limited to determining whether or
not CMS had a legal basis to revoke a provider’s or supplier’s billing privileges. US
Ultrasound, DAB No. 2302, at 8 (2010). Therefore, Petitioner’s request for money may
not be granted in this forum.

HI. Conclusion
For the foregoing reasons, I conclude that CMS has failed to establish a basis for the

revocation of Petitioner’s Medicare enrollment and billing privileges.

/s/
Keith W. Sickendick
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
(FDA No. FDA-2014-H-0538)

Complainant
v.
New Kaywood Liquors, Inc. d/b/a Kaywood Liquors,
Respondent.
Docket No. C-14-1030
Decision No. CR3281

Date: June 30, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) began this matter by serving an administrative
complaint on Respondent, New Kaywood Liquors, Inc. d/b/a Kaywood Liquors, at 2205
Varnum Street, Mount Ranier, Maryland 20712, and by filing a copy of the complaint
with the Food and Drug Administration’s (FDA) Division of Dockets Management. The
complaint alleges that Kaywood Liquors unlawfully sold cigarettes to minors and failed
to verify, by means of photo identification containing a date of birth, that cigarette
purchasers were 18 years of age or older, thereby violating the Federal Food, Drug, and
Cosmetic Act (Act), 21 U.S.C. § 301 et seq., and its implementing regulations, 21 C.F.R.
pt. 1140. CTP seeks to impose a $500 civil money penalty against Respondent Kaywood
Liquors.

As provided for in 21 C.F.R. §§ 17.5 and 17.7, on May 6, 2014, CTP served the
complaint on Respondent Kaywood Liquors by United Parcel Service. In the complaint
and accompanying cover letter, CTP explained that, within 30 days, Respondent should
pay the penalty, file an answer, or request an extension of time in which to file an answer.
CTP warned Respondent that, if it failed to take one of these actions within 30 days, the
Administrative Law Judge could, pursuant to 21 C.F.R. § 17.11, issue an initial decision
ordering it to pay the full amount of the proposed penalty.

Respondent Kaywood Liquors has neither filed an answer within the time prescribed, nor
requested an extension of time within which to file an answer. Pursuant to 21 C.F.R. §
17.11, I assume that the facts alleged in the complaint (but not its conclusory statements)
are true. Specifically:

e At Respondent’s business establishment, 2205 Varnum Street,
Mount Rainier, Maryland 20712, on February 11, 2013, at approximately 1:44
PM ET, an FDA-commissioned inspector observed Respondent’s staff sell a
package of Maverick Box 100s cigarettes to a person younger than 18 years of
age. The inspector also noted that Respondent’s staff failed to verify, by means of
photo identification containing the bearer’s date of birth, that the cigarette
purchaser was 18 years of age or older;

e Ina warning letter issued on February 28, 2013, CTP informed Respondent of the
inspector’s observations from February 11, 2013, and that such actions violate
federal law, 21 C.F.R. § 1140.14(a) and (b)(1). The letter further warned that if
Respondent failed to correct its violations, the FDA could impose a civil money
penalty or take other regulatory action;

e At Respondent’s business establishment, 2205 Varnum Street,

Mount Rainier, Maryland 20712, on October 16, 2013, at approximately 12:05
PM, FDA-commissioned inspectors documented Respondent’s staff selling a
package of Newport Box cigarettes to a person younger than 18 years of age. The
inspectors also noted that Respondent’s staff failed to verify, by means of photo
identification containing the bearer’s date of birth, that the cigarette purchaser was
18 years of age or older.

These facts establish Respondent’s liability under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is misbranded
if sold or distributed in violation of regulations issued under section 906(d) of the Act.

21 US.C. § 387£(d); see 21 U.S.C. § 387¢(a)(7)(B); 21 C.F.R. § 1140.1(b). The
Secretary issued the regulations at 21 C.F.R. pt. 1140 under section 906(d) of the Act. 21
U.S.C. § 387(a); see 21 U.S.C. § 387£(d)(1); 75 Fed. Reg. 13,229 (Mar. 10, 2010). Under
21 C.F.R. § 1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any person
younger than 18 years of age. Under 21 C.F.R. § 1140.14(b)(1), retailers must verify, by
means of photo identification containing the bearer’s date of birth, that no cigarette or
smokeless tobacco purchaser is younger than 18 years of age.

A $500 civil money penalty is permissible under 21 C.F.R. § 17.2.
Order

For these reasons, I enter default judgment in the amount of $500 against Respondent
New Kaywood Liquors, Inc. d/b/a Kaywood Liquors. Pursuant to 21 C.F.R. § 17.11 (b),
this order becomes final and binding upon both parties after 30 days of the date of its

issuance.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Rui Xin Liu
d/b/a Sing Gong Restaurant,

Respondent.

Docket No. C-14-988
FDA Docket No. FDA-2014-H-0499

Decision No. CR3280
Date: June 30, 2014
INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, Rui Xin Liu d/b/a Sing Gong Restaurant,
alleging facts and legal authority sufficient to justify imposing a civil money
penalty of $500. Respondent did not timely answer the Complaint, nor did
Respondent request an extension of time within which to file an Answer.
Therefore, I enter a default judgment against Respondent and order that
Respondent pay a civil money penalty in the amount of $500.

CTP began this case by serving a Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent’s staff unlawfully
sold cigarettes to minors, and failed to verify the age of the purchasers, thereby
violating the Federal Food, Drug, and Cosmetic Act (Act) and its implementing
regulations, found at 21 C.F.R. pt. 1140. CTP seeks a civil money penalty of
$500.
On May 6, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days Respondent should
pay the penalty, file an answer, or request an extension of time within which to file
an answer. CTP warned Respondent that if it failed to take one of these actions
within 30 days an Administrative Law Judge could issue an initial decision by
default ordering Respondent to pay the full amount of the proposed penalty. 21
C.F.R. § 17.11.

Respondent has not filed an answer within the time provided by regulation, nor
has it requested an extension. Therefore, pursuant to 21 C.F.R. § 17.11(a), lam
required to issue an initial decision by default if the Complaint is sufficient to
justify a penalty. Accordingly, I must determine whether the allegations in the
Complaint establish violations of the Act.

For purposes of this decision, I assume the facts alleged in the Complaint are true.
21 C.F.R. § 17.11(a). Specifically, CTP alleges the following facts in its
Complaint:

e Respondent owns Sing Gong Restaurant, an establishment that sells
tobacco products and is located at 5900 Belmar Terrace, Philadelphia,
Pennsylvania 19143. Complaint § 3.

e During a May 30, 2013 inspection of Respondent’s establishment, an FDA-
commissioned inspector observed that “a person younger than 18 years of
age was able to purchase a package of Newport Menthol Gold Box 100s
cigarettes .. . at approximately 7:35 PM[.]” The inspector also observed
that “the minor’s identification was not verified before the sale... .”
Complaint § 10.

e¢ On June 20, 2013, CTP issued a Warning Letter to Sing Gong Restaurant
regarding the inspector’s observations from May 30, 2013. The letter
explained that the named violations were not necessarily intended to be an
exhaustive list of all violations at the establishment. The Warning Letter
also stated that if Respondent failed to correct the violations, regulatory
action by the FDA or a civil money penalty action could occur and that
Respondent is responsible for complying with the law. Complaint § 10.

e On August 20, 2013, Rui Xin Liu, owner of Sing Gong Restaurant,
responded to the Warning Letter on his own behalf in a letter. “Mr. Liu
stated that [he would] let employees know to only sell cigarettes and
smokeless tobacco to anyone age 18 or older and to check the photo ID
with date of birth of anyone under age 27 who attempts to purchase
cigarettes or smokeless tobacco.” Complaint § 11.

¢ On December 18, 2013, during a subsequent inspection of Respondent’s
establishment, FDA-commissioned inspectors documented that “a person
younger than 18 years of age was able to purchase a package of Newport
cigarettes . . . at approximately 5:16 PM[.]” The inspectors also observed
that “the minor’s identification was not verified before the sale... .”
Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). The
Secretary issued the regulations at 21 C.F.R. pt. 1140 under section 906(d) of the
Act. 21 U.S.C. § 387(a); 21 U.S.C. § 387f(d)(1); 75 Fed. Reg. 13,229 (Mar. 10,
2010). Under 21 C.F.R. § 1140.14(a), a retailer is prohibited from selling
cigarettes or smokeless tobacco to any person younger than 18 years of age.
Under 21 C.F.R. § 1140.14(b)(1), a retailer must verify, by means of photo
identification containing the bearer’s date of birth, that no cigarette or smokeless
tobacco purchasers are younger than 18 years of age.

Taking the above alleged facts as true, Respondent violated the prohibition against
selling cigarettes to a person younger than 18 years of age on May 30, 2013, and
December 18, 2013. Respondent also violated 21 C.F.R. § 1140.14(b)(1) on May
30, 2013, and December 18, 2013, when its staff failed to verify, by checking the
minor’s photographic identification, that a tobacco purchaser was 18 years of age
or older. Therefore, Respondent’s actions constitute violations of law that merit a
civil money penalty.

CTP has requested a fine of $500, which is a permissible civil money penalty
under the regulations. 21 C.F.R. § 17.2. Accordingly, I order Respondent to pay a
civil money penalty in the amount of $500.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

James K. Lee
d/b/a Westwood Billiards,

Respondent.

Docket No. C-14-1027
FDA Docket No. FDA-2014-H-0535

Decision No. CR3278

Date: June 27, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, James K. Lee d/b/a Westwood Billiards, that
alleges facts and legal authority sufficient to justify the imposition of a civil
money penalty of $5,000. Respondent did not answer the Complaint, nor did
Respondent request an extension of time within which to file an answer.
Therefore, I enter a default judgment against Respondent and assess a civil money
penalty of $5,000.

CTP began this case by serving the Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of

Dockets Management. The Complaint alleges that Respondent impermissibly sold
cigarettes to a minor and failed to verify that a cigarette purchaser was 18 years of
age or older, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21
US.C. § 301 et seq., and its implementing regulations, Cigarettes and Smokeless
Tobacco, 21 C.F.R. pt. 1140 (2012). CTP seeks a civil money penalty of $5,000.

On May 6, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days, Respondent should
pay the proposed penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that if it failed to take one of
these actions within 30 days, an Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering Respondent to pay the full
amount of the proposed penalty.

Respondent has not filed an answer within the time provided by regulation, nor
has it requested an extension. Pursuant to 21 C.F.R. § 17.11(a), 1am required to
“assume the facts alleged in the [C]omplaint to be true” and, if those facts
establish liability under the Act, issue a default judgment and impose a civil
money penalty. Accordingly, I must determine whether the allegations in the
Complaint establish violations of the Act.

Specifically, CTP alleges the following facts in its Complaint:

e Respondent owns Westwood Billiards, an establishment that sells tobacco
products and is located at 2207 South Westwood Boulevard, Poplar Bluff,
Missouri 63901. Complaint { 3.

e During an inspection of Respondent’s establishment on December 23,
2013, at approximately 1:14 PM, FDA-commissioned inspectors
documented that “a person younger than 18 years of age was able to
purchase a package of Marlboro cigarettes . . . [.]” The inspectors also
documented that “the minor’s identification was not verified before the sale
....” Complaint § 10.

In a decision dated February 27, 2013, which became final on March 29, 2013, an
Administrative Law Judge found:

e On February 8, 2012, Respondent used a vending machine in his
establishment in violation of 21 C.F.R. § 1140.14(c).

e CTP informed Respondent of the alleged February 8, 2012 violation by
Warning Letter dated March 29, 2012.

e On July 14, 2012, Respondent sold a package of Marlboro 100’s cigarettes
to a person younger than 18 years of age in violation of 21 C.F.R.
§ 1140.14(a). Respondent also failed to verify, by means of photo
identification containing the bearer’s date of birth, that the purchaser was
18 years of age or older in violation of 21 C.F.R. § 1140.14(b)(1).

James K. Lee d/b/a Westwood Billiards, DAB CR2711, at 2-4 (2013).

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if distributed or offered for sale in any state in violation of regulations
issued under section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R

§ 1140.1(b). The Secretary issued the regulations at 21 C.F.R. pt. 1140 under
section 906(d) of the Act. 21 U.S.C. § 387(a); 21 U.S.C. § 387f(d)(1); 75 Fed.
Reg. 13,229 (Mar. 10, 2010). The regulations prohibit the sale of cigarettes to any
person younger than 18 years of age. 21 C.F.R. § 1140.14(a). The regulations
also require retailers to verify, by means of photo identification containing a
purchaser’s date of birth, that no cigarette purchasers are younger than 18 years of
age. 21 C.F.R. § 1140.14(b)(1). Finally, the regulations require retailers to sell
cigarettes and smokeless tobacco exclusively through a face-to-face exchange and
without the assistance of a vending machine, 21 C.F.R. § 1140.14(c), except where
the vending machine is located in a facility in which minors are prohibited from
being present at any time, 21 C.F.R. § 1140.16(c)(2)(ii).

An Administrative Law Judge previously found that Respondent committed three
violations of regulations contained in 21 C.F.R. pt. 1140. Lee, DAB CR2711 at 3.
Taking the above alleged facts as true, Respondent most recently violated the
prohibition against selling cigarettes to any person younger than 18 years of age
on December 23, 2013. 21 C.F.R. § 1140.14(a). On the same date, Respondent
also violated the requirement that retailers verify, by means of photo identification
containing a purchaser’s date of birth, that no cigarette purchasers are younger
than 18 years of age. 21 C.F.R. § 1140.14(b)(1). Therefore, Respondent’s actions
constitute violations of law that merit a civil money penalty.

CTP has requested a fine of $5,000, which is a permissible fine under the
regulations. 21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of
$5,000 is warranted and so order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge