Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Potomac Medical Equipment, Inc.
(Supplier No. 1265740001),
Petitioner,

v.

Centers for Medicare & Medicaid Services.
Docket No. C-13-1356
Decision No. CR3268

Date: June 20, 2014

DECISION

Palmetto GBA National Supplier Clearinghouse (NSC), an administrative contractor
acting on behalf of the Centers for Medicare & Medicaid Services (CMS), determined
that Petitioner, Potomac Medical Equipment, Inc., was not operational and failed to
comply with Supplier Standard 7. Because NSC revoked Petitioner’s Medicare billing
privileges, Petitioner requested a hearing before an administrative law judge to dispute
NSC’s determination. For the reasons stated below, I affirm NSC’s determination to
revoke Petitioner’s Medicare billing privileges.

I. Background and Procedural History

John Dwyer, Petitioner’s sole shareholder and owner, established Petitioner in 1999.
Petitioner Exhibit (P. Ex.) 1, at 1. For 14 years, Petitioner was enrolled in the Medicare
program as a supplier of durable medical equipment, orthotics, prosthetics, and supplies
(DMEPOS). CMS Ex. 4, at 1. Until April 23, 2013, Petitioner’s office was located at
19415 Deerfield Avenue, Suite 204, Lansdowne, Virginia 20176 (19415 Deerfield
Avenue). CMS Ex. 4, at 1. After that time, Petitioner’s address has been 41338
Raspberry Drive, Leesburg, Virginia 20176 (41338 Raspberry Drive). CMS Ex. 4, at 2.

On April 25, 2013, an inspector with NSC attempted to conduct an unannounced
inspection of Petitioner’s office at 19415 Deerfield Avenue. CMS Ex. 2. The inspector
noted the following in her report: “Supplier has vacated this location. There was no sign
or indication left as to if or where the supplier relocated too [sic].” CMS Ex. 2, at 7.
Based on this information, NSC issued a June 5, 2013 initial determination to revoke
Petitioner’s Medicare billing privileges based on a failure to maintain a facility on an
appropriate site (42 C.F.R. § 424.57(c)(7)) and a failure to be operational (42 C.F.R.

§ 424.535(a)(5)(ii)). CMS Ex. 3, at 1-2. NSC established a retroactive revocation
effective date of April 25, 2013, and a two-year reenrollment bar. CMS Ex. 3, at 1.

Petitioner, through its owner, filed a timely request for reconsideration. CMS Exs. 4; 5.
In the reconsideration request, Petitioner admitted that the 19415 Deerfield Avenue
location was vacant on April 25, 2013, because Petitioner had moved to the 41338
Raspberry Drive location on April 23, 2013. CMS Ex. 4, at 1. Petitioner asserted that it
mailed a Form CMS-855S to NSC on May 14, 2013, in which it informed NSC of
Petitioner’s change in address. CMS Ex. 4, at 1. Petitioner enclosed with the
reconsideration request a copy of a Form CMS-855S signed on May 14, 2013. CMS
Ex. 4, at 3-9.

Ina July 24, 2013 reconsidered determination, an NSC hearing officer upheld the
revocation. The NSC hearing officer indicated that the location on file with NSC on the
date of the attempted inspection was 19415 Deerfield Avenue, and that “after examining
the information on file with the NSC, there is no indication that [Petitioner] submitted the
required change of information CMS 855S application for the change of location.” CMS
Ex. 6, at 2. The NSC hearing officer noted that she asked Petitioner’s owner during a
telephone call “if he had any postal or mailing documentation that would substantiate that
the change of information had been received at the NSC. [Petitioner’s owner] stated that
he did not have any documents to submit for verification.” CMS Ex. 6, at 3. The hearing
officer then concluded:

The fact remains that the site inspector could not access
[Petitioner’s] facility to verify compliance with the supplier
standards because the facility location on file with NSC was
non-operational. The supplier location must be accessible
and staffed... . It is found by this hearing officer that the
NSC was appropriate in its revocation based upon the

information on file
file for [Petitioner]
standard number 7.

CMS Ex. 6, at 3.

with NSC at the time. Review of the case
does not verify compliance with supplier

Petitioner, through counsel, timely filed a request for a hearing (RFH) before an

administrative law judge. In the RFH, Petitioner asserted that the NSC hearing officer

incorrectly upheld the revocation

of Petitioner’s billing privileges because Petitioner’s

owner “personally prepared and mailed the form CMS-855S reflecting [Petitioner’s]
change of address on or about 05/14/2013 so that it was timely delivered to the NSC

within 30 days after [Petitioner’s

relocation [to 41338 Raspberry Drive].” RFH at 2.

After being assigned to hear and decide this case, I issued an Acknowledgment and Pre-

hearing Order (Order) on Septem

ber 26, 2013. In response to the Order, CMS filed a

brief (CMS Br.) and seven exhibits (CMS Exs. 1-7), one of which was the written direct
testimony of an NSC employee (CMS Ex. 1). Petitioner filed a motion for summary

judgment and a brief, and five ex
testimony of: Petitioner’s owner

ibits (P. Exs. 1-5), four of which were the written direct
(P. Ex. 1); Petitioner’s former Office Manager (P. Ex.

2); Petitioner’s Patient Services Coordinator (P. Ex. 3); and the spouse of Petitioner’s

owner (P. Ex. 4). Petitioner later

filed an amended P. Ex. | and withdrew P. Ex. 4.

After denying Petitioner’s motion for summary judgment, I held a hearing on March 13,
2014. At the hearing, I admitted CMS Exs. 1-7 and P. Exs. 1-3 and 5 into the record.
March 13, 2014 Hearing Transcript (Tr.) 8, 9, 13, 32, 40. Further, at the hearing the
following witnesses were cross-examined: the NSC employee; Petitioner’s owner; and

Petitioner’s former Office Manager. Following the hearing, Petitioner filed a post-

hearing brief (P. Post-Hearing Br.

.), CMS filed a post-hearing brief (CMS Post-Hearing

Br.), and Petitioner filed a reply brief (P. Reply Br.). This matter is now ready for

decision.
II. Issues!

1. Whether CMS has a legitimate basis to revoke Petitioner’s enrollment as a
DMEPOS supplier in the Medicare program based on a determination that
Petitioner was not operational (42 C.F.R. § 424.535(a)(5)(ii)) and failed to comply
with Supplier Standard 7 (42 C.F.R. § 424.57(c)(7)).

2. Whether Petitioner reported a change of address to CMS within 30-days of
moving to its new site location.

Ill. Jurisdiction

I have jurisdiction to decide the issues in this case. 42 C.F.R. §§ 498.3(b)(17),
498.5(1)(2); see also 42 U.S.C. § 1395cc(j)(8).

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

In order to participate in the Medicare program as a supplier, a prospective supplier must
complete the applicable Form CMS-855 enrollment application, which requires
disclosure of the supplier’s address. See 42 C.F.R. § 424.510(a). Once enrolled, a
DMEPOS supplier must report, within 30 days, any changes in its enrollment
information. See 42 C.F.R. §§ 424.57(c)(2), 424.516(c). CMS may perform periodic
revalidations and site visits to verify the enrollment information submitted to CMS, the
supplier’s compliance with Medicare enrollment requirements, the supplier’s compliance
with DMEPOS Supplier Standards, and whether the supplier is operational. 42 C.F.R.
§§ 424.57(c)(8), 424.510(d)(8), 424.515(c), 424.517(a). If CMS or a CMS contractor
determines that a supplier is not operational, then CMS or the CMS contractor may
revoke the supplier’s Medicare billing privileges retroactive to the date that CMS or the
CMS contractor determined that the supplier was not operational. 42 C.F.R.

§ 424.535(a)(5)(ii), (g).

' | informed the parties of the issues in this case in the March 3, 2014 Notice of Hearing
and provided the parties with an opportunity to object to these issues. Neither party filed
a written objection.

2 My numbered findings of fact and conclusions of law appear in bold and italics.
1. An NSC inspector attempted a site inspection on April 25, 2013, at the address
on file for Petitioner’s office (19415 Deerfield Avenue, Suite 204, Lansdowne,
Virginia); however, the location was vacant and no staff was present to allow the
inspector to enter the office.

On April 25, 2013, at approximately 12:45 p.m., an inspector with NSC attempted to
conduct an unannounced site inspection of Petitioner’s office at the 19415 Deerfield
Avenue location. CMS Ex. 2. This was Petitioner’s address on file with NSC on that
date. CMS Ex. 6, at 2; see also CMS Ex. 2, at 1. The inspector observed that Petitioner
vacated this location with no indication of a new address. CMS Ex. 2, at 7. Petitioner
admits that it vacated the 19415 Deerfield Avenue location on April 23, 2013. CMS Ex.
4, at 1; P. Ex. 1, at 1-2; P. Br. at 1-2. Therefore, I find that an NSC inspector was unable
to conduct an unannounced site inspection of Petitioner’s office location address on file
with NSC on April 25, 2013, because Petitioner’s office was vacant and not staffed.

2. CMS had a legitimate basis to revoke Petitioner’s enrollment in the Medicare
program because Petitioner was not operational pursuant to 42 C.F.R
§ 424.535(a)(5).

CMS may revoke a currently enrolled supplier’s Medicare billing privileges if:

Upon on-site review, CMS determines that-

oe Rk

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

42 C.F.R. § 424.535(a)(5)(ii). A supplier is “operational” when it:

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.

In the present matter, CMS provided undisputed evidence that Petitioner was not
operational on April 25, 2013, at its business address on file with NSC (i.e., 19415
Deerfield Avenue). Therefore, I conclude that CMS had a legal basis to revoke
Petitioner’s billing privileges under 42 C.F.R. § 424.535(a)(5).

Petitioner raised the issue that it was fully operational on April 25, 2013, at its 41338
Raspberry Drive location. However, the regulatory definition of the term “operational”
refers to the “qualified physical practice location” of a supplier. 42 C.F.R. § 424.502.
Significantly, the enrollment application requests the address of a supplier’s practice
location (CMS Ex. 4, at 5) and a supplier must be able to provide documentation of its
“practice location” with its enrollment application. 42 C.F.R. § 424.510(d)(2)(ii). CMS
may perform on-site inspections to verify that the enrollment information submitted by a
supplier is accurate and to determine compliance with Medicare requirements. 42 C.F.R.
§ 424.517(a). This means that CMS will inspect the “qualified physical practice
location” that has been provided by the supplier and is currently on file with CMS. See,
e.g., JIB Enterprises, LLC, d/b/a Drug Plus Pharmacy, DAB CR3010, at 9 (2013).° In
the present case, on April 25, 2013, that location was 19415 Deerfield Avenue.*

> Departmental Appeals Board decisions cited in this decision are accessible on the
internet at: http://www.hhs.gov/dab/decisions/index.html.

4 As indicated above, Petitioner suggests it maintained a physical facility on April 25,
2013, at 41338 Raspberry Drive (CMS Ex. 4, at 1-2, 14-19; P. Exs. 1; 3; 5), although this
was not the address in NSC’s file at the time of the attempted site inspection. However,
whether or not Petitioner may have technically complied with section 424.57(c)(7) is no
longer an issue I need to address because I have concluded that CMS had a legitimate
basis for revoking Petitioner’s Medicare billing privileges under 42 C.F.R. §
424.535(a)(5). Section 424.535(a)(5) authorizes CMS to revoke Medicare billing
privileges regardless of compliance with section 424.57(c) and, unlike section
424.57(c)(7), a violation of section 424.535(a)(5) results in a retroactive effective date for
the revocation. 42 C.F.R. § 424.535(g).
3. Petitioner did not effectively report its change of address to CMS, from 19415
Deerfield Avenue, Suite 204, Lansdowne, Virginia, to 41338 Raspberry Drive,
Leesburg, Virginia, within 30 days of April 23, 2013, the date Petitioner asserts
it changed locations.

Although Petitioner does not dispute that its location at 19415 Deerfield Avenue was
vacant on April 25, 2013, Petitioner asserts that it moved to a new location at 41338
Raspberry Drive on April 23, 2013, and reported to CMS the change of address within 30
days of April 23, 2013. A DMEPOS “supplier must report to CMS any changes in the
information supplied on the [enrollment] application within 30 days of the change.”

42 C.F.R. § 424.57(c)(2). As indicated above, a supplier provides its practice location on
the enrollment application. See 42 C.F.R. § 424.510(d)(2)(ii); CMS Ex. 4, at 5.
Therefore, Petitioner had 30 days from April 23, 2013, to report its change of address to
CMS. Because NSC never stated that 42 C.F.R. § 424.57(c)(2) was a basis for
revocation, | interpret Petitioner’s position as an affirmative defense to revocation for
failing to be operational. Therefore, Petitioner bears the burden of proving that it timely
reported its change of address to CMS.*

Petitioner’s owner testified that on May 14, 2013, he personally: completed the Form
CMS-855S indicating the change of address for Petitioner; signed and dated the
application; addressed a manila envelope with NSC’s address and Petitioner’s return
address; drove to a United States Postal Service (USPS) office and asked a clerk to weigh
the envelope for postage; paid for the postage in cash; and observed the clerk place the
postage stamp on the manila envelope and place the envelope in the outgoing mail.
Petitioner’s owner also testified that Petitioner never received the envelope back from the
USPS. P. Ex. 1, at 2.

Supporting this testimony is that of Petitioner’s former office manager who testified that,
on May 14, 2013, Petitioner’s owner asked her to look up Petitioner’s supplier number so
that he could enter it on the Form CMS-855S. Further, the former office manager

> Even if Petitioner did not raise this matter as an affirmative defense, in provider and
supplier enrollment and revocation appeals, providers and suppliers must be able to
demonstrate that they meet the enrollment requirements. 42 C.F.R. § 424.545(c).
Therefore, the ultimate burden of proving compliance with the regulations is on the
provider or supplier. See MediSource Corp., DAB No. 2011 (2006).
testified that on May 15, 2013, she noticed that a copy of the completed Form CMS-855S
was on her desk for filing and Petitioner’s owner told the office manager that he had
mailed the Form CMS-855S. P. Ex. 2, at 1; Tr. at 33.

Petitioner argues that it has proven that it mailed the Form CMS-855S within 30 days of
its change in location based on testimony it provided and because Petitioner submitted,
with its reconsideration request, a signed and dated copy of the Form CMS-855S that he
alleges to have mailed to NSC. See CMS Ex. 4, at 3-6. Petitioner argues that it is
sufficient to merely prove that Petitioner mailed the Form CMS-855S because the
common law “mailbox rule” creates a presumption that NSC received Petitioner’s Form
CMS-855S because Petitioner’s owner mailed it in the ordinary course of business.

P. Br. at 7-8; P. Post-Hearing Br. at 4. Further, Petitioner avers that CMS has failed to
rebut this presumption through the testimony of NSC’s employee because NSC’s
employee was unable to testify that she conducted an inquiry as to whether the NSC’s
mailroom received the Form CMS-855S.

lam not convinced that Petitioner proved that it mailed the Form CMS-855S to NSC.
Although Petitioner provided significant evidence that its owner mailed the Form CMS-
8558S, Petitioner has failed to produce any objective evidence to corroborate Petitioner’s
owner’s testimony, such as a sales receipt from the USPS.° It is questionable why
Petitioner has not submitted such a receipt since Petitioner’s owner testified that he
personally paid cash to a USPS clerk to mail the Form CMS-855S. This situation is
particularly perplexing given that Petitioner’s owner and former office manager both
testified that a copy of the Form CMS-855S was filed in their records. One would think
that such careful record keeping would have included the receipt from the USPS. If for
no other reason, Petitioner’s owner would have had an incentive to keep the receipt for
book-keeping purposes and as proof of a business expense that could possibly be
deducted from income taxes. It does not seem likely that Petitioner’s owner would have
discarded the USPS receipt.

In any event, even if Petitioner provided sufficient evidence to prove that Petitioner’s
owner mailed the Form CMS-855S to NSC, I conclude that this is insufficient evidence
to prove that Petitioner actually reported its change of address within 30 days to NSC.
As cited earlier, 42 C.F.R. § 424.57(c)(2) requires DMEPOS suppliers to report changes

® Although Petitioner’s former office manager provided some supporting testimony, she
was not able to testify that she saw Petitioner’s owner actually mail the Form CMS-855S.
Tr. at 34.
in the information provided on its enrollment application within 30 days of the change.
The preamble to the notice of proposed rulemaking in which that provision was proposed
states that the DMEPOS supplier “must notify [CMS] within 35 days of any change... .”
63 Fed. Reg. 2,926, 2,928 (Jan. 20, 2008). Although the final rule modified the length of
time to report from 35 days to 30 days, and moved the provision from subparagraph
(c)(3) to (c)(2), there was no other discussion concerning the specific meaning of the
word “report” as used in 42 C.F.R. § 424.57(c)(7). See 65 Fed. Reg. 60,366, 60,368 (Oct.
11, 2000).

1 interpret the regulatory requirement as meaning that a DMEPOS supplier must
effectively report to CMS (or notify CMS of) the change of its address. A DMEPOS
supplier cannot merely attempt to report to CMS (or notify CMS of) that information.
See JIB Enterprises, DAB CR3010, at 4 (inferring from the petitioner’s assertion that it
mailed notice of an address change “that NSC actually received Petitioner's correctly
completed Form CMS-855S and should have known of Petitioner’s new location” in
order to conclude a material fact was in dispute to deny CMS’s motion for summary
judgment.) (emphasis added); cf: Sherye Epps d/b/a Sunshine Shoes, DAB CR2215, at 11
(2010) (“Apart from her own assertions in briefing, Petitioner’s only evidence to prove
that NSC received a voluntary termination form in September of 2009 is the letter from
the postal employee.”’) (emphasis added).

Petitioner also argues that if it is required to provide proof of receipt of the Form CMS-
855S, such a requirement would mandate, without rulemaking, that providers and
suppliers make all submissions using certified mail or another type of service that tracks
the delivery of submissions. P. Reply Br. at 2-3. Petitioner’s argument misconstrues
CMS’s position. CMS agrees that the regulations do not require that providers and
suppliers send documents by certified mail; however, if they fail to do so, they will be
deprived of evidence they need to prove NSC received those documents. This point was
stated concisely in JIB Enterprises:

Petitioner also did not file a copy of any postal receipt,
certified mail or otherwise, that supported the claims made in
the affidavits. Indeed, there is no requirement that a CMS-
855S be sent by certified mail, but, as this case demonstrates,
it may clarify later discrepancies if they arise.
10

DAB CR3010, at 6; cf: Sherye Epps d/b/a Sunshine Shoes, DAB CR2215, at 12
(“Petitioner could have taken measures within her own control to establish the date of
receipt of her voluntary termination form (such as using certified mailing) and simply
failed to do so.”).

Further, I decline to apply the “mailbox rule” because Petitioner does not cite any
authority, and I know of none, that would authorize me to presume that NSC received a
Form CMS-855S to report a change of address. Even if application of the “mailbox rule”
is appropriate, the record demonstrates that NSC did not receive the Form CMS-855S
that Petitioner asserts was mailed on May 14, 2013.

A review of the record reveals no evidence supporting the conclusion that NSC received
Petitioner’s May 14, 2014 Form CMS-855S. Petitioner’s owner admitted that he did not
know for certain whether NSC received the Form CMS-855S and that he did not have
proof that NSC received the Form CMS-855S. Tr. at 41. Significantly, CMS has
provided evidence, in the form of testimony from an NSC employee, to show that NSC
has no record of receiving the Form CMS-855S.

An NSC employee testified that when mail is delivered to the NSC, employees in the
mailroom open the mail, stamp the documents, assign the documents a control number,
and scan the documents. CMS Ex. 1, at 1. The scanned documents are then uploaded
into NSC’s computer system that controls and tracks applications that it receives. CMS
Ex. 1, at 2. After uploading, an NSC analyst associates the scanned documents with the
proper application at NSC. Tr. at 16. The NSC employee testified that on October 31,
2013, she conducted a search of NSC’s computer system and did not find any record of
receiving a Form CMS-855S in May 2013. CMS Ex. 1, at 2. The NSC employee
attached the results of her search. CMS Ex. 1, at 5-8.

As Petitioner points out, the NSC employee does not work in the NSC mailroom or
supervise anyone in the NSC mailroom. Tr. at 15. Further, the NSC employee’s search
of NSC’s computer records did not include a search of the mailroom; rather, the NSC
employee assumed that all documents received in the mail were scanned and uploaded by
mailroom personnel. See Tr. at 17-19; P. Post-Hearing Br. at 7-8.

Despite the NSC employee’s assumption that the mailroom necessarily always scans and
uploads incoming mail, I am persuaded that her testimony provides sufficient evidence
for me to conclude that the NSC did not receive the Form CMS-855S in May 2013.
11

While it would be virtually impossible for NSC to say with complete certainty that it
never misplaced a piece of mail, the NSC employee testified that she believed all mail
that NSC received is scanned and uploaded because the NSC mailroom has set guidelines
to follow. Tr. at 26. I take this to mean that NSC has uniform procedures for handling
the mail and that if mail is received, mailroom personnel will scan it and upload it. I find
that the search conducted by the NSC employee is sufficient to comply with any duty it
may have had to check for receipt of Petitioner’s Form CMS-855S. See El Jardin
Pharmacy, Inc., DAB No. 2438, at 5 (2012) (“There is, moreover, substantial evidence in
the record to support [a finding that notice of a change of address was not sent until
December 2010], including the testimony of the NSC representative that NSC did not
have anything in its files about Petitioner’s change in location at the time of the on-site
inspection or receive a CMS855S from Petitioner prior to December 2010.”).

V. Conclusion

For the reasons stated above, I affirm CMS’s revocation of Petitioner’s Medicare billing
privileges.

/s/
Scott Anderson
Administrative Law Judge


Department of Healt!

h and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Reme

dies Division

Center for Tobacco Products,

Complainant

Vv.

State Fair Gas, Inc.

d/b/:

a Sunoco,

Respondent.

Docket No. C-14-978

FDA Docket No.

FDA-2014-H-0490

Decision No. CR3264

Date: June 17, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP)

filed an Administrative Complaint

(Complaint) against Respondent, State Fair Gas, Inc. d/b/a Sunoco, that alleges

facts and legal authority sufficient to just
penalty of $500. Respondent did not ans

ify the imposition of a civil money
wer the Complaint, nor did Respondent

request an extension of time within which to file an answer. Therefore, I enter a

default judgment against Respondent an

assess a civil money penalty of $500.

CTP began this case by serving the Complaint on Respondent and filing a copy of

the Complaint with the Food and Drug A
Dockets Management. The Complaint al
cigarettes to minors and failed to verify t!

dministration’s (FDA) Division of
leges that Respondent impermissibly sold
at cigarette purchasers were 18 years of

age or older, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21

US.C. § 301 et seq., and its implementin,
Tobacco, 21 C.F.R. pt. 1140 (2012). CT.

g regulations, Cigarettes and Smokeless
P seeks a civil money penalty of $500.

On April 24, 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 Sunoco, an establishment that sells tobacco products and
is located at 19854 Woodward Avenue, Detroit, Michigan 48203.
Complaint §[ 3.

e During an inspection of Respondent’s establishment on July 5, 2013, at
approximately 10:46 AM, an FDA-commissioned inspector observed that
“a person younger than 18 years of age was able to purchase a package of

Newport Box 100s cigarettes . . . [.]” The inspector also observed that “the
minor’s identification was not verified before the sale... .”. Complaint
q 10.

e On August 8, 2013, CTP issued a Warning Letter to Respondent regarding
the inspector’s observations from July 5, 2013. The letter explained that
the observations constituted violations of regulations found at 21 C.F.R.

§ 1140.14(a) and (b)(1), and that the named violations were not necessarily
intended to be an exhaustive list of all violations at the establishment. The
Warning Letter went on to state that if Respondent failed to correct the
violations, regulatory action by the FDA or a civil money penalty action
could occur and that Respondent is responsible for complying with the law.
Complaint § 10.

e FDA received no response to the Warning Letter from Respondent, though
United Parcel Service records demonstrate that an individual named
“LYALYEB?” received the Warning Letter on August 9, 2013. Complaint
ql.

e During a subsequent inspection of Respondent’s establishment on
December 7, 2013, at approximately 12:45 PM, FDA-commissioned
inspectors documented that “a person younger than 18 years of age was
able to purchase a package of Newport Box cigarettes... [.]” The
inspectors also documented 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 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).

Taking the above alleged facts as true, Respondent violated the prohibition against
selling cigarettes to persons younger than 18 years of age on July 5, 2013, and
December 7, 2013. 21 C.F.R. § 1140.14(a). On those same dates, Respondent
also violated the requirement that retailers verify, by means of photo identification
containing a purchaser’s date of birth, that no cigarette purchasers are younger
than 18 years of age. 21 C.F.R. § 1140.14(b)(1). 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 fine under the
regulations. 21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of $500
is warranted and so order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Aleksandr Kharkover,
(O.I. File No. 2-10-40233-9),
Petitioner,
v.
The Inspector General.
Docket No. C-14-479
Decision No. CR3263
Date: June 17, 2014
DECISION
Petitioner, Aleksandr Kharkover, is excluded from participating in Medicare, Medicaid,
and all federal health care programs pursuant to section 1128 (a)(1) of the Social Security
Act (Act) (42 U.S.C. § 1320a-7(a)(1)), effective November 20, 2013. Petitioner’s
exclusion for five years is required by section 1128(c)(3)(B) of the Act (42 U.S.C. §
1320a-7(c)(3)(B)). An additional exclusion of 15 years, for a total period of exclusion of

20 years, © is not unreasonable based upon the four aggravating factors established in this
case and the absence of any mitigating factors.

' Pursuant to 42 C.F.R. § 1001.3001, Petitioner may apply for reinstatement only after

the period of exclusion expires. Reinstatement is not automatic upon completion of the
period of exclusion.
I. Background

The Inspector General of the Department of Health and Human Services (I.G.) notified
Petitioner by letter dated October 31, 2013, that he was being excluded from participation
in Medicare, Medicaid, and all federal health care programs for a minimum period of 20
years. The I.G. advised Petitioner that he was being excluded pursuant to section
1128(a)(1) of the Act based on his conviction in the United States District Court for the
Eastern District of New York, of a criminal offense related to the delivery of an item or
service under the Medicare or a State health care program. The I.G. considered four
aggravating factors when deciding to extend the five-year minimum mandatory period of
exclusion to 20 years. IG. Exhibit (Ex.) 1.

Petitioner timely requested a hearing on December 27, 2013 (RFH). The case was
assigned to me on January 7, 2014 for hearing and decision. On February 12, 2014, I
convened a prehearing telephone conference, the substance of which is memorialized in
my order dated February 14, 2014. On March 14, 2014, the LG. filed a motion for
summary judgment, a brief in support of summary judgment (I.G. Br.), and I.G. Exs. 1
through 11. Petitioner filed a brief in opposition (P. Br.) on April 14, 2014, and P. Exs.
A, B, C, and D.? The L.G. filed a reply brief (I.G. Reply) on April 28, 2014. Neither
party objected to the offered exhibits and I.G. Exs. 1 through 11 and P. Exs. A, B, C, and
D are admitted as evidence.

II. Discussion
A. Applicable Law

Section 1128(f) of the Act (42 U.S.C. § 1320a-7(f)) establishes Petitioner’s rights to a
hearing by an Administrative Law Judge (ALJ) and judicial review of the final action of
the Secretary of Health and Human Services (the Secretary).

Pursuant to section 1128(a)(1) of the Act, the Secretary must exclude from participation
in any federal health care program any individual convicted under federal or state law of
a criminal offense related to the delivery of an item or service under Medicare or a state

> Petitioner’s exhibits were not correctly marked as required by the Prehearing Order.
However, the exhibits were not returned to Petitioner for correction because there was no
potential for confusion based on the incorrect marking.
health care program. The Secretary has promulgated regulations implementing these
provisions of the Act. 42 C.F.R. § 1001.101(a).°

Section 1128(c)(3)(B) of the Act provides that an exclusion imposed under section
1128(a) of the Act will be for a period of not less than five years. 42 C.F.R.
§ 1001.102(a). The Secretary has published regulations that establish aggravating factors
that the I.G. may consider to extend the period of exclusion beyond the minimum five-
year period, as well as mitigating factors that may be considered only if the minimum
five-year period is extended. 42 C.F.R. § 1001.102(b), (c).
The standard of proof is a preponderance of the evidence, and there may be no collateral
attack of the conviction that provides the basis of the exclusion. 42 C.F.R.
§ 1001.2007(c), (d). Petitioner bears the burden of proof and the burden of persuasion on
any affirmative defenses or mitigating factors, and the I.G. bears the burden on all other
issues. 42 C.F.R. § 1005.15(b).

B. Issues
The Secretary has by regulation limited my scope of review to two issues:

Whether there is a basis for the imposition of the exclusion; and

Whether the length of the exclusion is unreasonable.
42 C-F.R. § 1001.2007(a)(1).

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

My conclusions of law are set forth in bold followed by the pertinent findings of fact and
analysis.

1. Petitioner’s request for hearing was timely, and I have jurisdiction.
2. Summary judgment is appropriate in this case.
Petitioner’s request for hearing was timely filed and preserved Petitioner’s right to review

of justiciable issues. I have jurisdiction.

> References are to the 2013 revision of the Code of Federal Regulations (C.F.R.), unless
otherwise indicated.
Pursuant to section 1
reasonable notice an

regulation that a sanc

sanctioned party and

28(f) of the Act, a person subject to exclusion has a right to

an opportunity for a hearing. The Secretary has provided by
tioned party has the right to hearing before an ALJ and both the
the I.G. have a right to participate in the hearing. 42 C.F.R.

§§ 1005.2, 1005.3. Either or both parties may choose to waive appearance at an oral

hearing and to submit

consideration. 42 C.

part, by summary jud;

appropriate and no h
material fact and the

undisputed facts; or t

are resolved in favor

it only documentary evidence and written argument for my

F.R. § 1005.6(b)(5). An ALJ may also resolve a case, in whole or in
igment. 42 C.F.R. § 1005.4(b)(12). Summary judgment is

earing is required where either: there are no disputed issues of

only questions that must be decided involve application of law to the
¢ moving party prevails as a matter of law even if all disputed facts
of the party against whom the motion is made. A party opposing

summary judgment must allege facts which, if true, would refute the facts relied upon by

the moving party. Se
1763 (2001); Everett
hearing is required w

e, e.g., Fed. R. Civ. Pro. 56(c); Garden City Med. Clinic, DAB No.
Rehab. & Med. Ctr., DAB No. 1628 at 3 (1997) (holding in-person
ere the non-movant shows there are material facts in dispute that

require testimony); Thelma Walley, DAB No. 1367 (1992); see also New Millennium
CMHC, DAB CR672 (2000); New Life Plus Ctr., DAB CR700 (2000).

Summary judgment

is appropriate in this case. There are no genuine issues of material

fact in dispute in this case. The case may be resolved by applying the law to the

undisputed facts.
3. Pet

The statute provides.

‘itioner’s exclusion is required by section 1128(a)(1) of the Act.

(a) MANDATORY EXCLUSION. - The Secretary shall

exclud
partici
in sect

(1) Con

le the following individuals and entities from
pation in any Federal health care program (as defined
ion 1128B(f)):

viction of program-related crimes. — Any individual or

entity that has been convicted of a criminal offense related to

the de

ivery of an item or service under title XVIII or under

any State health care program.

Act § 1128(a)(1). Section 1128(a)(1) of the Act requires that the Secretary exclude from

participation in Med
or entity: (1) convic’

licare, Medicaid, and all federal health care programs any individual
ted of a criminal offense; (2) where the offense is related to the

delivery of an item or service; and (3) the delivery of the item or service was under

Medicare or a state

ealth care program.
Petitioner does not dispute that on February 15, 2011, he was indicted on five counts of
health care fraud in violation of 18 U.S.C. § 1347. Specifically, Petitioner, a physical
therapist, was charged with knowingly and willfully executing and attempting to execute
a scheme and artifice to defraud Medicare and to obtain by materially false and
fraudulent pretenses, representations, and promises, money from the Medicare program
in connection with the delivery of and payment for health care benefits, items and
services during the period May 2007 to September 2009.* IG. Ex. 5; P. Ex. A.
Petitioner also does not dispute that he pleaded guilty to all five counts of the indictment
on May 13, 2011. LG. Ex. 6. Petitioner’s guilty pleas were accepted and judgment was
entered against him on May 10, 2013. LG. Exs. 7, 8.

Petitioner argued in his request for hearing that the federal judge who sentenced him did
not intend to prevent Petitioner from continuing to practice as a physical therapist, so
long as he did not bill the government. RFH at 1. However, in his opposition to the
motion for summary judgment, Petitioner accepts that his exclusion from Medicare
pursuant to section 1128(a)(1) of the Act is mandatory for at least five years. P. Br. at 2.

Petitioner’s guilty pleas were accepted by the court. Therefore, Petitioner was convicted
within the meaning of the Act. Act § 1128(i) (42 U.S.C. § 1320a-7(i)). Petitioner does
not deny that the crimes of which he was convicted were program-related crimes and
involved the delivery of a health care item or service. Accordingly, all three elements of
section 1128(a)(1) of the Act are met and there is a basis for Petitioner’s exclusion.

4. Pursuant to section 1128(c)(3)(b) of the Act, the minimum period of
exclusion under section 1128(a) is five years.

5. Four aggravating factors justify extending the minimum period of
exclusion to 20 years.

* According to the Counts in the Indictment, Petitioner, a physical therapist licensed to
practice in the state of New York, maintained a private physical therapy practice with at
least two locations, but Petitioner claimed that he treated the majority of Medicare
beneficiaries in the beneficiaries’ homes. For the period between January 2005 and July
2010, Petitioner submitted approximately $11.9 million in claims to Medicare for
physical therapy services. Petitioner hired individuals who were not certified as physical
therapy assistants to provide physical therapy to the Medicare beneficiaries. Thus, he
submitted millions of dollars in false and fraudulent claims to Medicare for physical

therapy services that were not performed and were not medically necessary. I.G. Ex. 5 at
3-4.
I have concluded that a basis exists to exclude Petitioner pursuant to section 1128(a)(1) of
the Act. Therefore, the I.G. must exclude Petitioner for a minimum period of five years
pursuant to section 1128(c)(3)(B) of the Act. The LG. has no discretion to impose a
lesser period and I may not reduce the period of exclusion below five years. The
remaining issue is whether it is unreasonable to extend his period of exclusion by an
additional 15 years.

My determination of whether the exclusionary period in this case is unreasonable turns
on whether: (1) the I.G. has proven that there are aggravating factors; (2) Petitioner has
proven that there are mitigating factors the I.G. failed to consider or that the I.G.
considered an aggravating factor that does not exist; and (3) the period of exclusion is
within a reasonable range.

Petitioner does not dispute or challenge the presence of the four aggravating factors relied
upon by the L.G. to support the imposition of 15 more years of exclusion beyond the
mandatory five year period. The aggravating factors authorized by 42 C.F.R.

§ 1001.102(b) that are present in this case are:

e The acts resulting in conviction, or similar acts, caused or were intended to cause a
financial loss to a government program or one or more entities of $5,000 or more.
42 C.F.R. § 1001.102(b)(1). Petitioner does not dispute that he was ordered to pay
restitution to the Medicare program of $4,665,137.66, which is strong and
unrebutted evidence that the loss to Medicare was far more than $5,000. I.G. Ex.
Tat 5.

e The acts that resulted in the conviction . . . were committed over a period of one
year or more.” 42 C.F.R. § 1001.102(b)(2). The five substantive counts of health
care fraud to which Petitioner pleaded guilty occurred between May 12, 2007 and
September 16, 2009. I.G. Ex. 5 at 4-5. This fact is not in dispute. Therefore,
Petitioner’s offenses occurred over a period of more than one year.

e The sentence imposed by the court included incarceration. 42 C.F.R.
§ 1001.102(b)(5). It is not disputed that Petitioner was sentenced to 24 months of
incarceration on each count of the conviction, to run concurrently. I.G. Ex. 7 at 2.

e An individual was the subject of adverse action by a state government agency or
board, and the adverse action is based on the same set of circumstances that served
as the basis for imposition of the I.G.’s exclusion. 42 C.F.R. § 1001.102(b)(9).
Petitioner does not deny that he was subject to three separate adverse actions that
were all based on his health care fraud conviction.
o On November 23, 2011, the New York State Office of the Medicaid Inspector
General (OMIG) excluded Petitioner from the New York Medicaid program.
Petitioner’s OMIG exclusion was based on his federal conviction of a crime
relating to the “furnishing of or billing for medical care, services or supplies.”
1.G. Ex. 9.

o On August 6, 2013, Petitioner agreed to a consent order revoking his license to
practice physical therapy in the State of New Jersey. I.G. Ex. 10. The consent
order stated that Petitioner’s federal conviction provided “the grounds for the
surrender, to be deemed a revocation, of his license to practice physical
therapy” because it was “a crime involving moral turpitude and relating
adversely to the practice of physical therapy.” Petitioner agreed not to reapply
for a license in New Jersey. I.G. Ex. 10 at 2.

o On October 30, 2013, Petitioner signed a consent agreement and order with the
Commonwealth of Pennsylvania agreeing to a permanent voluntary surrender
of his license to practice physical therapy. 1G. Ex. 11. The adverse action was
based on the Petitioner’s federal health care fraud conviction. I.G. Ex. 11 at 2-
5. Specifically, Petitioner and the Pennsylvania State Board of Physical
Therapy agreed that the permanent surrendering of his license was appropriate
because he was convicted of a “crime of moral turpitude” and engaged in
unprofessional conduct by “charging a patient or third-party payor for a
physical therapy service which was not performed.” I.G. Ex. 11. at 4.

The adverse actions by the three state agencies are predicated on the same set of
circumstances that supported the I.G.’s exclusion and constitute an aggravating factor
that may justify extending the period of exclusion.

I conclude that the LG. established four aggravating factors that permit extending
Petitioner’s exclusion by fifteen years beyond the five-year minimum mandatory period.

6. Petitioner has not shown the existence of any authorized mitigating
factors.

7. Exclusion for 20 years is not unreasonable.

Petitioner has not presented evidence of any mitigating factors that the I.G. failed to
consider under 42 C.F.R. § 1001.102(c) that would support my reassessing and imposing
a shorter period of exclusion. If the I.G. imposes a period of exclusion beyond the five-
year minimum mandatory period based on the presence of aggravating factors, there are
only three mitigating factors established by 42 C.F.R. § 1001.102(c) that may be
considered to reduce the extended period of exclusion: (1) whether the individual was
convicted of three or fewer misdemeanor offenses coupled with a financial loss of less
than $1,500; (2) whether the individual was suffering from a mental, emotional, or
physical condition at the time of the offense that reduced his or her culpability; or (3)
whether the individual cooperated with federal or state officials resulting in others being
convicted or excluded, additional cases investigated or the imposition against anyone of
civil money penalties of assessments. 42 C.F.R. § 1001.102(c)(1)-(3).

Petitioner argues that the 20-year exclusion is unreasonable because the judge at
sentencing expressed a desire for Petitioner to be able to continue to work as a physical
therapist to pay off the restitution order. The sentencing transcript shows however, that
the Petitioner and the judge were informed by the Assistant U.S. Attorney prosecuting the
case that Petitioner would be excluded from the Medicare program. P. Ex. B at 33-34;
1.G. Ex. 8 at 33-34. Petitioner also argues that he was cooperative with the government,
admitted his guilt, and made restitution of nearly $2,000,000. P. Br. at 3; RFH at 2.

In this case, there is no evidence that any of the authorized mitigating factors listed in 42
C.F.R. § 1001.102(c) exist. The federal judge’s preferences and comments at sentencing
do not constitute mitigating factors authorized by the regulation. The fact Petitioner
admitted his guilt is not a mitigating factor. Cooperation may be a mitigating factor but,
in this case, there is no evidence that Petitioner’s cooperation resulted in others being
investigated, convicted, excluded, or penalized. Petitioner was sentenced to pay
restitution and the fact that he paid part of the restitution that he was ordered to pay is not
a recognized mitigating factor. Therefore, I conclude that Petitioner failed to establish
any mitigating factor that I am permitted to consider to reduce the period of his exclusion.

Appellate panels of the Departmental Appeals Board (the Board) have made clear that the
role of the ALJ in cases such as this is to conduct a de novo review of the facts related to
the basis for the exclusion and the existence of aggravating and mitigating factors
identified at 42 C.F.R. § 1001.102 and to determine whether the period of exclusion
imposed by the LG. falls within a reasonable range. Juan De Leon, Jr., DAB No. 2533 at
3 (2013); Craig Richard Wilder, M.D., DAB No. 2416 at 8 (2011); Joann Fletcher Cash,
DAB No. 1725, at 17, n.9 (2000). The applicable regulation specifies that the ALJ must
determine whether the length of exclusion imposed is “unreasonable.” 42 C.F.R. §
1001.2007(a)(1). The Board has explained that, in determining whether a period of
exclusion is “unreasonable,” the ALJ is to consider whether such period falls “within a
reasonable range.” Cash, DAB No. 1725 at 17, n.9. The Board cautions that whether the
ALJ thinks the period of exclusion too long or too short is not the issue. The ALJ may not
substitute his or her judgment for that of the I.G. and may only change the period of
exclusion in limited circumstances.

In John (Juan) Urquijo, DAB No. 1735 (2000), the Board made clear that, if the I.G.
considers an aggravating factor to extend the period of exclusion and that factor is not
later shown to exist on appeal, or if the I.G. fails to consider a mitigating factor that is
shown to exist, then the ALJ may make a decision as to the appropriate extension of the
period of exclusion beyond the minimum. In Gary Alan Katz, R.Ph., DAB No. 1842
(2002), the Board suggests that, when it is found that an aggravating factor considered by
the I.G. is not proved before the ALJ, then some downward adjustment of the period of
exclusion should be expected absent some circumstances that indicate no such adjustment
is appropriate.

Based on my de novo review, I conclude that there is a basis for Petitioner’s exclusion
and the evidence establishes the four aggravating factors that the I.G. relied on to impose
the 20-year exclusion. Petitioner failed to establish the existence of any authorized
mitigating factors not considered by the I.G. that would support a reduction of the period
of exclusion. No basis exists for me to reassess the period of exclusion. I conclude that a
period of exclusion of 20 years is in a reasonable range and not unreasonable considering
the four aggravating factors present.

III. Conclusion

For the foregoing reason, Petitioner is excluded from participation in Medicare,
Medicaid, and all federal health care programs for a minimum of 20 years, effective
November 20, 2013.

/s/
Keith W. Sickendick
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
ISU, Inc., d/b/a Triple C Durable Medical Equipment Supply,
(PTAN: 5407420001),
Petitioner,
v.
Centers for Medicare & Medicaid Services
Docket No. C-14-431
Decision No. CR3262

Date: June 11, 2014

DECISION

Petitioner, ISU, Inc., d/b/a Triple C Durable Medical Equipment Supply, is a supplier of
durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), located in
Las Vegas, Nevada, that, until recently, participated in the Medicare program. The
Centers for Medicare & Medicaid Services (CMS) has revoked its Medicare supplier
number, and Petitioner appeals. Both parties now move for summary judgment.

Neither party lists any witness, so an in-person hearing would serve no purpose. See
Acknowledgment and Prehearing Order at 6 (§10). This matter may therefore be decided
on the written record, without considering whether the standards for summary judgment
are satisfied.

Because the supplier lost its accreditation, CMS properly revoked its supplier number.

Background

Until its Medicare provider number was revoked, effective September 27, 2013,
Petitioner participated in the Medicare program as a supplier of DMEPOS. See 42 C.F.R.
§ 424.57. Ina letter dated August 28, 2013, the Medicare contractor, National Supplier
Clearinghouse (a division of Palmetto GBA), notified Petitioner that its Medicare
supplier number would be revoked, effective 30 days from the letter’s date, pursuant to
42 C.F.R. §§ 405.800; 424.57(e); 424.535(a)(1); and 424.535(g). According to the letter,
Petitioner did not comply with two supplier standards: 42 C.F.R. § 424.57(c)(13),
because the company did not respond to complaints about equipment provided to
Medicare beneficiaries; and 42 C.F.R. § 424.57(c)(22), because the supplier’s
accreditation expired on May 24, 2013. CMS Ex. 1.

Petitioner sought reconsideration. In a reconsidered determination dated October 25,
2013, a Medicare hearing officer affirmed the revocation of Petitioner’s supplier number.
CMS Ex. 3. Petitioner now appeals that determination pursuant to 42 C.F.R. § 424.545.

With its brief, CMS submits four exhibits (CMS Exs. 1-4). Petitioner submits a brief
(P. Br.), and three exhibits (P. Exs. 1-3). In the absence of any objection, I admit into
evidence CMS Exs. 1-4 and P. Exs. 1-3.

Discussion

CMS properly revoked the supplier’s billing number, because the supplier
was no longer accredited, as required by the Medicare statute and
regulations. |

Requirements fora DMEPOS supplier’s Medicare participation. To receive Medicare
payments for items furnished to a Medicare-eligible beneficiary, a supplier of medical
equipment and supplies must have a supplier number issued by the Secretary of Health
and Human Services. Social Security Act (Act) § 1834(j)(1)(A).

To obtain and retain a supplier number, a Medicare supplier must demonstrate that it is
accredited by an approved accreditation organization. Act § 1834(a)(20)(F)(i). It must
also meet the standards set forth in 42 C.F.R. § 424.57(c). CMS may revoke its billing
privileges if it fails to do so. 42 C.F.R. § 424.57(c)(1) and (d); 42 C.F.R. § 424.535(a)(1).
Among those standards, all suppliers of DMEPOS and other items and services must be
accredited by a CMS-approved organization. 42 C.F.R. § 424.57(c)(22).

Here, the parties agree that Petitioner ISU was accredited by the Healthcare Quality
Association of Accreditation until May 24, 2013, when its accreditation expired. CMS
Br. at 2, 5; CMS Ex. 2; P. Br. at 2. Petitioner concedes that its accreditation expired, but
claims that it was “half-way towards completing the accreditation renewal” when, in May
2013, it learned that it had not been awarded a contract to provide products to Medicare
beneficiaries as part of the DMEPOS Competitive Bidding Program. P. Br. at 4; P. Ex. 1.

' T make this one finding of fact/conclusion of law.
For reasons that Petitioner does not explain, this caused it to lose its accreditation,
although it was eventually re-accredited, effective December 13, 2013. P. Ex. 2; CMS
Ex. 4.

I agree with CMS, that the reasons Petitioner allowed its accreditation to lapse are
irrelevant. The statute and regulation make no exceptions for lapses in accreditation.
Further, that the supplier was eventually re-accredited does not preclude CMS from
revoking its billing privileges based on the loss of its accreditation. See Pepper Hill
Nursing & Rehab. Ctr., LLC, DAB No. 2395 at 5-6 (2011) (finding retroactive
compliance insufficient to prevent revocation of a supplier’s billing privileges).

Conclusion

Because the supplier was not accredited, as required by the Medicare statute and
regulations, CMS properly revoked its billing privileges.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

Social Security Administration, Inspector General,
Petitioner,

Vv.

Michelle Valent,
Respondent.

Docket No. C-13-984
Decision No. CR3261

Date: June 11, 2014

DECISION

There is no basis for the imposition of a civil money penalty (CMP) or an assessment in
lieu of damages (assessment), pursuant to section 1129(a)(1) of the Social Security Act
(the Act) (42 U.S.C. § 1320a-8(a)(1)), against Respondent, Michelle Valent.

I. Procedural History

The Counsel for the Inspector General (IG) of the Social Security Administration (SSA)
notified Respondent, Michelle Valent, by letter dated June 3, 2013, that the SSA IG
proposed imposition of a CMP of $100,000 and an assessment of $68,547 against
Respondent, pursuant to section 1129 of the Social Security Act (Act) (42 U.S.C.

§ 1320a-8).! The SSA IG cited as the basis for the CMP and assessment that during the
period September 2009 through January 2013, Respondent failed to report to SSA that
she worked while she received Social Security Disability Insurance Benefits (DIB) and

' The current version of the Act is available at http://www.ssa.gov/OP_Home/ssact/ssact-
toc.htm.

she falsely reported during an April 2012 Continuing Disability Review (CDR) that she
had not worked since 2004. SSA IG Exhibit (SSA Ex.) 4.

Respondent requested a hearing pursuant to 20 C.F.R. § 498.202,” by letter dated June
11, 2013. The case was assigned to me for hearing and decision and the parties were
notified by letter dated July 12, 2013, that I would convene a prehearing conference by
telephone on August 8, 2013, at 11:00 a.m. Eastern Time. The prehearing conference
was convened by telephone as scheduled. The substance of the prehearing conference is
memorialized in my Scheduling Order and Notice of Hearing issued on August 9, 2013
(Scheduling Order).

Pursuant to the Scheduling Order, the SSA IG and Respondent were required to file and
exchange lists of exhibits and witnesses and copies of proposed exhibits not later than
December 13, 2013, and prehearing briefs not later than December 30, 2013. Scheduling
Order {J IV, IX. SSA timely filed its exchange of witness lists, witness statements, and
proposed exhibits and a copy of its prehearing brief. Respondent failed to file her
exchange by December 13, 2013 as required by the Scheduling Order. Therefore, on
December 19, 2013, I issued an order for Respondent to show cause why her case should
not be dismissed for abandonment or as a sanction. Respondent responded to the order to
show cause on December 27, 2013, and filed her exchange of lists of exhibits and
witnesses and copies of proposed exhibits, but did not file her prehearing brief by
December 30, 2013 as required. On January 6, 2014, the SSA IG requested sanctions,
including dismissal of this case, because Respondent failed to timely file her exchange
and she failed to timely file her prehearing brief. The SSA IG argues that Respondent’s
delayed exchange and failure to file a prehearing brief prejudiced the SSA IG, but the
SSA IG does not specifically articulate the prejudice suffered. Pursuant to section
1129(b)(4) of the Act and 20 C.F.R. § 498.214, I may sanction a party or attorney for
failure to comply with an order or procedure, for failure to defend, or for such other
conduct that interferes “with the speedy, orderly, or fair conduct of the hearing.” The
sanction must reasonably relate to the severity and nature of the conduct. Authorized
sanctions include: drawing a negative factual inference or deeming a fact admitted or
established in the case of refusal to provide or permit discovery; prohibiting a party from
introducing evidence; striking pleadings; staying proceedings; dismissal of the case;
default judgment against the offending party; ordering the offending counsel or party to
pay fees and costs caused by the failure or misconduct; or refusal to consider a motion or
pleading not filed in a timely manner. In this case, Respondent’s failure to timely file her

> References are to the 2012 revision of the Code of Federal Regulations (C.F.R.), unless
otherwise stated.
exchange and failure to file a prehearing brief caused no delay of the trial in this case and
the SSA IG has failed to specifically identify any prejudice that warrants punishing
Respondent. Accordingly, the SSA IG motion for sanctions is denied.

On January 14, and 15, 2014, a hearing was convened by VTC. The SSA IG, represented
by Penny Collender, Esq. and Erin Justice, Esq., appeared by VTC from New York City.
Respondent appeared by VTC from Livonia, Michigan represented by Marianne
McCauley. I participated by VTC from Kansas City with the court reporter. Witnesses
testified by VTC from Livonia, Michigan, Baltimore, and San Diego. A transcript of the
proceedings was prepared. The SSA IG offered SSA Exs. | through 18, which were
admitted as evidence. Tr. 37-38. Respondent offered Respondent’s exhibits (R Ex.) 1
through 6, which were admitted as evidence. Tr. 38-39. The SSA IG called the
following witnesses: Resident Agent in Charge (RAC) Adam Lowder; Special Agent
(SA) Kathryn Krieg; Alan Watt, the confidential source; Respondent Michelle Valent;
Mark McCauley, Respondent’s brother and purported employer; and B. Chad Bungard,
Counsel to the SSA IG. Respondent called no witnesses.

The SSA IG filed a post-hearing brief (SSA Br.) on March 26, 2014. Respondent also
filed her post-hearing brief (R. Br.) on March 26, 2014. Respondent filed a post-hearing
reply brief (R. Reply) on April 10, 2014. The SSA IG filed a post-hearing reply brief
(SSA Reply) on April 11, 2014. The parties reply briefs were received on April 14, 2014,
and the record was considered closed and the case ready for decision.

IL. Discussion
A. Applicable Law

Pursuant to title II of the Act, an individual who has worked in jobs covered by Social
Security for the required period of time, who has a medical condition that meets the
definition of disability under the Act, and who is unable to work for a year or more
because of the disability, may be entitled to monthly cash disability benefits. 20 C.F.R.
§§ 404.315-404.373. Pursuant to title XVI of the Act, certain eligible individuals are
entitled to the payment of Supplemental Security Income (SSI) on a needs basis. To be
eligible for SSI payments, a person must meet U.S. residency requirements and must be:
(1) 65 years of age or older; (2) blind; or (3) disabled. Disability under both programs is
determined based on the existence of one or more impairments that will result in death or
that prevent an individual from doing his or her past work or other work that exists in
substantial numbers in the economy for at least one year. 20 C.F.R. §§ 416.202, 416.905,
416.906. Additionally, a person must have limited income and resources to be eligible
for SSI. 20 C.F.R. §§ 416.202(c) and (d), 416.1100-.1182, 416.1201-.1266. All assets,
other than a car and a primary residence, are considered resources when determining
whether an individual has “limited” resources. 20 C.F.R. § 416.1210. The income and
resources of a spouse or other individuals in a household are also subject to being

considered. 20 C.F.R. §§ 416.1201-.1204; 416.1802. SSI is not at issue in this case as
Respondent received no benefits under that program.

Section 1129(a)(1) of the Act authorizes the imposition of a CMP or an assessment
against:

(a)(1) Any person... who —

(A) makes, or causes to be made, a statement or
representation of a material fact, for use in determining
any initial or continuing right to or the amount of
monthly insurance benefits under title II or benefits or
payments under title VIII or XVI, that the person
knows or should know is false or misleading,

(B) makes such a statement or representation for such
use with knowing disregard for the truth, or

(C) omits from a statement or representation for such
use, or otherwise withholds disclosure of, a fact which
the person knows or should know is material to the
determination of any initial or continuing right to or
the amount of monthly insurance benefits under title II
or benefits or payments under title VIII or XVI, if the
person knows, or should know, that the statement or
representation with such omission is false or
misleading or that the withholding of such disclosure
is misleading ....

The Commissioner of SSA (the Commissioner) delegated the authority of section 1129 of
the Act to the IG:

(a) The Office of the Inspector General may impose a penalty
and assessment, as applicable, against any person who it
determines in accordance with this part—

(1) Has made, or caused to be made, a statement or
representation of a material fact for use in determining any
initial or continuing right to or amount of:

(i) Monthly insurance benefits under title II of the
Social Security Act; or
(ii) Benefits or payments under title VIII or title XVI
of the Social Security Act; and

(2)(i) Knew, or should have known, that the statement or
representation was false or misleading, or

(ii) Made such statement with knowing disregard for
the truth; or

(3) Omitted from a statement or representation, or
otherwise withheld disclosure of, a material fact for use in
determining any initial or continuing right to or amount of
benefits or payments, which the person knew or should
have known was material for such use and that such
omission or withholding was false or misleading.

20 C.F.R. § 498.102(a). A material fact is a fact that the Commissioner may consider in
evaluating whether an applicant is entitled to benefits or payments under titles II, VIL, or
XVI of the Act. Act § 1129(a)(2); 20 C.F.R. § 498.101. Individuals who violate section
1129 are subject to a CMP of not more than $5,000 for each false or misleading statement
or representation of material fact or failure to disclose a material fact. Violators are also
subject to an assessment in lieu of damages, of not more than twice the amount of the
benefits or payments made as a result of the statements, representations, or omissions.
Act § 1129(a)(1); 20 C.F.R. § 498.103(a).

In determining the amount of the CMP to impose, the SSA IG must consider: (1) the

nature of the subject statements and representations and circumstances under which they
occurred; (2) the degree of culpability of the person committing the offense; (3) the
person’s history of prior offenses; (4) the person’s financial condition; and (5) such other
matters as justice requires. Act § 1129(c); 20 C.F.R. §498.106(a).

Section 1129(b)(2) of the Act specifies that the Commissioner shall not decide to impose
a CMP or assessment against a person until that person is given written notice and an
opportunity for the determination to be made on the record after a hearing at which the
person is allowed to participate. The Commissioner has provided by regulations at
20 C.F.R. pt. 498 that a person against whom a CMP is proposed by the SSA IG may
request a hearing before an ALJ of the Departmental Appeals Board (the Board). The
ALJ has jurisdiction to determine whether the person should be found liable for a CMP
and/or an assessment and the amount of each. 20 C.F.R. §§ 498.215(a), 498.220(b). The
person requesting the hearing, the Respondent, has the burden of going forward and the
burden of persuasion with respect to any affirmative defenses and any mitigating
circumstances. 20 C.F.R. § 498.215(b)(1). The SSA IG has the burden of going forward
as well as the burden of persuasion with respect to all other issues. 20 C.F.R.

§ 498.215(b)(2). The burdens of persuasion are to be judged by a preponderance of the
evidence. 20 C.F.R. § 498.215(c).

B. Issues

Whether there is a basis for the imposition of a CMP pursuant to section
1129(a)(1) of the Act and 20 C.F.R. § 498.102(a).

Whether there is a basis for the imposition of an assessment pursuant to
section 1129(a)(1) of the Act and 20 C.F.R. § 498.102(a).

fo)

Whether the CMP and assessment proposed are reasonable considering the
factors specified by section 1129(c) of the Act and 20 C.F.R. § 498.106(a).

Whether or not Respondent may be liable for an overpayment of Social Security benefits
and whether or not she continues to meet the requirements for payment of Social Security
benefits are not issues before me.

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

My conclusions of law are set forth in bold followed by the statement of pertinent facts
and my analysis. I have carefully considered all the evidence and the arguments of both
parties, although not all may be specifically discussed in this decision. I discuss 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.
Koch, Jr., Admin. L. and Prac. § 5:64 (3d ed. 2013).

1. Respondent was entitled to receive DIB under section 223 of the Act
for at least 24 months.

> “Credible evidence” is evidence that is worthy of belief. Black's Law Dictionary 596
(18th ed. 2004). The “weight of evidence” is the persuasiveness of some evidence
compared to other evidence. Id. at 1625.
2. Pursuant to section 221(m)(1)(b) of the Act, the Commissioner is
prohibited from considering any work activity of Respondent as
evidence that Respondent was no longer disabled and no longer
entitled to DIB.

3. Respondent’s work activity after she received DIB for at least 24
months is not a fact that the Commissioner was permitted to evaluate
to determine if Respondent was entitled to continuing receipt of DIB,
and therefore, not a material fact within the meaning of section
1129(a)(2) of the Act or 20 C.F.R. § 498.101.

4. Although Respondent failed to report work activity in violation of
the regulation, the fact she engaged in work activity was not a material
fact and the failure to report is not a basis for the imposition of a CMP
or an assessment under section 1129 of the Act.

5. The SSA IG failed to show by a preponderance of the evidence that
Respondent knew or should have known that her work activity was a
material fact that she failed to report because, pursuant to section
221(m) of the Act, her work activity is not material as a matter of law.

a. Allegations

Counsel to the SSA IG, B. Chad Bungard, notified Respondent, Michelle Valent, by letter
dated June 3, 2013, that the SSA IG proposed imposition of a CMP of $100,000 and an
assessment of $68,547 against Respondent, pursuant to section 1129 of the Social
Security Act (Act) (42 U.S.C. § 1320a-8). The SSA IG cited as the basis for the CMP
and assessment that during the period September 2009 through January 2013, Respondent
failed to report to SSA that she worked while she received DIB and she falsely reported
during an April 2012 CDR that she had not worked since 2004. The SSA IG notice
indicates that the SSA IG determined that Respondent committed 41 separate violations,
one violation for each of the 41 months beginning September 2009 and continuing
through January 2013, that she omitted or failed to report that she worked as a customer
service representative for War Era Veterans Alliance where she earned $400 per week,
while collecting DIB payments. The SSA IG notice also indicates that Respondent
falsely reported on April 20, 2012, that she had not worked since 2004. The SSA IG
advised Petitioner that rather than imposing the maximum CMP of $5,000 per violation
and twice the amount of benefits improperly received, he proposed a reduced CMP of
$100,000 and an assessment of $68,547, the actual amount of benefits received. SSA Ex.
4. Mr. Bungard testified that the only basis for the CMP was the 41 months from
September 2009 through January 2013 that Respondent failed to report the material fact
that she worked for War Era Veteran’s Alliance. Tr. 361-62.

The SSA IG alleges before me Respondent knowingly withheld material information
from SSA for 41 months, from September 2009 through January 2013, by failing to
report that she worked for War Era Veterans Alliance. SSA Br. at 10-11. The SSAIG
also alleges that Respondent falsely stated to SSA on one occasion that she had not
worked since 2004. SSA Br. 12. The SSA IG requests that I approve a combined CMP
and assessment of $ 168,547. SSA Br. at 14; SSA Reply at 10.

SSA has the burden to establish by a preponderance of the evidence, that is, that it is
more likely than not, that Respondent failed to report the material fact that he worked
while receiving DIB. 20 C.F.R. §§ 498.102(a), 498.215(b)(2) and (c).

b. Facts

The SSA IG evidence shows that Respondent filed for DIB on October 29, 2003. She
was determined disabled and entitled to DIB payments with a disability onset date of
March 25, 2003, based on the primary diagnosis of affective disorders, which refers to a
set of psychiatric diseases including depression, bipolar disorder, and anxiety disorder.
Her prior work was as a receptionist or administrative assistant from 1988 to March
2003. A CDR completed on March 31, 2010, resulted in continuation of her entitlement
to DIB. In January 2012, the SSA IG received an allegation that Respondent had been
working as a customer service representative for War Era Veterans Alliance, LLC since
2009. Respondent was interviewed by a SSA Claims Representative on April 20, 2012.
During the interview, Respondent completed forms and statements in which she stated
that she had not worked since 2004 and listed no work since 2004. SSA Ex. 9 at 7; SSA
Ex. 12 at 1-2. Respondent’s maiden name was Michelle L. McCauley. SSA Ex. 12 at 2.

On September 12, 2013, an SSA Technical Expert, Deborah Buchholz, completed a
special work determination report. SSA Ex. 12. The Technical Expert determined that
Respondent started working for War Era Veteran’s Alliance, owned by Respondent’s
brother and sister-in-law, Mark and Marianne McCauley, on September 1, 2008.* The
Technical Expert concluded that Respondent’s brother paid her $400 per week, an
average of $1733.33 gross pay per month. SSA determined that Respondent’s earnings
were substantial gainful activity; Respondent’s trial work period was September 2008
through May 2009; her entitlement to DIB ended with June 2009; and the last check to
which she was entitled was issued for August 2009. SSA determined that Respondent
was overpaid $49,795.90 in benefits for herself and $15,608.00 for her daughter. SSA

* The registered agent for War Era Veterans Alliance, LLC is Marianne McCauley. SSA
Ex. 14; R. Ex. 1 at 1; R. Ex. 3.
Ex. 12 at 8; SSA Ex. 1 at 22. The amount of the overpayment to Respondent is different
in this document than the amount stated in SSA Ex. | at 21-22, and SSA Ex. 3 at 12.

SSA notified Respondent by letter dated December 5, 2012 that based on review of her
work and earnings for March 2003 through December 2012 she may not be eligible for
DIB payments beginning with September 2009 and continuing thereafter. Respondent
was invited to send in information within ten days. SSA Ex. 3 at 1. SSA advised
Respondent that SSA records show that Respondent worked from January 2003 to
December 2004 for Hanover Grove Consumer Housing and from September 2008 and
continuing for War Era Veterans Alliance. SSA Ex. 3 at 2. The SSA letter advised
Respondent that her trial work period was September 2008 through May 2009, with
continuing entitlement to DIB during that period. SSA Ex. 3 at 3. SSA notified
Respondent by letter dated January 14, 2013, that her entitlement to DIB payments ended
beginning September 2009. SSA Ex. 3 at 6. The SSA notice advised Respondent that
because her checks were not stopped until January 2013, she was overpaid $52,938.90.
SSA Ex. 3 at 7. Respondent was also advised by a letter from SSA dated January 14,
2013, that her daughter was no longer eligible to receive payments, and that her daughter
was overpaid $15,608 in benefits. SSA Ex. 3 at 12.

SA Kathryn Krieg prepared an initial report of investigation for the period February 13,
2012 to June 8, 2012. The case was assigned to her by RAC Lowder on February 13,
2012. Subsequently, she obtained a copy of Respondent’s Michigan driver’s license
photograph and her address information from the license. She determined that
Respondent was receiving DIB payments, and that she had no reported wages since 2004.
On or about March 14, 2012, she conducted surveillance of Respondent’s home in
Macomb, Michigan and the War Era Veterans Alliance office in Chesterfield Township,
Michigan, where Respondent was reportedly working. Her report does not indicate that
she saw Respondent or established her presence at either location. SSA Ex. | at 2-3. SA
Krieg opined that Respondent may have been working from home. On April 2, 2012,
she referred the allegations against Respondent to SSA for a CDR and more
development. Tr. 124-25; SSA 1 at 3. On or about May 9, 2012, SA Krieg received a
copy of a letter from Alan Watt to the SSA IG with other documents. On May 10, 2012,
SA Krieg conducted more surveillance at Respondent’s residence and the War Era
Veterans Alliance. Her report fails to show that she saw Respondent or established her
presence at either location. On May 23, 2012, she interviewed Alan Watt about his
allegations that Respondent was working for War Era Veterans Alliance. Watt told her
that Respondent either worked at the office or at home. Watt stated that Respondent’s
brother, Mark McCauley owns War Era Veterans Alliance and that it was common
knowledge that Respondent was collecting Social Security. Watt told SA Krieg that
probably half the employees are paid under the table. He told SA Krieg that he believed
Respondent was paid $10 to $15 per hour and worked full-time or close to full-time. He
told SA Krieg that he believed that Respondent was already working for War Era
Veterans Alliance when he started in May 2009. He quit working for War Era Veterans
10

Alliance on April 18, 2011, and that was his last contact with Respondent. SSA Ex. | at
1-6.

Alan Watt testified consistent with the statements recorded by SA Krieg. He admitted in
response to my questions at hearing that he was only present in the Michigan office one
or two days a month from June 2009 through August 2010, for one to four hours at a
time. He estimated that Respondent was at the office 50 to 75 percent of the time that he
was present. Tr. 191-93. He also testified that he had contact with Respondent when he
called in and she answered the phone on roughly a daily basis until August 2010 and then
about 30 percent of the time when he called later in the day from August 2010 until he
left the company in April 2011. Tr. 193-95. I find that Mr. Watt’s credibility regarding
his assertions as to Respondents work activity is significantly limited by his by his
limited opportunity to observe Respondent and her activities.

SA Brian Reitz prepared a Status Report for the period June 8, 2012, in which he
recorded an interview with Aimee Konal who worked at War Era Veterans Alliance.
Konal told SA Reitz and his partner, SA Judith Amaro, that she was not an official
employee but worked there off and on for two years and was paid under the table. Konal
told the agents that Respondent answered the telephone for War Era Veterans Alliance
from her home. Konal told the agents that when she started at War Era Veterans Alliance
Respondent worked in the office answering phone about 32 hours or more each week,
earning $8 to $10 per hour, but for the past year she had been working from home. Konal
did not know how much Respondent earned or how many hours she worked, but she
believed she worked a lot based on work-related messages she received from
Respondent. SSA Ex. 1 at 9-10. Aimee Konal completed a written sworn statement
which is consistent with the agent’s summary. SSA Ex. 7.

SA Krieg completed a status report for the period June 8, 2012 to June 12, 2012, in which
she records interviews with Respondent and others. On June 8, 2012, SA Krieg, RAC
Lowder, SA Amaro, and SA Reitz interviewed Jacquie Scalet, and employee of War Era
Veterans Alliance at the War Era Veterans Alliance office. Scalet told the agents that
Respondent helped War Era Veterans Alliance by answering the phone from her home.
Scalet denied knowing Respondent’s hours or pay. Scalet stated that Respondent used to
work in the office but that had ended in Spring 2011 when Respondent started working
from her home. Scalet stated that she started working for War Era Veterans Alliance in
2010 and that Respondent worked there prior to that. Scalet provided contact information
for Mark McCauley. SSA Ex. | at 11-13; Tr. 53, 106-07.

SA Krieg and RAC Lowder interviewed Respondent at her residence on June 8, 2012.
Respondent denied working for War Era Veterans Alliance but stated that a year prior she
had trained some people and that she answered the phones a few times for the business.
Respondent denied knowledge of her photograph, biography, or a description of her work
on the War Era Veterans Alliance website. She stated that her voice is on the War Era
11

Veterans Alliance telephone recording. Respondent told the agents that she will answer
the telephone for War Era Veterans Alliance when an employee is sick and that she does
so from the office. Respondent denied having an email associated with War Era Veterans
Alliance. Respondent admitted that she had a specific phone for answering War Era
Veterans Alliance phone calls at home. Respondent stated that Mark McCauley has paid
some bills for her. She denied working for War Era Veterans Alliance except for here
and there and she denied receiving cash payments for work or money from McCauley.
Respondent stated that she was last at the War Era Veteran Alliance office in 2010 when
she filled-in for Adrianne Watt and that she would fill in approximately two to three
times a week. She stated that she did tell neighbors that she worked. SSA Ex. 1 at 13-15;
Tr. 54-59, 109-15, 146-48.

SA Krieg and RAC Lowder interviewed Respondent’s husband on June 8, 2012. He
denied that Respondent worked for War Era Veterans Alliance for pay. SSA Ex. | at 15.

SA Krieg and SA Amaro interviewed Mark McCauley on June 8, 2012. McCauley told
them that Respondent is his sister and he does not consider her an employee of War Era
Veterans Alliance. He stated that he gives Respondent money as he promised his dad to
take care of her. McCauley stated that Respondent had no schedule or set hours; he did
give her a phone that she could answer if she choose to; and that she could not work in an
office environment. He stated that he gifts her $12,000 per year whether or not she
answers a phone; but he subsequently stated that he gives her $400 per week, which
would amount to $20,800. McCauley referred to Respondent as Missy. He agreed that
Respondent was listed on the War Era Veterans Alliance website as “Vale.” McCauley
admitted that Respondent did answer phones for the business and scheduled people to
attend the financial classes he taught but he denied knowing how much she actually
worked. SSA Ex. | at 15-17; Tr. 98, 115-21.

SA Krieg prepared a status report for the period October 10, 2012 to January 14, 2013.
SA Krieg reported that Deborah Buchholz, an SSA employee, determined that
Respondent was overpaid $68,546.90, which included an overpayment of DIB of
$52,938.90 and an overpayment of CIB to her child in the amount of $15,608. SSA 1 at
21-22. The SSA IG has offered no evidence of the actual amount of monthly DIB and
CIB benefits Respondent and her child received during the pertinent period.

SA Krieg referred the matter to the US Attorney but criminal prosecution was declined
because the evidence was insufficient to show that the money given to Respondent was
earnings rather than a gift. SSA Ex. | at 21-22; SSA Ex. 2. SA Krieg referred the matter
to the SSA IG and closed her investigation on February 12, 2013. SSA Ex. 1 at 23. RAC
Adam Lowder sent a letter dated January 11, 2013, to the US Attorney, Detroit Michigan
to confirm that the US Attorney declined to prosecute Respondent. RAC Lowder
summarized in his letter some of the investigative findings, including that DIB payments
12

to Respondent were terminated in January 2013, resulting in an overpayment of $68,546.
SSA Ex. 2 at 1.°

Respondent does not dispute that she signed a statement on April 20, 2012, in which she
stated “I have not worked since 2004.” SSA Ex. 8. Respondent also does not dispute
that on April 20, 2012, she completed a “Work Activity Report — Employee” on which
she wrote “I have not worked since 2004.” SSA Ex. 9 at 7. She also checked the no box
in response to the question of whether she had any “employment income or wages” since
her disability onset date. SSA Ex. 9 at 1. Mr. Bungard testified that the checked no box
and the statement on the “Work Activity Report - Employee” were not a basis for the
CMP proposed. He testified that the only basis for the CMP was the 41 months from
September 2009 through January 2013 that Respondent failed to report the material fact
that she worked for War Era Veteran’s Alliance. Tr. 361-62.

Respondent does not dispute that on June 7, 2012, she was listed on the War Era Veterans
Alliance website as Michelle Vale and described as the “voice of War Era Veterans” who
ad been “taking calls and managing all War Era Veterans Alliance calendars for over
four years.” SSA Ex. 13 at 58.

Mark McCauley submitted a letter in which he stated that he gifted money to Respondent
and he asked that she do little things for War Era Veterans Alliance to help her sense of
self-worth. R. Ex. 2. Mr. McCauley testified that he and his wife worked together to
form War Era Veterans Alliance but his wife is the owner. Tr. 254-55. He admitted that
it was possible that he told SA Krieg that Respondent answered phones and scheduled
classes for him. He admitted that he gave Respondent a phone, albeit for her personal
use. He also admitted that calls for War Era Veterans Alliance would ring on the phone
that he provided Respondent and she could answer if she chose to. Tr. 257-59, 282-83.
He explained that he gave her a phone that was billed to him with all the other phones he
used for his homes and offices. Tr. 284-85. He testified that he never paid Respondent
but gifted her about $12,000 per year, which he understood to be the Internal Revenue
Service limit at the time. Tr. 262-63, 277. He agreed that the “Michelle Vale” listed on
the website (SSA Ex. 13 at 58) was his sister, Michelle Valent, but he testified that he had
nothing to do with creating or maintaining the website. Tr. 264-64. He testified that War
Era Veterans Alliance was not his company and he had nothing to do with paying staff,
but he did not deny that he may have stated to SA Krieg that one War Era Veterans
Alliance employee may have been paid in cash and that he would ensure that they were

> SA Krieg provided a declaration dated December 10, 2013, which is consistent with
her investigative reports. SSA Ex. 16. RAC Adam Lowder also submitted declaration
that is consistent with SA Krieg’s investigative reports. SSA Ex. 17.
13

being paid legally in the future. Tr. 268-69. He testified that he was told by an SSA
representative that it was permissible to give his sister money. Tr. 270. When asked
about whether he gave his sister $400 per week or $12,000 per year, which would have
been less than $400 per week, he testified that he may have been referring to giving
Respondent $400 one week but he could not recall with certainty. Tr. 271-73, 278-79.

Respondent testified that she did not work for War Era Veterans Alliance and that she
only trained one person on how to operate the telephones. She testified that she was
given a phone to use at home by War Era Veterans Alliance but it was so she could reach
the McCauley’s. She testified that she only answered as War Era Veterans Alliance
when told to do so by Marianne McCauley. She testified that she did record the stories of
some veterans that called. She denied that Mark McCauley gave her money but testified
that he did pay some of her bills. She admitted that she did airport runs for the
McCauley’s. Tr. 206-52.

c. Analysis

The SSA IG proposes to impose a CMP of $100,000 for the 41 months from September
209 through January 2013, during which Respondent failed to report that she worked for
War Era Veterans Alliance. The SSA IG also proposes an assessment in lieu of damages
in the amount of $68,547, the amount of DIB and CIB payments Respondent and her
child allegedly received during the pertinent period. I conclude that there is no basis to
impose either a CMP or an assessment.

A beneficiary entitled to cash benefits for a period of disability, such as Respondent, is
required to promptly notify SSA when his or her condition improves; when he or she
returns to work; when he or she increases the amount of work performed; or when
earnings increase. 20 C.F.R. § 404.1588(a). The term “work” as used in 20 C.F.R.

§ 404.1588(a) is not specifically defined in either the Act or the regulations. According
to 20 C.F.R. § 404.1571:

The work, without regard to legality, that you have done
during any period in which you believe you are disabled may
show that you are able to work at the substantial gainful
activity level. If you are able to engage in substantial gainful
activity, we will find that you are not disabled. ... Even if
the work you have done was not substantial gainful activity, it
may show that you are able to do more work than you
actually did. We will consider all of the medical and
vocational evidence in your file to decide whether or not you
have the ability to engage in substantial gainful activity.
14

This regulation indicates that any work activity may impact the determination of whether
or not one can perform substantial gainful activity and the determination of entitlement or
continuing entitlement to Social Security benefits. Therefore, the regulation supports an
interpretation that all work activity should be reported — no matter how minimal, whether
for pay or profit or not, whether legal or illegal, or whether in support of a charitable or
volunteer organization — which is consistent with the SSA IG’s position. Tr. 364.
However, 20 C.F.R. § 404.1572 creates potential confusion about whether all work
activity need be reported. The regulation defines “substantial gainful activity” as work
activity that is both substantial and gainful. “Substantial work activity” is defined as
significant physical or mental activity. “Gainful work activity” is work of the kind that is
usually done for pay or profit whether or not there is pay or profit. 20 C.F.R.

§ 404.1572(a) — (b). However, the regulatory language suggests that not all work activity
need be reported, even if it rises to the level of substantial gainful activity. The
regulation states that, generally, hobbies, activities of daily living, household tasks, club
activities, school attendance, and social programs are not considered substantial gainful
activity. 20 C.F.R. § 404.1572(c); Social Security Ruling 83-33: Titles II and XVI:
Determining Whether Work Is Substantial Gainful Activity —Employees. The evidence
does not show that Respondent was actually informed about what activities amounted to
work within the meaning of the regulation for which reporting was required by 20 C.F.R.
§ 404.1588(a). Respondent argues that it was not explained to her what was considered
work that had to be reported and, therefore, she did not intentionally or unintentionally
omit to report a material fact. P. Br. 2-4. However, the broad reading of the regulation to
require reporting of all work is consistent with the purpose of the Act and the language of
the regulation is sufficient notice to Respondent of what to report.

Respondent’s argument is that she did no work for War Era Veterans Alliance.
Respondent’s argument is not persuasive. Respondent and Mark McCauley admitted in
testimony that Respondent answered the phone for War Era Veterans Alliance and she
did some scheduling, at least occasionally. Therefore, I conclude that Respondent did
engage in some work activity for the benefit of War Era Veterans Alliance. The
preponderance of the evidence does not show whether Respondent was actually paid for
her work or that she only received gifts from her brother, Mark McCauley unrelated to
work at War Era Veterans Alliance. The evidence also does not show that Respondent’s
work rose to the level of “substantial gainful activity;” or when and how frequently
gainful work activity was actually performed. It is not necessary to resolve these specific
fact issues given the decision in this case.

Pursuant to section 1129(a)(1)(C) of the Act and 20 C.F.R. § 498.102(a), the SSA IG may
impose a CMP and an assessment in lieu of damages against anyone, if the following
elements are satisfied:
person:

(1) The

(2) The
(a) any initial
(b) the amount
(3) The person know:

(

Act § 1129(a)(

15

or continuing right to, or
it of monthly benefits; and
s, or should know, that

(a) omits from a statement or representation a material fact or otherwise
withholds disclosure of a material fact
(b) for use in determining

(i) an initial or a continuing right to DIB benefits, or

(ii) the amount of those benefits; and

person knows or should know the fact is material to the determination of

(a) the statement or representation with such omission is false or
misleading, or
b) the withholding of such disclosure of t

e material fact is misleading.

)(C); 20 C.F.R. § 498.102(a). A material fact is a fact that the

Commissioner may consider in evaluating whether an applicant is entitled to benefits or

payments under the Act. Ai
a beneficiary is engaging in
that fact in evaluating whet
disability payments or the a:

er the beneficiary is entitle

ct § 1129(a)(2); 20 C.F.R. § 498.101. Generally, the fact that
work is material because the Commissioner may consider

initially and to continuing

mount of those payments. 20 C.F.R. §§ 404.315-.321,

404.401(a), 404.1505, 404.1510, 404.1589-.1591. A statement of fact or an omitted fact

is material under the Act an
influence, or was capable o
Miller, 621 F.Supp.2d 323,

d most federal statutes, if it “

‘has the natural tendency to

influencing the decision” o:

the Commissioner. U.S. v.

at 331 (W.D. Va. 2009) aff'd 394 Fed. App’x 18 (4th Cir.

2010), citing Kungys v. U.S., 485 U.S. 759, 770 (1988). Whether a statement of fact or
omitted fact is material does not depend on whether the Commissioner was deceived or

whether any decision woul

have been different. U.S. v.

694 (8th Cir. 2005). There

. Henderson, 416 F.3d, 686, at
‘ore, normally I would conclude that Respondent’s failure to

report that she engaged in work activity, no matter how minimal that work activity or
how infrequent, was an omission or failure of Respondent to report a material fact
subjecting her to a CMP and assessment under section 1129(a)(1)(C) of the Act.

Respondent benefits however from a provision of the Act not addressed by the SSA IG,

specifically section 221(m)

of the Act, which provides:

(1) In any case where an individual entitled to disability
insurance benefits under section 223 or to monthly insurance
benefits under section 202 based on such individual’s
disability (as defined in section 223(d)) has received such
benefits for at least 24 months—
16

(A) no continuing disability review conducted by the
Commissioner may be scheduled for the individual
solely as a result of the individual’s work activity;

(B) no work activity engaged in by the individual
may be used as evidence that the individual is no
longer disabled; and

(C) no cessation of work activity by the individual may
give rise to a presumption that the individual is unable
to engage in work.

(2) An individual to which paragraph (1) applies shall
continue to be subject to—

(A) continuing disability reviews on a regularly
scheduled basis that is not triggered by work; and

(B) termination of benefits under this title in the event
that the individual has earnings that exceed the level of
earnings established by the Commissioner to represent
substantial gainful activity.

Act § 221(m) (emphasis added). The foregoing section of the Act is implemented, at
least in part, by 20 C.F.R. § 404.1590(i), 71 Fed. Reg. 66,840, 66,843-66,850 (Nov. 17,
2006).

Respondent was found disabled and entitled to DIB with an onset date of March 25, 2003
(SSA Ex. 12 at 1); which is more than six years before September 2009, the earliest date
that the SSA IG alleges Respondent engaged in gainful work activity that she failed to
report (SSA Ex. 4). Pursuant to section 221(m)(1)(B) of the Act, Congress prohibited the
Commissioner from considering work activity of an individual entitled to DIB for at least
24 months, as evidence that the individual is no longer disabled. Because Congress
prohibited consideration of Respondent’s work activity as evidence that she was no
longer disabled, her work activity is not a fact that the Commissioner may consider in
evaluating whether Respondent continued to be entitled to benefits or payments under the
Act. Therefore, Respondent’s work activity is not material within the meaning section
1129(a)(2) of the Act and 20 C.F.R. § 498.101. Accordingly, Respondent’s failure to
report her work activity for War Era Veterans Alliance is not, as a matter of law, a failure
17

to report a material fact for which a CMP or assessment is authorized under section
1129(a)(1).°

II. Conclusion

For the foregoing reasons, I conclude that there is no basis for the imposition of a CMP or
assessment in this case.

/s/
Keith W. Sickendick
Administrative Law Judge

STATEMENT OF APPEAL RIGHTS PURSUANT TO 20 C.F.R. § 498.221

(a) Any party may appeal the decision of the ALJ to the DAB
by filing a notice of appeal with the DAB within 30 days of
the date of service of the initial decision. The DAB may
extend the initial 30-day period for a period of time not to
exceed 30 days if a party files with the DAB a request for an
extension within the initial 30-day period and shows good
cause.
ek KK

(c) A notice of appeal will be accompanied by a written brief
specifying exceptions to the initial decision and reasons
supporting the exceptions, and identifying which finding of
fact and conclusions of law the party is taking exception to.
Any party may file a brief in opposition to exceptions, which
may raise any relevant issue not addressed in the exceptions,
within 30 days of receiving the notice of appeal and
accompanying brief. The DAB may permit the parties to file
reply briefs.
(d) There is no right to appear personally before the DAB, or
to appeal to the DAB any interlocutory ruling by the ALJ.

® Section 221(m) of the Act does not relieve Respondent of her obligation to report work
activity to the Commissioner pursuant to 20 C.F.R. § 404.1588(a). Section 221(m) also
does not prevent the Commissioner from considering whether Respondent was no longer
entitled to DIB because she engaged in substantial gainful activity.
18

(e) No party or person (except employees of the DAB) will
communicate in any way with members of the DAB on any
matter at issue in a case, unless on notice and opportunity for
all parties to participate. This provision does not prohibit a
person or party from inquiring about the status of a case or
asking routine questions concerning administrative functions
or procedures.
(f) The DAB will not consider any issue not raised in the
parties' briefs, nor any issue in the briefs that could have been,
but was not, raised before the ALJ.
(g) If any party demonstrates to the satisfaction of the DAB
that additional evidence not presented at such hearing is
relevant and material and that there were reasonable grounds
for the failure to adduce such evidence at such hearing, the
DAB may remand the matter to the ALJ for consideration of
such additional evidence.

OK Kk
(i) When the DAB reviews a case, it will limit its review to
whether the ALJ's initial decision is supported by substantial
evidence on the whole record or contained error of law.(j)
Within 60 days after the time for submission of briefs or, if
permitted, reply briefs has expired, the DAB will issue to
each party to the appeal and to the Commissioner a copy of
the DAB's recommended decision and a statement describing
the right of any respondent who is found liable to seek
judicial review upon a final decision.

Respondent’s request for review by the DAB automatically stays the effective date of this
decision. 20 C.F.R. § 498.223.