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

Arvind Ahuja, M.D.,
(NPI: 1801857297/PTAN: 000102980)

Petitioner,
v.
Centers for Medicare & Medicaid Services
Docket No. C-14-92
Decision No. CR3207
Date: April 21, 2014
DECISION

The Medicare enrollment and billing privileges of Petitioner, Arvind Ahuja, M.D., were
properly revoked pursuant to 42 C.F.R. § 424.535(a)(3)(i)(B),' effective February 8,
2013.
I. Procedural History and Jurisdiction
Wisconsin Physicians Service Insurance Corporation (WPS), the Medicare administrative
contractor for the Centers for Medicare & Medicaid Services (CMS), notified Petitioner
by letter dated April 15, 2013, that Petitioner’s Medicare enrollment was revoked
effective February 8, 2013 due to Petitioner’s felony conviction for filing false income
tax returns. CMS Exhibit (CMS Ex.) 2. The WPS letter stated that WPS was
establishing a reenrollment bar of one year pursuant to 42 C.F.R. § 424.535(c). But, the

letter also stated that Petitioner could “not participate in the Medicare program again until
2/8/2016, one year from the effective date of this revocation.” CMS Ex. 2 at 1.

' Citations are to the annual revision of the Code of Federal Regulations (C.F.R.) in
effect at the time of the pertinent agency action, unless otherwise indicated.
On June 10, 2013, Petitioner requested reconsideration of the initial decision revoking
Petitioner’s Medicare enrollment. Request for Hearing Exhibit C (RFH Ex. C). On
August 8, 2013, the WPS contractor hearing officer issued a reconsideration decision in
which he concluded that revocation of Petitioner’s Medicare enrollment pursuant to 42
C.F.R. § 424.535(a)(3)(i)(B) was correct based on Petitioner’s February 8, 2013 guilty
plea to filing a false income tax return. The hearing officer also concluded that a three
year bar to Medicare reenrollment was appropriate. CMS Ex. 3.

Petitioner requested a hearing before an administrative law judge (ALJ) by letter dated
October 4, 2013, with exhibits A, B, C, D, and E. The case was assigned to me for
hearing and decision on October 24, 2013, and an Acknowledgment and Prehearing
Order (Prehearing Order) was issued at my direction. No issue has been raised as to the
timeliness of Petitioner’s request for hearing and neither party alleges that I lack
jurisdiction to decide this matter.

On November 22, 2013, CMS filed a prehearing brief and motion for summary judgment
(CMS Br.) with CMS Exs. | through 5. On December 23, 2013, Petitioner filed a
response to CMS’s motion for summary judgment (P. Br.) with Petitioner’s exhibits (P.
Exs.) F and G. On January 21, 2014, CMS filed a reply brief. The parties have not
objected to my consideration of CMS Exs. | through Sand they are admitted. Petitioner
did not offer RFH Exs. A, B, C, D, and E as part of the exchange required by the
Prehearing Order § 11.D.2. However, out of an abundance of caution to minimize
prejudice to Petitioner, I have reviewed the exhibits submitted with the request for
hearing for admissibility as substantive evidence on the merits in addition to P. Exs F and
G. RFH Ex. A is a copy of the August 8, 2013 WPS letter announcing the
reconsideration decision, it is relevant and admitted though cumulative of CMS Ex. 3.
RFH Ex. B is a copy of the CMS 855] form Petitioner signed and dated March 5, 2013,
which is relevant and admitted though cumulative of CMS Ex. 1. RFH Ex. C is a copy of

> CMS failed to assemble and mark its exhibits as directed by the Prehearing Order

4 1L.D.1. Petitioner also failed to mark his exhibits in accordance with the Prehearing
Order [ II.D.2 and failed to submit a list of exhibits. Neither party complied with the
requirements of 42 C.F.R. § 498.17(a) and section 5 of the Civil Remedies Division
Procedures (CRDP) to include a certificate of service with filings. I will not delay a
decision in this case simply to impose sanctions or otherwise compel counsel to comply
with procedural regulations, the CRDP, and my Prehearing Order. However, counsel for
the parties are admonished to read and comply with the regulations, the Prehearing Order,
and the CRDP in every case.

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Petitioner’s June 10, 2013 request for reconsideration, which is relevant and admitted.
RFH Ex. D is a collection of letters and statements to the District Court Judge who
handled Petitioner’s criminal case or to Petitioner’s counsel from various supporters and
former patients, which are not admitted as evidence as none are relevant to any issue
properly before me. RFH Ex. E is a copy of Petitioner’s sentencing submission in the
federal district court, which is relevant and admitted as evidence. P. Ex. F, a copy of
Petitioner’s response to the government sentencing memorandum in the district court, is
relevant and admitted. P. Ex. G, a letter from a former patient, is not admitted as it is not
relevant to any issue that I may decide.

IL. Discussion
A. Applicable Law

Section 1831 of the Social Security Act (the Act) (42 U.S.C. § 1395j) establishes the
supplementary medical insurance benefits program for the aged and disabled known as
Medicare Part B. Administration of the Part B program is through contractors, such as
WPS. Act § 1842(a) (42 U.S.C. § 1395u(a)). Payment under the program for services
rendered to Medicare-eligible beneficiaries may only be made to eligible providers of
services and suppliers.’ Act §§ 1835(a) (42 U.S.C. § 1395n(a)), 1842(h)(1) (42 U.S.C.
§ 1395(u)(h)(1)). Petitioner, a physician, is a supplier.

> CMS could appropriately complain that Petitioner’s failure to comply with the
Prehearing Order and my failure to strictly enforce the Prehearing Order deprives CMS
of the opportunity to challenge the exhibits attached to the RFH. I find no prejudice to
CMS based on the disposition of this case and the fact that I specifically considered each
exhibit for admissibility.
* A “supplier” furnishes services under Medicare. The term supplier applies to
physicians or other practitioners and facilities that are not included within the definition
of the phrase “provider of services.” Act § 1861(d) (42 U.S.C. § 1395x(d)). A “provider
of services,” commonly shortened to “provider,” includes hospitals, critical access
hospitals, skilled nursing facilities, comprehensive outpatient rehabilitation facilities,
home health agencies, hospice programs, and a fund as described in sections 1814(g) and
1835(e) of the Act. Act § 1861(u) (42 U.S.C. § 1395x(u)). The distinction between
providers and suppliers is important because they are treated differently under the Act for
some purposes.

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The Act requires the Secretary of Health and Human Services (the Secretary) to issue
regulations that establish a process for the enrollment of providers and suppliers,
including the right to a hearing and judicial review of certain enrollment determinations.
Act § 1866(j) (42 U.S.C. § 1395cc(j)). Pursuant to 42 C.F.R. § 424.505, a provider or
supplier must be enrolled in the Medicare program and be issued a billing number to have
billing privileges and to be eligible to receive payment for services rendered to a
Medicare-eligible beneficiary.

The Secretary has delegated the authority to revoke enrollment and billing privileges to
CMS. 42 C.F.R. § 424.535. CMS may revoke an enrolled provider’s or supplier’s
Medicare billing privileges and any provider or supplier agreement for any of the reasons
isted in 42 C.F.R. § 424.535. Pursuant to 42 C.F.R. § 424.535(a)(3), if a supplier is
convicted of a federal or state felony that CMS has determined is detrimental to the
program or its beneficiaries, CMS may revoke the supplier’s billing privileges. Act

§ 1866(b)(2)(D) (42 U.S.C. § 1395cc(b)(2)(D)). The regulation specifies that the
conviction must have: (1) been for a felony; (2) been by a state or federal court; (3)
occurred within the 10 years preceding enrollment or revalidation of enrollment in
Medicare; and (4) been for an offense that CMS has determined to be detrimental to the
best interests of the program and its beneficiaries. 42 C.F.R. § 424.535(a)(3). Offenses
isted in the regulation that CMS has found detrimental to the program or its
beneficiaries, include financial crimes such as income tax evasion, insurance fraud, and
similar crimes. 42 C.F.R. § 424.535(a)(3)(i)(B).

After a supplier’s Medicare enrollment and billing privileges are revoked, the supplier is
barred from reenrolling in the Medicare program for one to three years. 42 C.F.R.

§ 424.535(c). A supplier whose enrollment and billing privileges have been revoked may
request reconsideration and review as provided by 42 C.F.R. pt. 498. A supplier submits
a written request for reconsideration to CMS or its contractor. 42 C.F.R. § 498.22(a).
CMS or its contractor must give notice of its reconsidered determination to the supplier,
giving the reasons for its determination and specifying the conditions or requirements the
supplier failed to meet, and the right to an ALJ hearing. 42 C.F.R. § 498.25. If the
decision on reconsideration is unfavorable to the supplier, the supplier has a right to
request a hearing by an ALJ and further review by the Departmental Appeals Board
(Board). Act § 1866(j)(8) (42 U.S.C. § 1395cc(j)(8)); 42 C.F.R. §§ 424.545,
498.3(b)(17), 498.5. A hearing on the record, also known as an oral hearing, is required
under the Act. Crestview Parke Care Ctr. v. Thompson, 373 F.3d 743, 748-751 (6th Cir.
2004). The provider or supplier bears the burden to demonstrate that it meets enrollment
requirements with documents and records. 42 C.F.R. § 424.545(c).

B. Issues

Whether summary judgment is appropriate; and
Whether there was a basis for the revocation of Petitioner’s billing
privileges and Medicare enrollment.

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

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

1. Summary judgment is appropriate.

A provider or supplier denied enrollment in Medicare or whose enrollment has been
revoked has a right to a hearing and judicial review pursuant to section 1866(h)(1) and (j)
of the Act and 42 C.F.R. §§ 498.3(b)(1), (5), (6), (8), (15), (17), 498.5. A hearing on the
record, also known as an oral hearing, is required under the Act. Act §§ 205(b), 1866
(h)(1) and (j)(8); Crestview, 373 F.3d at 748-51. A party may waive appearance at an
oral hearing, but must do so affirmatively in writing. 42 C.F.R. § 498.66. In this case,
Petitioner has not waived the right to oral hearing or otherwise consented to decision
based only upon the documentary evidence or pleadings. Accordingly, disposition on the
written record alone is not permissible, unless the CMS motion for summary judgment
as merit.

Summary judgment is not automatic upon request but is limited to certain specific
conditions. The procedures established by 42 C.F.R. pt. 498 do not include a summary
judgment procedure. However, appellate panels of the Board have long recognized the
availability of summary judgment in cases subject to 42 C.F.R. pt. 498, and the Board’s
interpretative rule has been recognized by the federal courts. See, e.g., Crestview, 373
F.3d at 749-50. Furthermore, a summary judgment procedure was adopted as a matter of
judicial economy within my authority to regulate the course of proceedings and made
available to the parties in the litigation of this case by my Prehearing Order.

Summary judgment is appropriate when there is no genuine dispute as to any issue of
material fact for adjudication or the moving party is entitled to judgment as a matter of
law. In determining whether there are genuine issues of material fact for trial, the
reviewer must view the evidence in the light most favorable to the non-moving party,
drawing all reasonable inferences in that party’s favor. The party requesting summary
judgment bears the burden of showing that there are no genuine issues of material fact for
trial or that it is entitled to judgment as a matter of law. Generally, the non-movant may
not defeat an adequately supported summary judgment motion by relying upon the
denials in its pleadings or briefs but must furnish evidence of a dispute concerning a
material fact, i.e., a fact that would affect the outcome of the case if proven. Mission
Hosp. Reg’! Med. Ctr., DAB No. 2459, at 4 (2012) (and cases cited therein); Experts Are

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Us, Inc., DAB No. 2452, at 4 (2012) (and cases cited therein); Senior Rehab. & Skilled
Nursing Ctr., DAB No. 2300, at 3 (2010) (and cases cited therein); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The standard for deciding a case on summary judgment and an ALJ’s decision-making in
deciding a summary judgment motion differs from resolving a case after a hearing. On
summary judgment, the ALJ does not make credibility determinations, weigh the
evidence, or decide which inferences to draw from the evidence, as would be done when
finding facts after a hearing on the record. Rather, on summary judgment the ALJ
construes the evidence in a light most favorable to the non-movant and avoids deciding
which version of the facts is more likely true. Holy Cross Vill. at Notre Dame, Inc., DAB
No. 2291, at 5 (2009). The Board also has recognized that on summary judgment it is
appropriate for the ALJ to consider whether a rational trier of fact could find that the
parties’ evidence would be sufficient to meet that party’s evidentiary burden. Dumas
Nursing & Rehab., L.P., DAB No. 2347, at 5 (2010). The Secretary has not provided for
the allocation of the burden of persuasion or the quantum of evidence in 42 C.F.R. pt.
498. The Board, however, has provided some persuasive analysis regarding the
allocation of the burden of persuasion in cases subject to 42 C.F.R. pt. 498. Batavia
Nursing & Convalescent Ctr., DAB No. 1904 (2004), aff'd, Batavia Nursing &
Convalescent Ctr. v. Thompson, 129 Fed. App’x 181 (6th Cir. 2005).

Viewing the evidence properly before me in a light most favorable to Petitioner and
drawing all inferences in Petitioner’s favor, I conclude that there are no genuine disputes
as to any material facts in this case. The issues that Petitioner raises must be resolved
against him as a matter of law. As discussed in more detail hereafter, there is no dispute
that Petitioner was convicted of financial crimes on August 22, 2012, and the undisputed
evidence shows that there is a basis for the revocation of Petitioner’s Medicare billing
privileges. Accordingly, I conclude that summary judgment is appropriate.

2. The Secretary has determined and provided by regulation that
financial crimes such as income tax evasion or similar crimes are
detrimental to the Medicare program or its beneficiaries. 42 C.F.R.
§ 424.535(a)(3)(i)(B).

3. Petitioner was convicted of filing a false income tax return and
failure to file reports of foreign bank and financial accounts, which are
financial crimes within the meaning of 42 C.F.R. § 424.535(a)(3)(i)(B).

4. There is a basis for revocation of Petitioner’s enrollment in
Medicare and his billing privileges.
5. The issue for hearing and decision is whether there is a basis for
revocation of Petitioner’s billing privileges and jurisdiction does not
extend to review of whether CMS properly exercised its discretion to
revoke Petitioner’s Medicare enrollment and billing privileges.

6. There is no authority to review CMS’s determination to impose a
three year bar on Medicare reenrollment.

7. Petitioner’s enrollment in Medicare and his billing privileges were
properly revoked effective February 8, 2013.

a. Facts

In his request for hearing, Petitioner states that he was convicted of two offenses in the
U.S. District Court for the Eastern District of Wisconsin on February 13, 2008. RFH at
7. In his brief, Petitioner states that he was convicted by a jury on August 22, 2012, in
the Eastern District of Wisconsin of one count for filing a false income tax return and one
count of failure to file reports of foreign bank and financial accounts, in violation of 26
U.S.C. § 7206(1) and 31 U.S.C. §§ 5314, 5322. P. Br. at 2-3. Petitioner stated in the
CMS 855] form that he signed and dated March 5, 2013, that judgments of guilty were
entered against him on February 8, 2013, on a charge of filing a false tax return and a
charge of failure to report a foreign bank and financial accounts. CMS Ex. | at 15, 39;
RFH Ex. B at 15, 39. However, a copy of the “Judgment In A Criminal Case” in the U.S.
District Court, Eastern District of Wisconsin, shows that judgment was actually imposed
on February 1, 2013, based on findings of guilty by a jury on August 22, 2012, of one
count of filing a false income tax return in violation of 26 U.S.C. § 7206(1) and one count
of failure to report foreign bank and financial accounts in violation of 31 U.S.C. § 5314
and 5322. CMS Ex. 1 at 18; RFH Ex. B at 18. The records of the federal district court
also show that Petitioner was sentenced on February 1, 2013, to two concurrent sentences
of three years of probation, six months of house detention, a $350,000 fine and a $200
assessment. Petitioner’s confusion about when judgment was imposed appears to be due
to the fact that the judge executed the “Judgment In a Criminal Case” form on February
6, 2013. CMS Ex. 1 at 18-22; CMS. Ex. 5; RFH Ex. B at 18-22; P. Br. at 3. The records
of the federal district court, copies of which were submitted by both parties, are the best
evidence of Petitioner’s conviction and sentence.

Petitioner submitted a CMS 8551 form, a Medicare enrollment application, on March 8,
2013 that he signed and dated on March 5, 2013, which disclosed his felony conviction.
RFH Ex. B; CMS Ex. 1; P. Br. at 3. Petitioner does not dispute that he was convicted of
felonies. Petitioner does not dispute that his conviction on August 22, 2012, occurred
within ten years of his submission of an application for enrollment or revalidation of
enrollment in Medicare. CMS Ex. I.
WPS notified Petitioner by letter dated April 15, 2013, that his enrollment in Medicare
and billing privileges were revoked effective February 8, 2013. CMS Ex. 2. February 8,
2013, is the date Petitioner reported that he was convicted in the CMS 855] form he dated
and signed March 5, 2013. CMS Ex. 1; RFH Ex. B. The April 15, 2013, WPS letter
stated that WPS was imposing a one-year reenrollment ban, but the letter specifically
stated that Petitioner could not reenroll until February 8, 2016, three years from the date
of revocation. CMS Ex. 2 at 1. On reconsideration the hearing officer did not
specifically address or change the effective date of revocation. The hearing officer did
specifically state that a three-year bar to reenrollment was imposed and that Petitioner
could not reenroll again until February 8, 2016. CMS Ex. 3 at 2.

b. Analysis
i. There is a basis for revocation effective February 8, 2013.

The revocation in this case was based upon 42 C.F.R. § 424.535(a)(3)(i)(B), which
provides:

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

(3) Felonies. The provider, supplier, or any owner of the
provider or supplier, within the 10 years preceding enrollment
or revalidation of enrollment, was convicted of a Federal or
State felony offense that CMS has determined to be
detrimental to the best interests of the program and its
beneficiaries.

(i) Offenses include —

oe Rk

(B) Financial crimes, such as extortion, embezzlement,
income tax evasion, insurance fraud and other similar crimes
for which the individual was convicted, including guilty pleas
and adjudicated pretrial diversions.

There is no dispute that Petitioner was convicted by a jury in the U.S. District Court,
Eastern District of Wisconsin on August 22, 2012 of one felony count of filing a false
9

income tax return and one felony count of failure to file reports of foreign bank and
financial accounts. Petitioner was sentenced on February 1, 2013. There is no dispute
Petitioner was convicted within ten year of filing an enrollment or revalidation
application. Accordingly, the elements of 42 C.F.R. § 424.535(a)(3)(i)(B) are satisfied
and there is a basis for CMS to revoke Petitioner’s Medicare enrollment and billing
privileges.

The effective date of revocation of Medicare enrollment and billing privileges, when
revocation is based on a felony conviction, is the date of the felony conviction. 42 C.F.R.
§ 424.535(g). Although Petitioner was convicted by a jury on August 22, 2012, I will not
disturb the revocation effective date of February 8, 2013, selected by WPS. Pursuant to
42 C.F.R. § 424.535(d), the bar to reenrollment runs from the effective date of
revocation.

In his request for hearing, Petitioner argued that the offenses of which he was convicted
ad no connection to “his medical practice, medical billings, or Medicare and Medicaid,
but concerned interest income earned on certificates of deposit held at HSBC in India.”
RFH at 2. Petitioner did not advance this argument in his brief. The law is clear that the
felonies enumerated in 42 C.F.R. § 424.535(a)(3)(i)(B), including tax evasion, are per se
detrimental to the Medicare program. The plain language of the regulation requires no
nexus or connection between Petitioner’s conviction and the Medicare program or
Petitioner’s medical practice in order to constitute a basis for revocation. Petitioner cites
no legal authority establishing or supporting a nexus requirement. In this case, the
offenses of which Petitioner was convicted are akin or similar to, if not, directly related to
income tax evasion and are per se detrimental to Medicare and its beneficiaries. Abdul
Razzaque Ahmed, M.D., DAB No. 2261 at 7-8, 12 (2009), aff'd, Ahmed v. Sebelius, 710
F. Supp. 2d 167 (D. Mass. 2010); Robert F. Tzeng, M.D., DAB No. 2169 at 11 n.15
(2008).

ii. I have no authority to review the exercise of
discretion by CMS to revoke Petitioner’s
enrollment and billing privileges having
concluded that there is a basis for revocation or
the determination regarding the period of the
reenrollment bar.

Petitioner argues that the CMS contractor abused its discretion by deciding to revoke
Petitioner’s enrollment and billing privileges and by imposing a three-year bar to
reenrollment, by taking into account circumstances beyond Petitioner’s conviction and
“otherwise improperly taking into account inaccurate and facially incorrect information
when it imposed the revocation period.” P. Br. at 1-2, 6-8. Petitioner argues that the
CMS contractor did not consider mitigating factors and properly evaluate the underlying
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conduct of Petitioner’s related to his criminal conduct. RFH at 8- 9; P. Br. at 8-10.
Petitioner also argues that the revocation of his Medicare billing privileges would
adversely affect Medicare beneficiaries in southeast Wisconsin and northern Illinois, due
to the small number of trained neurosurgeons in the area. RFH at 2-7; P. Br. at 9-10.

Petitioner cites no provision of the Act or the regulations that requires CMS or its
contractors to consider mitigating or other factors, or to specifically analyze Petitioner’s
criminal conduct when deciding whether or not to revoke enrollment and billing
privileges or when determining the period of the bar to reenrollment. The Act and
regulations do not require that CMS consider evidence other than the nature of
Petitioner’s conviction in determining whether to revoke enrollment. Act § 1866(j)(8);
42 CFR. § 424.535(a)(3).

There is a basis for revocation of Petitioner’s billing privileges in this case and my
jurisdiction does not extend to review of whether CMS or its contractor properly
exercised their discretion when deciding to proceed with revocation. I have no authority
to review the exercise of discretion by CMS to revoke where there is a basis for
revocation. Abdul Razzaque Ahmed, M.D., DAB No. 2261 at 19.

The regulation provides for a bar to reenrollment from a minimum of one year to a
maximum of three years. 42 C.F.R. § 424.535(c). Petitioner cites no authority to
support that he has a right to review of the CMS or contractor determination as to the
period of the reenrollment bar. There is no statutory or regulatory language recognizing
or establishing a right to review of the duration of the reenrollment bar CMS imposes, or
whether or not it is reasonable. Act § 1866(j)(8); 42 C.F.R. §§ 424.535(c); 424.545;
498.3(b); and 498.5. The length of the reenrollment bar CMS imposes is not a
determination subject to review by an administrative law judge and only the
determination to revoke is reviewable. 42 C.F.R. §§ 424.545(a) (right to appeal
revocation but no mention of right to review of duration of bar to reenrollment);
498.3(b)(17) (revocation is an initial determination subject to ALJ review but duration of
reenrollment bar not mentioned). Moreover, even I were to review the duration of
Petitioner’s Medicare reenrollment bar, I would conclude that Petitioner’s conviction is
certainly consistent with a three-year bar on Medicare reenrollment due to the serious
nature of the offenses of which he was convicted and the sentence imposed.

Finally, I have no authority to fashion or grant equitable relief. US Ultrasound, DAB No.
2302, at 8 (2010), (“[nJeither the ALJ nor the Board is authorized to provide equitable
relief by reimbursing or enrolling a supplier who does not meet statutory or regulatory
requirements.”)
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HI. Conclusion
For the foregoing reasons, I conclude that Petitioner’s Medicare enrollment and billing

privileges were properly revoked effective February 8, 2013.

/s/
Keith W. Sickendick
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

The Inspector General of the Social Security Administration,
v.
Walter Jeczen,
Respondent.
Docket No. C-13-28
Decision No. CR3206

Date: April 18, 2014

DECISION

The Inspector General (I.G.) of the Social Security Administration (SSA) proposed to
impose on Respondent, Walter Jeczen, a civil monetary penalty (CMP) and assessment
totaling $75,455. The I.G. alleged that Respondent withheld disclosure of his work
activity while receiving adult Social Security Child Insurance Benefits (CIB).
Respondent disputed the I.G.’s allegations and filed a request for hearing before an
administrative law judge. Because I conclude that Respondent withheld disclosure of
material facts that Respondent knew or should have known SSA could use in determining
Respondent’s initial and/or continued entitlement to CIB, I conclude that Respondent is
liable for a CMP and an assessment. Further, I affirm the I.G.’s proposed CMP and
assessment totaling $75,455 because it is both permissible and reasonable.

I. Background and Procedural History

On October 17, 2006, Respondent filed an application for CIB with SSA (CIB
application). Respondent indicated on the application that he: had been disabled since
1969; had not been employed from 2001 to October 17, 2006, agreed to “promptly
notify” SSA if he “goes to work”; and affirmed that all the information he gave in
connection with the claim for CIB was true. SSA Exhibit (Ex.) 1; Respondent (R.) Ex 1.

In February 2007, Respondent met with an SSA representative and submitted a Disability
Report in support of his CIB application in which Respondent indicated that he most
recently worked in 2000. SSA Ex. 2, at 7. On September 12, 2007, SSA awarded
Respondent CIB beginning in April 2006.' SSA Ex. 3; R. Ex. 3.

In 2010, an anonymous individual reported to the I.G. that Respondent owned a business
named Capac Resale and that he rented apartments and houses. The referral also
indicated that Respondent collected more than $200,000 based on a fraudulent claim filed
with State Farm Insurance Company (State Farm). SSA Ex. 4.

On March 2, 2011, I.G. special agents, accompanied by state and local law enforcement
officers, executed search warrants of Capac Resale at 108 South Main, Capac, Michigan,
and Respondent’s apartment. SSA Ex. 5, at 1-2. During the search, Respondent
consented to answering questions from I.G. Special Agent Judith Amaro. Respondent
told Agent Amaro that he was the sole owner of Capac Resale, which he started in and
has continuously operated since late 2005. Respondent indicated that he previously had
employees, he handled the cash register at the store, and the store was open about six
hours a day. Respondent stated that he had a car accident in December 2006, and that he
had to hire three employees to run the store. Respondent asserted that his business lost
money every year and the employees’ wages were paid by State Farm due to a loss of
wages as a result of the December 2006 accident. Respondent said that he informed SSA
of the store by calling SSA’s 1-800 number and that SSA representatives told him that he
could continue to run his store as long as the store did not earn a profit. SSA Ex. 5, at 3.

On March 22, 2011, Respondent filed a Form SSA-820-F4 Work Activity Report with
SSA in which he formally disclosed his ownership of Capac Resale to SSA. SSA Ex. 7;
R. Ex. 18. Based on the information SSA received about Respondent’s store, SSA
decided to reopen and revise its decision to award CIB to Respondent. SSA Ex. 9; R. Ex.
5. Ina May 12, 2011 Notice of Proposed Decision, SSA indicated that “it appears we
will decide that you are not qualified for disability benefits under our rules . . . because
you began doing substantial gainful work in January 2006.” SSA Ex. 10, at 1; R. Ex. 4,
at 1. Respondent filed a response to the proposed decision, and on August 20, 2011, SSA
determined that Respondent was not entitled to CIB from April 2006 through July 2011
because he engaged in substantial gainful activity, and received $58,455.50 in benefit
payments for which Respondent was not entitled. SSA Exs. 6, at 1-2; 11 at 1; R. Ex. 7, at

' Before his 2006 CIB application, SSA previously awarded Respondent payments under
the Supplemental Security Income (SSI) program. SSA Ex. 2, at 1. However, SSA
suspended such payments three times between 1987 and 2004 during periods when
Respondent was imprisoned. SSA Ex. 2, at 4. Further, SSA denied a previous CIB
application. SSA Ex. 2, at 13.
1; see also R. Ex. 10. Respondent requested reconsideration of SSA’s determination.
SSA Ex. 6, at 3-21; R. Ex. 8. Respondent requested a hearing before an SSA
administrative law judge on October 9, 2012. R. Ex. 11; see also SSA Ex. 5, at 10. The
record does not reflect the outcome of that appeal.

On March 28, 2012, the LG. sent a letter indicating that the I.G. intended to initiate a
CMP action against Respondent based on alleged false statements Respondent made to
SSA concerning his ability to work in connection with the CIB application. SSA Ex. 12,
at 1. The L.G. offered Respondent an opportunity to submit a written statement or other
information for the IG. to consider before commencing the CMP action. SSA Ex. 12, at
2. Inan April 10, 2012 letter, Respondent’s counsel requested additional information
from the I.G. before responding to the I.G. SSA Ex. 13. Ina May 3, 2012 letter, counsel
for the LG. stated that she attempted to contact Respondent’s counsel, but had not heard
back from him. SSA Ex. 14. It appears that Respondent’s counsel did not file a response
to the I.G.’s March 28, 2012 letter. See SSA Ex. 15, at 2.

In an August 14, 2012 notice, the I.G. proposed to impose on Respondent a $20,000 CMP
and an assessment in lieu of damages of $55,455. The I.G. alleged that a CMP is
warranted because Respondent withheld material information from SSA in violation of
42 U.S.C. § 1320a-8. The LG. specifically alleged:

An [1.G.] investigation reveals that [Respondent] owned and
operated Capac Resale Outlet, a thrift store; however,
[Respondent] failed to notify SSA of this work activity.
[Respondent’s] work activity and earnings would have
disqualified [him] from receiving SSA benefits. [Respondent’s]
failure to report [his] work activity and earnings caused SSA to
pay [Respondent] $55,455.00 in benefits from April 2006
through July 2011 to which [Respondent was] not entitled. . . .
[42 U.S.C. § 1320a-8] provides that if, any month after
November 27, 2006, an individual withholds disclosure of a
material fact, such omission is considered a false statement
and/or misrepresentation. Therefore, [Respondent’s] failure to
report [his] work activity from December 2006 through July
2011 constitutes 56 separate violations.

SSA Ex. 15, at 1. After considering various aggravating and mitigating factors, the I.G.
stated:

I have determined that a reduced civil monetary penalty of
$20,000 and an assessment in lieu of damages of $55,455.00,
for a total of $75,455.00, would be appropriate. Although
[Respondent] could be subject to an assessment of
$97.326.00, I have limited the assessment to the amount of
the overpayment you received. Similarly, even though I
could have proposed a penalty of $280,000.00, I limited the
penalty to $20,000.00 after considering [Respondent’s] health
and what limited information I know about your resources.

SSA Ex. 15, at 2. In response to the CMP notice, Respondent, through counsel, timely
filed with the Departmental Appeals Board, Civil Remedies Division (CRD), a request
for a hearing by an administrative law judge. SSA Ex. 16. The Director of CRD
assigned this case to me for hearing and decision.

On November 7, 2012, I held a telephonic prehearing conference with the parties’
counsel at which I set dates for the parties’ prehearing exchanges. I summarized the
substance of that conference in an Order Scheduling Submissions of Briefs and
Documents of that same date. The LG. timely submitted its prehearing exchange, which
included a brief (SSA Br.), a list of proposed witnesses, and 16 exhibits (SSA Exs. 1-16).
However, on May 1, 2013, I had to issue an Order to Show Cause to Respondent because
Respondent failed to timely file his prehearing exchange. Respondent’s counsel
responded on May 15, 2013, stating that he is involved in a high-volume trial practice,
that his long-time partner passed away in 2012, and that he had to handle his partner’s
cases as well as his own. Respondent’s counsel also filed his prehearing brief (R. Br.) on
May 15, 2013. The I.G. filed a reply brief (SSA Reply Br.) on June 12, 2013, in which
the I.G. requested that I dismiss Respondent’s hearing request for abandonment or
otherwise sanction Respondent for failing to submit his proposed exhibits and witness
list. CRD received Respondent’s witness list and 23 proposed exhibits (R. Exs. 1-23) on
June 19, 2013.

On July 31, 2013, I held another telephonic prehearing conference with the parties’
counsel, the substance of which I summarized in an August 1, 2013 Order Summarizing
Results of Prehearing Conference (August 1, 2013 Order). At the conference I declined
to dismiss Respondent’s hearing request; however, I verbally admonished Respondent’s
counsel to adhere to all future deadlines and, if a deadline could not be met, to request an
extension of time as soon as possible. August 1, 2013 Order § 1. I also admitted, without
objection, SSA Exs. 1-16 and R. Exs. 1-23 into the record. August 1, 2013 Order { 2.
Further, I ordered the parties to submit written direct testimony for their proposed
witnesses by September 30, 2013. August 1, 2013 Order 4. The parties were given
until October 15, 2013, to request to cross-examine any witness for whom the opposing
party submitted written direct testimony. August 1, 2013 Order § 6; see 20 C.F.R.

§ 498.216(b)-(c).
II. Decision on the Record

On October 21, 2013, the LG. filed written direct testimony for three witnesses and informed
me that she was filing this late “[d]ue to the preparation for and pending [October 1, 2013]
government shutdown.” I mark the written direct testimonies of Agent Judith Amaro, Daniel
Bowman, and B. Chad Bungard, as SSA Exs. 17, 18, and 19, respectively.

Respondent did not submit any written direct testimony for its proposed witnesses. August 1,
2013 Order 4 4. Further, Respondent has not objected to the I.G.’s late filing of the written
direct testimony for the I1.G.’s witnesses and has not requested to cross-examine those
witnesses. See August 1, 2013 Order { 6. Because Petitioner has not objected to the I.G.’s
written direct testimony, I admit SSA Exs. 17-19 into the record. Further, because
Respondent has not requested to cross-examine the I.G.’s witnesses and the Respondent did
not offer any testimony from its list of proposed witnesses that the I.G. could request to cross-
examine, I conclude that an in-person hearing is unnecessary and I issue this decision based
on the written record in this case. August 1, 2013 Order § 8 (“The hearing is only for the
testimony of the witnesses . . .”); see also 20 C.F.R. § 498.216(b)-(c).

III. Issues

1) Whether Respondent violated 42 U.S.C. § 1320a-8(a)(1)(C) by withholding
disclosure of material facts for use in determining an initial or continuing right to
Social Security benefits, which Respondent knew or should have known was
material for such use and that such withholding was misleading.

2) Whether the I.G.’s proposed CMP and assessment of $75,455.00 is reasonable and
appropriate under the provisions of 42 U.S.C. § 1320a-8(a)(1), (c).

IV. Jurisdiction

Individuals against whom the I.G. proposes to impose a CMP have a right to a formal
hearing on the record before the CMP is imposed. 42 U.S.C. § 1320a-8(b)(2).
Respondent filed a timely request for an administrative law judge hearing. 20 C.F.R.
§ 498.202. Administrative law judges at the Departmental Appeals Board adjudicate
SSA CMP cases. See 20 C.F.R. § 498.201 (definition of ALJ); see also 20 C.F.R.

§§ 498.202-498.220. Therefore, I have jurisdiction to hear and decide this case.

V. Findings of Fact, Conclusions of Law, and Analysis”
A person is subject to a CMP and assessment if he:

omits from a statement or representation . . . 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 [a Social Security program] . . . 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.

42 U.S.C. § 1320a-8(a)(1)(C).

The LG. has the burden of proving all facts in an SSA CMP case with the exception of
the affirmative defenses and mitigating circumstances raised by a respondent. 20 C.F.R.
§ 498.215(b). The standard of proof is a preponderance of the evidence. 20 C.F.R.

§ 498.215(c). An administrative law judge must ultimately “determine whether the
respondent should be found liable” for a CMP and/or assessment, and issue a decision in
which he “may affirm, deny, increase, or reduce the penalties or assessments proposed by
the Inspector General.” 20 C.F.R. §§ 498.215(a), 498.220(b).

A, Respondent owned and operated a store called Capac Resale Outlet and
Capac Resale, LLC, from late 2005 through March 2011.

In the middle of 2005, Respondent began “trash-picking” and found that “very nice items
[were] simply put out to end up ina landfill.” SSA Ex. 6, at 1. At that time, Respondent
did not have definite plans to open Capac Retail Outlet (SSA Ex. 6, at 1); however, after
approximately seven months of gathering discarded items, he finally had sufficient
inventory to open a store. R. Ex. 19415. In late 2005, Respondent rented a store front at
102 S. Main, Capac, Michigan, and established Capac Retail Outlet; Respondent
continuously operated that business as the sole owner through March 2011. SSA Exs. 7,
at 1; 17 4] 18a, 25; R. Exs. 18, at 1; 19 4] 18.

Although Respondent did not have a written lease, he paid $800.00 a month in rent for
the store front at 102 S. Main. R. Ex. 19 4 19. Respondent set up the inside of the store
and paid $450.00 for “a huge sign to hang up outside the building.” R. Ex. 19 4 19-20.
In April 2006, Respondent applied for an Employer Identification Number (EIN) for
Capac Resale Outlet. SSA Ex. 6, at 10. On May 5, 2006, Respondent entered into a
“Service and Monitor Agreement” with Thumb Alarm Systems, Inc. for the 102 S. Main

> My findings of fact and conclusions of law are set forth in italics and bold font.
store front. R. Ex. 15. In May or June 2006, Respondent was forced to relocate his
business to 127 N. Main, Capac, Michigan, which is a building where Respondent paid
rent until his father purchased it around December 31, 2009. SSA Ex. 7, at 1; R. Exs. 18,
at 1; 19 §§ 20-21. By October 2006, Respondent was even engaging in collection of a
debt owed to Capac Resale Outlet. R. Ex. 16. Because Respondent was hit by a car at
the end of 2006, he hired employees to work at Capac Resale Outlet from 2006-2010;
Respondent paid these employees with funds provided by State Farm due to the wages
lost by Respondent following the car accident. SSA Ex. 6, at 14. Significantly,
Respondent submitted payroll records to State Farm claiming lost wages/income in the
amount of approximately $1,000.00 to $1,100.00 bi-weekly. R. Ex. 17.

According to Respondent’s federal tax returns for 2006, Capac Resale Outlet generated
$24,970 in gross income during its first full year of operation, but incurred $36,140 in
expenses. SSA Ex. 8, at 1; R. Ex. 20, at 3. In 2007, Respondent registered a modest
profit when Capac Resale Outlet generated $63,885 in gross income and $63,514 in
expenses. SSA Ex. 8, at 4; R. Ex. 21, at 3. In 2008 and 2009, Respondent reported
modest losses when Capac Resale Outlet earned gross incomes of $63,145 and $48.978
in those years, but incurred expenses of $63,197 and $50,530. R. Exs. 22, at 3; 23, at 3.

In 2009, Respondent’s attorney filed an application with the State of Michigan to turn
Capac Retain Outlet into a limited liability company (LLC) and Respondent filed for a
new EIN for Capac Resale LLC. SSA Exs. 6, at 10; 17 9 14. From 2006 through 2011,
Respondent filed forms with the IRS using the EINs assigned to Capac Resale Outlet and
later Capac Resale LLC, filed for a state tax license, and paid both federal and state
income tax withholding for his employees, as well as “Social Security Taxes” and
“Federal and State Unemployment tax on employees.” SSA Exs. 6, at 10; 8, at 6-9; 17
§§ 11, 20, 23. Respondent also “tried to promote my small business under both my name
and business name in Newspapers, Business Cards, Radio Stations, Yellow Pages, School
Yearbooks, Charitable Events, Internet Forums, etc.,” which included youtube.com. SSA
Exs. 6, at 11; 17 §§ 10, 13.

Agent Amaro testified that on February 7, 2011, she went to Capac Resale’s address and
noted that the store was closed, but that she could see that it was “filled with
merchandise.” SSA Ex. 17 4 8. She returned to Capac Resale on February 16, 2011, and
was able to enter the store and observed Respondent directing another man where to
move merchandise around the store and quoting prices of items to a customer and the
man whom Respondent had been directing. SSA Ex. 17 § 15.

Agent Amaro also testified that on February 7, 2011, the Post Master in Capac, Michigan,
said that Respondent opened Post Office Box 472 in November 2005 under the name of
Capac Resale and Respondent picks up the mail from that box. SSA Ex. 17 § 8. The
Post Master “stated that [Respondent] ‘runs the thrift store.” SSA Ex. 174 8. Also on
February 7, 2011, the Chief of the Police in Capac told Agent Amaro that since he
became Chief of Police in July 2009, he has known Respondent to own and operate
Capac Resale and that Respondent “‘is at the store all of the time and runs the business.”
SSA Ex. 1749. The Chief of Police stated that Respondent had “excellent surveillance
equipment” at the store. SSA Ex. 1799. On February 16, 2011, Agent Amaro spoke to
a Capac police officer who told her that Respondent “was running Capac Resale . . . and
that [the police officer] observed [Respondent] conduct business-related matters both in
the store and in his apartment.” SSA Ex. 17 § 16.

On March 2, 2011, Agent Amaro interviewed Respondent during the execution of a
search warrant of Capac Resale. Agent Amaro testified that Respondent told her that he
started Capac Resale in late 2005 and has continuously operated the business as the sole
owner since that time. SSA Ex. 17 § 18. Respondent stated to her that: he operated the
cash register at the business; he hired and fired employees; he no longer had any
employees working for him; Capac Resale was open six hours a day; and Capac Resale
made less than $100 a day. SSA Ex. 17 4 18.

Respondent ceased operating Capac Resale, LLC, on March 26, 2011, following the
March 2, 2011 search of Respondent’s store and apartment. R. Br. at 6; SSA Exs. 5, at 7,
8; 17 § 25a. Respondent sold the merchandise in his store for $8,000 and receives rental
income for leasing the store front and apartments located in his building at 127 N. Main,
Capac, Michigan. SSA Ex. 5, at 7. Respondent then moved to Chesterfield, Michigan to
a home he purchased for $36,000. SSA Ex. 5, at 7.

Based on the record in this case, I find that Respondent owned and operated a store called
Capac Resale Outlet and Capac Resale, LLC, from late 2005 through March 2011.

B. Respondent did not inform SSA of his ownership in and work related to
Capac Resale Outlet and Capac Resale, LLC, in his 2006 CIB application or
at any other time prior to March 2011.

Respondent established Capac Resale Outlet in late 2005, and continuously operated that
business and Capac Resale, LLC, as the sole owner through at least March 2011.
However, Respondent indicated on his October 17, 2006 CIB application that, “I was not
employed from . . . 2001 to present.” SSA Ex. 1, at 2. Further, in a Disability Report that
Respondent completed with the assistance of an SSA representative in February 2007 (R.
Ex. 19 § 26, see also SSA Ex. 2, at 1-4), Respondent indicated that the last job he held
was in 2000 and stated he was “[u]nable to maintain any type of job.” SSA Ex. 2, at 6-7.
SSA did not know of Respondent’s activities related to Capac Resale Outlet or Capac
Resale, LLC, until the I.G. received an anonymous fraud report. SSA Ex. 4. This
resulted in an LG. investigation that commenced in January 2011. SSA Ex. 174 3.
It was not until I.G. agents executed a search warrant of Respondent’s store and
apartment on March 2, 2011, that Respondent told an SSA employee (i.e., Agent Amaro)
about Capac Resale and his work activities. SSA Exs. 5, at 2-3; 17 J 17-18. The first
time Respondent formally informed SSA of his work activities was when he filed a Work
Activity Report (Form SSA-820-F4) with SSA on March 22, 2011. SSA Ex. 7; R. Ex.
18.

Respondent asserted that he notified SSA of his business and work activity. Specifically,
Respondent states that he had a conversation in 2005 with manager of the local SSA
office in which Respondent informed the manager that “[Respondent] was ‘trash picking’
and stockpiling items with the intent to start a small retail store.” R. Br. at 4; R. Ex. 19§
9. The manager is reported to have responded that unless Respondent made a profit after
expenses, Respondent did not need to inform SSA of the activity. R. Br. at 4; R. Ex. 19
4 9-10; see also SSA Ex. 6, at 9. The result of this communication was that Respondent
“took him [i.e., the manager] at his word that I had no obligation to call his office until I
could establish a profit from this so-called self-employment effort.” R. Ex. 19 4 10.

In addition to this 2005 conversation, Respondent asserted that “I called and spoke with
various SSA agents at the toll free call center, Local SSA Office in which each call was
specifically routed to the office manager . . . I [s]poke with Ticket to Work; and
attempted to communicate both my intended and/or failing unsuccessful self-employment
activities at various points in time between 2005 and 2011.” SSA Ex. 6, at 9. In
addition, Respondent purports to have informed the Michigan Department of Human
Services, Michigan Department of Insurance Regulation, and Michigan Department of
Economic Labor and Business Development (Disability Service Unit) that he was starting
a business and was receiving CIB. SSA Ex. 6, at 9, 11.

Despite Respondent’s claims of informing SSA and state agencies of his business and
work activity, Respondent did not submit any evidence of this communication, and his
alleged contact with various Michigan government departments is not relevant.’

Latoshia Walker-Mays, Docket No. A-11-13, at 6-7 (HHS DAB Feb. 17, 2011)
(“Respondent has submitted no evidence to corroborate her claim that she ever
specifically informed SSA about . . . her living arrangements. . . . Respondent also asserts
that she informed a State agency . . . about her living arrangements. ... Even if true, this
would not have satisfied her obligation to provide full and accurate information about her
living arrangements to SSA.”).’ Further, even if Respondent discussed his business idea

> Respondent alleged that he had in his possession letters from SSA addressed to
Respondent at Capac Retail Outlet (SSA Ex. 6, at 10, 12), which prove that SSA knew
about his store; however, Respondent did not submit copies of any of these letters.

* Administrative decisions cited in this decision are accessible on the internet at:
http://www.hhs.gov/dab/decisions/index.html.
10

with the local SSA manager in 2005, I cannot credit Respondent’s conversation in 2005
with the local office manager as providing notice of his work activities because
Respondent had not yet applied for CIB. R. Ex. 19 § 9.

Therefore, based on the record, I find that Respondent did not inform SSA of his
ownership in and work related to Capac Resale Outlet and Capac Resale, LLC, in his
2006 CIB application or at any other time prior to March 2011.

C. Respondent omitted from his CIB application and a disability report, and
otherwise withheld disclosure of, his ownership in and work related to Capac
Resale Outlet and Capac Resale LLC, facts which were material to the
determination of Respondent’s initial entitlement and continued entitlement
to CIB, and Respondent knew or should have known that those facts were
material to his entitlement to such benefits and that the omission was false
and misleading, in violation of 42 U.S.C. § 1320a-8(a)(1)(C).

As found above, the evidence of record shows that Respondent owned and operated
Capac Resale Outlet and later Capac Resale, LLC.* Further, Respondent did not inform
SSA of his ownership in or work activities related to his business when he applied for
CIB in 2006 or while receiving CIB payments until March 2011. Respondent argues in
this case that despite these facts, he did not violate 42 U.S.C. § 1320a-8(a)(1)(C).

Respondent argues that his ownership and work activity related to Capac Resale Outlet
and Capac Resale, LLC, was never substantial gainful activity (SGA) because
Respondent allegedly never earned a profit from 2005 through March 2011. R. Br. at 6-
7. Respondent further argues that due to a lack of profit and because Respondent’s
activity was a “scavenging enterprise,” his ownership of a business and his work activity
were not material facts under 42 U.S.C. § 1320a-8. R. Br. at 8. Respondent also avers
that the 2006 CIB application asked whether he was “employed” and that his negative
response was proper because his business activities at the time of the CIB application
were not “employment” that would disqualify him from obtaining benefits. R. Br. at 8.
Further, shortly after filing the CIB application, Respondent asserts that he was struck by

> According to Agent Amaro, she obtained “nine boxes of evidence from the search
warrant” that she provided to SSA as part of its review of Respondent’s benefits. SSA
Exs. 5, at 4-6; 17 9 23. However, with the exception of nine pages of tax return
documents from 2006 through 2009, the I.G. did not submit documentary evidence from
Agent Amaro’s detailed investigation concerning Respondent’s work activities, save
statements from Respondent himself. It is unclear why the I.G. did not submit the
documentary evidence SSA used to make its fraud or similar fault determination. SSA
Exs. 9; 18; R. Exs. 5; 6; 10. Instead, it was Respondent who submitted several
documents concerning Respondent’s business. R. Exs. 14-17; 20-23.

11

an automobile in December 2006, and “thereafter, [he] had limited involvement in the
business.” R. Br. at 8. Finally, Respondent argues that he “had previously been advised”
by SSA that his activities were not material to his application, resulting in the failure to
disclose. R. Br. at 9.

Although Respondent attempts to minimize his business and work activities, both based
on his business’ modest beginnings and his later injuries from an automobile accident,
Respondent’s arguments are insufficient for me to conclude that information about his
business and work activities were not material facts related to his CIB claim. In order for
a fact to be “material” for purposes of 42 U.S.C. § 1320a-8(a)(1)(C), that fact must be
“one which the Commissioner of Social Security may consider in evaluating whether an
applicant is entitled to benefits under [a Social Security program].” 42 U.S.C. § 1320a-
8(a)(2) (emphasis added). Although Respondent argues in this case that his activity was
not SGA and, therefore, not material to his CIB application or subsequent receipt of
benefit payments, this argument fails to address whether SSA may have considered that
information when awarding CIB or continuing to allow Respondent to receive CIB
payments. Based on both the law and the record in this case, I conclude that
Respondent’s ownership of Capac Resale Outlet/Capac Resale, LLC, as well as his work
activities related to that business, were material facts because SSA would have
considered them in evaluating Respondent’s initial and continuing eligibility for CIB.

In order for Respondent to have been awarded adult CIB, Respondent needed to meet
certain criteria, one of which was being “disabled” as that term is defined in Social
Security’s Disability Insurance Benefit (DIB) program. 42 U.S.C. § 402(d)(1)(B); see
also 20 C.F.R. § 404.351(b). To be found “disabled,” a claimant must not be able to
engage in SGA, as that term is defined in SSA’s regulations. 42 U.S.C. § 423(d)(1)(A),
(d)(4)(A); 20 C.F.R. § 404.1505. Under the regulations, SGA “means work that...
[involves doing significant and productive physical or mental duties ... and... is done
(or intended) for pay or profit. 20 C.F.R. § 404.1510. However, work activity may be
considered gainful “whether or not a profit is realized,” and work activity may be
substantial “even if it is done on a part-time basis or if you do less, get paid less, or have
less responsibility than when you worked before.” 20 C.F.R. § 404.1572(a)-(b). This is
why, “[e]ven if the work you have done was not [SGA], it may show that you are able to
do more work than you actually did. [SSA] will consider all of the medical and
vocational evidence . . . to decide whether or not you have the ability to engage in
[SGA].” 20 C.F.R. § 404.1571 (emphasis added). Further, for self-employed claimants,
SSA has established a complex three-part test to determine SGA, which takes into
account the fact that an owner of a new business may not have profits or income.

20 C.F.R. § 404.1575.

As described earlier, Respondent established a business that had a physical location, was
organized as an LLC, existed for more than five years, generated gross revenues in the
thousands of dollars, employed staff, was advertised in traditional and internet media, and
12

even made a modest profit in 2007. Respondent did not have the right to determine for
SSA whether SSA needed to know about his business activities when he applied for CIB,
or later when he received CIB payments while the business grew. Rather, Respondent
was obligated to disclose this information to SSA so that it could apply its rules regarding
SGA. Walker-Mays, Docket No. A-11-13, at 10 (“It was incumbent on Respondent to
provide SSA with full, complete information about her living arrangements so that SSA
could determine to what extent to which her husband’s income and resources would
affect her daughter’s eligibility for SSI benefits.”). Therefore, I conclude that the
information about Respondent’s business and work activities was material to claim and
continued entitlement to CIB.

I also conclude that Respondent knew or should have known that the existence of his
business and his work activity were material to his entitlement to CIB, and that the
omission and withholding was misleading to SSA. In his 2006 CIB application,
Respondent expressly stated that he was not employed from 2001 to present. SSA Ex. 1,
at 2. Although Respondent argues that the term “employed” did not include running a
business that he had started nearly a year earlier (R. Br. at 8), as noted above, the
regulations undermine such a narrow interpretation of that term. See Anthony
Koutsogiannis, Docket No. A-07-81, at 11 (HHS DAB June 20, 2007). Further,
Respondent’s explanation why he did not inform SSA of his work activity on his 2006
CIB application makes it clear that he understood his business activity was work. His
view was that he “had unpaid help volunteering to keep the store open” after his mother
ad passed away in October 2006, and, since Respondent “was NOT in fact working” at
the store when he completed the CIB application, Respondent indicated to SSA that he
was not working. SSA Ex. 6, at 7. As Respondent clarified, “I answered the question
based on the facts and circumstances that existed at that specific timeframe.” SSA Ex. 6,
at 7. Such a narrow answer must have been calculated to mislead SSA concerning his
business activities.

Even if Respondent answered in good faith the questions posed to him when he applied
for CIB in October 2006, this does not explain why Respondent failed to list his business
activities as a job in his February 22, 2007 Disability Report. SSA Ex. 2, at 7.
Respondent went to the SSA office and met with an SSA representative to file this report.
The SSA employee’s notes from the meeting do not indicate that Respondent asked
whether he should disclose his business (now more than a year old) and Respondent
could not recall doing so. SSA Ex. 2; 1-4; R. Ex. 19 § 24. Instead Respondent stated that
at the time of the meeting with the SSA representative, he could not work due to his
automobile accident. R. Ex. 19 4 24.

As part of his defense in this case, Respondent asserted that he was hit by a car at the end
of 2006 and was only able to keep his business because he hired employees from 2006-
2010, with money provided by State Farm; Respondent claims that the employees
performed 99 percent of the work at the store. SSA Ex. 6, at 14-15. Respondent also
13

asserted that multiple physicians determined that Respondent was unable to work
following the car accident in 2006, and that was the reason he did not report work activity
from 2006-2010 to SSA. SSA Ex. 6, at 16. However, despite this alleged significant
medical event in Respondent’s life, he failed to submit any evidence to corroborate its
existence. Further, Respondent’s eight-page Disability Report, which he completed
while wearing a cast and crutches (R. Ex. 19 § 24), makes no mention of his physical
ailments resulting from the automobile accident. SSA Ex. 2, at 5-13. Except for the SSA
representative indicating in her notes that Respondent had difficulty walking, there is
nothing to corroborate the extent of Respondent’s injuries. SSA Ex. 2, at 3. It is
significant that in the section of the notes for observations about Respondent’s
appearance, there is no mention of his crutches and cast. SSA Ex. 2, at 3.

Based on the evidence of record, it is more likely than not that Respondent knew, or at
least should have known, that he needed to disclose his business and work activities to
SSA. The 2006 CIB application expressly made Respondent agree “to promptly notify
SSA] if any of the following events occur . . . a disabled child, age 18 or over, goes to
work ....” SSA Ex. 1, at 2. Further, when Respondent received his benefit award notice
from SSA in September 2007, SSA informed him that the decision SSA made to grant
benefits was “based on the information you gave us” and changes in that information
“could affect your benefits.” SSA Ex. 3, at 2. The award notice told Respondent to read
the parts of an enclosed pamphlet “which explain what to do if you go to work. ...” SSA
Ex. 2, at 3. It is crucial to note that at the time Respondent applied for and received CIB,
e had received SSI benefits from SSA since 1985, with the exception of several periods
of lengthy incarceration. SSA Ex. 2, at 1, 4. Respondent was not a neophyte regarding

is reporting obligations to SSA when he applied for CIB in 2006. Respondent knew he
needed to report his work activities to SSA and that by failing to do so, knew that he was
misleading SSA.

D. The I.G.’s proposed CMP and assessment is permissible and reasonable.

The I.G. proposed the imposition of a $20,000 CMP based on 56 months (i.e., December
2006 through July 2011) in which Respondent did not notify SSA of work activity related
to Capac Resale Outlet and Capac Resale, LLC. The I.G. also proposed an assessment of
$55,455 based on the total benefits paid to Respondent based on his October 2006 CIB
application (i.e. April 2006 through July 2011).° SSA Ex. 15, at 1-2. I must consider the
reasonableness of this proposal based on applicable statutory requirements.

° In the first paragraph of that CMP notice, the I.G. indicated that the assessment in lieu
of damages was $58,455; however, in the rest of the CMP notice, the figure of $55,455
appears instead. The LG. clarified that it is seeking an assessment of $55,455. SSA Ex.
19 ¥ 8; see also SSA Br. at 2 n.2.
14

As a general parameter, a CMP may not be more than $5,000 for “each receipt of [Social
Security] benefits or payments while withholding disclosure of [a material] fact.”

42 U.S.C. § 1320a-8(a)(1). However, CMPs can only be applied to a “failure to disclose
[that] occurred after November 27, 2006.” 72 Fed. Reg. 27,424, 27,425 (May 16, 2007).
Therefore, even though Respondent received benefit payments retroactive to April 2006,
the first benefit payment Respondent received after November 27, 2006, in which he
failed to disclose his work activity, was December 2006. Further, the last payment
Respondent received in which he failed to disclose his work activity was March 2011.
SSA Ex. 7; R. Ex 18. This is a total of 52 benefits payments/months. Therefore,
Respondent is potentially subject to a maximum CMP amount of $260,000.

In addition to a CMP an individual “also shall be subject to an assessment, in lieu of
damages sustained by the United States because of... . such withholding of disclosure of
a material fact, of not more than twice the amount of benefits or payments paid as a result
of such a statement or representation or such a withholding of disclosure.” 42 U.S.C.

§ 1320a-8(a). In the present matter, Respondent received a total of $51,663.50 in benefit
payments between December 2006 and July 2011.’ See SSA Ex. 11, at 1. Therefore,
Respondent is subject to a potential maximum assessment of $103,327.

In addition to establishing the maximum CMP and assessment amounts, the statute
requires that the following factors be taken into account when determining the amount of
a CMP and assessment:

(1) the nature of the statements, representations, or actions
referred to in [42 U.S.C. § 1320a-8(a)] and the circumstances

under which they occurred;

(2) the degree of culpability, history of prior offenses, and
financial condition of the person committing the offense; and

(3) such other matters as justice may require.

42 U.S.C. § 1320a-8(c); see also 20 C.F.R. § 498.106(a).

7 The LG. stated in the CMP notice that Respondent was overpaid $48,663. However, it
is unclear how the I.G. determined this amount. I have decided to use the official benefit
payment figures that SSA provided when it informed Respondent that he was overpaid.
See SSA Ex. 11, at 1. Further, although the Respondent is subject to a CMP for each
monthly benefit payment through March 2011, Respondent is subject to an assessment
through July 2011 because SSA continued to pay Respondent benefits until it completed
its review of Respondent’s case. See SSA Ex. 11; R. Ex. 7; see also R. Ex. 9
(Respondent objecting to the cessation of his benefit payments in an October 2011 letter).
15

1. The nature and circumstances of Respondent’s misconduct.

In regard to the first factor, the I.G. stated in his CMP notice that he considered
Respondent’s initial denials of his work activity to investigators to be an aggravating
factor. SSA Ex. 15, at 2. The I.G. also argued that SSA informed Respondent of his
obligation to report to SSA a return to work, but that Respondent did not believe that
owning a business was work. SSA Br. at 12.

Respondent appears to respond that he did not communicate as thoroughly with the L.G.
agents because the search of his business and house left him with the fear that he would
be criminally prosecuted. R. Br. at 10.

l agree with the I.G. that Respondent withheld information of his work activity from SSA
over a prolonged period of time when he had been placed on notice that he needed to
report it. As indicated previously, Respondent has received benefits from SSA for the
majority of his adult life and knew that his work activity was important information to
SSA. It is difficult to believe that Respondent did not purposefully mislead SSA about
his business activities.

2. Respondent’s level of culpability, prior offenses, and financial
condition.

The second factor includes three parts. The I.G. considered each of these in its CMP
notice. The I.G. considered Respondent very culpable because Respondent indicated on
his October 2006 CIB application that he had not worked since 2001, even though he
commenced a business in late 2005. The I.G. concluded that Respondent “purposely
misled SSA as to [Respondent’s] work activities in order to receive [CIB].” SSA Exs.
15, at 2; 19410. The LG. also pointed out that Respondent asserted in a February 22,
2007 Disability Report that he was “unable to maintain a job” when he owned a business
at that time. SSA Br. at 12. The LG. acknowledged that Respondent did not have a
history of prior offenses with SSA’s programs. The L.G. also considered that Respondent
“may have limited income and resources.” SSA Ex. 15, at 2.

Respondent responded that his culpability was low because his business was just starting
at the time of his application for CIB and that the business did not earn a profit. R. Br. at
11. Respondent agreed with the I.G. that he did not have prior offenses related to SSA
programs. Finally, Respondent indicated that his sole source of income “was SSI as well
as rental income from a home.” R. Br. at 11.

l agree with the I.G. that Respondent has a high degree of culpability in this case.
Respondent not only failed to inform SSA during his 2006 CIB application that he was
starting a business, but never informed SSA about the business as it grew over the years
and increasingly was generating gross revenues. Respondent withheld information about
16

business and work activities for over four and a half years. This significantly weighs
against Respondent. Walker-Mays, Docket No. A-11-13 (“the fact that Respondent
knowingly withheld material information from SSA over an extended period of time
demonstrates that she was highly culpable.”).

l agree with the parties that there is no evidence in the record that Respondent committed
a previous offense related to SSA programs.

I generally agree with the parties that Respondent appears to have some limitations on his
financial condition. Although Respondent submitted his tax returns for 2006-2009

(R. Exs. 20-23), these are too distant from which to draw conclusions of his financial
condition at this time. However, Respondent had the burden of demonstrating an
inability to pay, something that he failed to do. Id.; Koutsogiannis, Docket No. A-07-81,
at 19. In fact, the L.G. noted that he gave Respondent an opportunity to provide
information about his financial condition before the I.G. determined the CMP and
assessment amounts, but Respondent did not. SSA Exs. 12, at 2; 14; 15, at 2.

There is evidence in the record that Respondent disclosed some of his financial condition
in a May 2011 telephone call with an I.G. agent. Respondent stated that he closed Capac
Resale, LLC and sold the goods in the store for $8,000.00. Further, he owned the
building the store was located in and rented the store front and apartments in the building,
thus providing rental income. Respondent indicated that by sometime in 2013, he might
sell the building for $150,000.00. Respondent also owned houses in Chesterfield,
Michigan and Emmett, Michigan. Further, Respondent initially received a $35,000
insurance award (presumably from State Farm for the car accident) and additional
monthly payments from the insurance company of $388. SSA Ex. 5, at 7.

Based on this evidence, I find that Respondent’s financial condition will permit him to
pay the proposed CMP and assessment.

3. Other matters as justice may require.

In the CMP notice, the I.G. indicated that he also considered the age and health of
Respondent when determining the CMP and assessment. SSA Ex. 15, at 2. Respondent
asserts that the fact Respondent did not earn any income from his business should also be
considered. R. Brat 11. I have considered these matters.

4. A CMP of $20,000 and an assessment of $55,455 is permissible and
reasonable.

As discussed above, Respondent is subject to a potential CMP of $260,000. The LG.
proposed a CMP of $20,000 or less than 8 percent of the maximum permitted under law.
Although the LG. mistakenly thought that Respondent failed to inform SSA of his work
17

activity for 56 monthly payments rather than 52, a $20,000 CMP is still less than ten
percent of the maximum permitted. Therefore, the I.G.’s minor error concerning the
number of months for which a CMP could be imposed does not provide a basis for
reducing the CMP. See Walker-Mays, Docket No. A-11-13, at 11.

The I.G. proposed to impose an assessment of $55,455.00 on Respondent. SSA Ex. 16,

at 1.

This amount constitutes all of the money paid to Respondent based on his October

2006 CIB application. The proposed assessment of $55,455.00 constitutes less than 54
percent of the $103,327.00 maximum assessment permitted in this case. There is no

justi

fication in the record to reduce an assessment that is only about half of the maximum

assessment permitted under law. Koutsogiannis, Docket No. A-07-81, at 19. In fact, due

to a typographical error in the CMP notice, the I.G.’s proposed assessment does not
constitute the entire amount of money improperly paid to Respondent based on the
October 2006 CIB application. LG. Br. at 2 n.2.

Order

Based on the evidence of record, and consistent with my findings of fact and conclusions
of law, I hereby order the following:

1.

Respondent is LIABLE under 42 U.S.C. § 1320a-8(a)(1)(C) to pay a CMP and
assessment;

The I.G.’s proposed CMP and assessment is AFFIRMED; and

Respondent is directed to pay a total of $75,455.00 in the manner specified by the
1.G. in his CMP notice (SSA Ex. 15, at 2-3) or in any other manner prescribed by
the I.G. following the issuance of this decision.

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In re LCD Complaints
Category III CPT Codes (L25275)
Contractor: National Government Services, Inc.
Docket No. C-13-564
Decision No.CR3202

Date: April 16, 2014

DECISION DISMISSING LCD CASE

I dismiss the complaints of two aggrieved parties because the contractor, National
Government Services, Inc., (NGS) retired the local coverage determination (LCD) at
issue.

On February 26, 2013, an aggrieved party requested through counsel that the LCD
entitled “Category III CPT Codes (L25275),” specifically as it relates to 0275T
minimally invasive lumbar decompression (MILD), be reviewed pursuant to 42 C.F.R.
Part 426. The case was docketed as C-13-427. On March 22, 2013, the complaint
docketed as C-13-564, previously docketed as C-12-1019, was remanded to me by the
Departmental Appeals Board (Board) and docketed as C-13-564. On April 26, 2013, I
consolidated the cases under C-13-564, because both cases involve a common question of
law and fact, the same provisions of the same LCD, the same representative for both
aggrieved parties, the same contractor, and the same LCD record. Order Acknowledging
Acceptable Complaint; Order Consolidating Cases; Order to File LCD Record; and
Briefing Schedule (April 26 Order).

Pursuant to deadlines in my April 26 Order, CMS filed the LCD record, the aggrieved
parties filed their statement regarding the validity of the LCD record, and NGS responded
to their statement.
On January 9, 2014, the Centers for Medicare & Medicaid Services (CMS) issued a
national coverage determination (NCD) “Decision Memo for Percutaneous Image-guided
Lumbar Decompression for Lumbar Spinal Stenosis (CAG-00433N)” (Decision Memo).!
In the Decision Memo, CMS determined that percutaneous image-guided lumbar
decompression (PILD)’ for lumbar spinal stenosis is not reasonable and necessary under
section 1862(a)(1)(A) of the Social Security Act. CMS determined, however, that
Medicare will provide coverage for PILD for Medicare beneficiaries with lumbar spinal
stenosis who are enrolled in an approved clinical study that meets certain criteria.

On January 28, 2014, I issued an “Order for Supplemental Briefing” (January 28 Order).
I noted that an Administrative Law Judge (ALJ) is not authorized to disregard, set aside,
or otherwise review an NCD. 42 C.F.R. § 405.1060(b). I also noted that according to the
PILD Decision Memo, the NCD’s preliminary language is effective immediately and
subject to formal revision and formatting changes prior to the release of the final NCD
publication in the National Coverage Determination Manual. I then required the parties
to brief how issuance of the January 9, 2014 Decision Memo might affect my review in
this case. I required specifically that NGS address whether it planned to retire the LCD.

The regulation at 42 C.F.R. § 426.420 governs what happens when a contractor retires or
revises an LCD under review. It states:

(a) A contractor may retire an LCD or LCD provision under review before the
date the ALJ issues a decision regarding that LCD. Retiring an LCD or LCD
provision under review has the same effect as a decision under § 426.460(b).

2 OR

(e) The ALJ must take the following actions upon receiving a notice that the
contractor has retired or revised an LCD under review:
(1) If, before the ALJ issues a decision, the ALJ receives notice that the
contractor has retired the LCD or revised the LCD to completely remove
the provision in question, the ALJ must dismiss the complaint and inform
the aggrieved party(ies) who sought the review that he or she or they
receive individual claim review without the retired/withdrawn provision(s).

The regulations also state that an ALJ must dismiss a case when a contractor notifies the
ALJ that an LCD provision is no longer in effect. 42 C.F.R. § 426.444(b)(6). Under 42

' Available at http://www.cms.gov/medicare-coverage-database/details/nca-decision-
memo.aspx?NCAId=269.

> The Decision Memo explains MILD is a registered trademark for a particular PILD
procedure.
C.F.R. § 426.460, the effect of a revised or retired LCD is that a contractor must provide
the aggrieved party or parties with individual claim adjudication without considering the
provision or provisions of the retired or revised LCD.

NGS responded to my January 28 Order on February 18, 2014. NGS stated that it has
published three medical policy articles in support of L25275, only one of which, A51849
addresses and specifically excludes the PILD procedure from Medicare coverage. NGS
stated that the NCD supplants and supersedes A51849. NGS stated that in accordance
with Chapter 13, § 13.4 of the Medicare Program Integrity Manual, it has “retired
A51849 — the portion of the LCD that specifically applies to the PILD procedure”
and asserted that “25275 will in no way be used by NGS to adjudicate any
mild®/PILD claims” (emphasis added). NGS then requested that I dismiss the
aggrieved parties’ complaint as it relates to 0275T because it has retired the part of the
LCD that specifically applies to the PILD procedure. NGS also asserted that issuance of
the NCD divests me of subject matter jurisdiction to adjudicate this complaint under
section 1869(f)(1)(A) of the Social Security Act (42 U.S.C. § 1395ff(f)(1)(A)) and 42
C.F.R. § 405.1060(b).

The aggrieved parties do not dispute that MILD is a PILD procedure. Instead, the
aggrieved parties urge that I continue to hear their LCD complaint for other reasons.
They assert that:

The Decision Memorandum has no legal impact and should be given no
evidentiary weight because (1) the Decision Memorandum and its evidence and
analysis were not the basis of the LCD and are not in the LCD record, (2) the
Decision Memorandum was based on different evidence, a different analysis and
resulted in conditional coverage, and (3) the Decision Memorandum is pre-
decisional and no NCD exists as a result of the Decision Memorandum.

Aggrieved Parties’ Supplemental Briefing at 5. I have considered the parties’ arguments.
I find, however, that based on NGS’s retirement of the LCD, I am not authorized to
consider the merits of the LCD complaint or whether the NCD has divested me of the
authority to hear the complaint. This is because NGS’s retirement of the LCD provision
at issue requires that I dismiss the complaint.

CMS did not enter a separate appearance from that of counsel for NGS. See 42 C.F.R.

§ 426.415 (regulation allowing CMS to identify the person who represents the contractor
or CMS). NGS represents, and I accept, that it retired the provision of the LCD at issue
and that the LCD will not be used to adjudicate any MILD claims, including this one.
Under 42 C.F.R. § 426.420(e)(1) I must dismiss a complaint when the contractor retires
the LCD that is the subject of an aggrieved party’s complaint. Given NGS’s
representation that it retired the LCD, I must dismiss the aggrieved parties’ complaints.
Section 426.420(e)(1) also requires that if I dismiss a case based on the retirement of an
LCD, I must inform the aggrieved party that they may receive individual claim review
without the contractor applying the retired LCD to adjudication of their claim. See 42
C.F.R. § 426.460(b)(1). Thus, I now inform the aggrieved parties accordingly.
Individual claim review without application of the disputed LCD provides the aggrieved
parties here with the same relief as if I had found the LCD in question invalid under the
reasonableness standard. Jd.; see 68 Fed. Reg. 63,692, 63,698 (Nov. 7, 2003).

For the reasons discussed above, I dismiss the aggrieved parties’ complaint because NGS
retired the LCD at issue. The aggrieved parties may now receive individual claim review
without NGS applying the retired LCD that is the basis of their complaint.

/s/
Joseph Grow
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.
Civic’s Grocery Store LLC,
Respondent.
Docket No. C-14-470
FDA Docket No. FDA-2013-H-1688

Decision No. CR3197
Date: April 11,2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for To

bacco Products (CTP) filed an Administrative Complaint

(Complaint) against Respondent, Civic’s Grocery Store LLC, alleging facts and
legal authority sufficient to justify the imposition of a civil money penalty of $500.
Respondent did not timely answer the Complaint, nor did Respondent request an
extension of time within which to file an answer. Therefore, I enter a default

judgment against

CTP initiated this
the Complaint wit

Respondent and assess a civil money penalty of $500.

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

Dockets Management. The Complaint alleges that Respondent’s staff unlawfully
sold cigarettes to minors on two occasions and, during both transactions,
Respondent’s staff failed to verify that the cigarette purchasers were of a sufficient
age, thereby violating the Federal Food, Drug, and Cosmetic Act (Act) and its
implementing regulations, found at 21 C.F.R. Part 1140. CTP seeks a civil money

penalty of $500.

On January 23, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days Respondent must
take one of the following three actions: pay the penalty, file an answer, or request
an extension of time within which to file an answer. CTP further explained that if
Respondent did not comply with one of the actions within 30 days, an
Administrative Law Judge could issue an initial decision ordering Respondent to
pay the full amount of the proposed penalty. 21 C.F.R. § 17.11.

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

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

e Respondent owns Civic’s Grocery Store LLC, an establishment that sells
tobacco products and is located at 138 Cherry Street, Waterbury,
Connecticut 06702. Complaint § 3.

e During a May 16, 2013 inspection of Respondent’s establishment, an FDA-
commissioned inspector observed that “a person younger than 18 years of
age was able to purchase a package of Maverick Menthol Box 100s
cigarettes .. . at approximately 10:00 AM [ ] and... the minor’s
identification was not verified before the sale....” Complaint 10.

e On May 30, 2013, CTP issued a Warning Letter to Civic’s Grocery
regarding the inspector’s observations from May 16, 2013. The letter
explained that the named violations were not necessarily intended to be an
exhaustive list of all violations at the establishment. The Warning Letter
also stated that if Respondent failed to correct the violations, regulatory
action by the FDA or a civil money penalty action could occur and that
Respondent is responsible for complying with the law. Complaint § 10.

e Roseann Telesco responded to the Warning Letter on Respondent’s behalf
in a June 14, 2013 telephone call. “Ms. Telesco stated that the
establishment met with the person responsible for the store on the day of
the violation and that person was made aware that selling to minors is
unacceptable.” Ms. Telesco further stated that “[t]he establishment had a
staff meeting with all employees and went over the violations as well as
tobacco laws and regulations. The establishment also had all employees
watch the FDA Tobacco Compliance webinar for small business[es] and
reminded employees if they had questions to refer to the posters in the store
or to the FDA website.” Ms. Telesco also advised CTP that “the
establishment planned on having monthly trainings to review laws and
regulations.” Complaint § 11.

e On August 13, 2013, during another inspection of Respondent’s
establishment, FDA-commissioned inspectors documented that “a person
younger than 18 years of age was able to purchase a package of Marlboro
Gold Pack cigarettes . . . at approximately 11:38 AM[.]” 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 sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). Under

21 C.F.R. § 1140.14(a), no retailer may sell cigarettes to any person younger than
18 years of age. Under 21 C.F.R. § 1140.14(b)(1), a retailer must verify, by means
of photo identification containing the bearer’s date of birth, that no cigarette
purchasers are younger than 18 years of age.

Here, Respondent violated 21 C.F.R. § 1140.14(a) and (b)(1), on May 16, 2013,
and again on August 13, 2013, when its staff sold cigarettes to minors and failed to
verify that the cigarette purchasers were 18 years of age or older by checking
photographic identification. Respondent’s actions and omissions constitute
violations of law that warrant a civil money penalty. Accordingly, I find that a
civil money penalty of $500 is permissible under 21 C.F.R. § 17.2 and so order
one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Lab Site Inc.,
(CLIA No. 16D1020985),
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-411
ALJ Ruling No. 2014-30

Date: May 1, 2014

DISMISSAL

For the reasons set forth below, I conclude that Petitioner, Lab Site, Inc., is not entitled to
Administrative Law Judge (ALJ) review of a determination made by the Centers for
Medicare & Medicaid Services (CMS), because CMS has rescinded all remedies against
it. I therefore dismiss its hearing request pursuant to 42 C.F.R. § 498.70(b).

Discussion

Petitioner is a clinical laboratory, located in Chalmette, Louisiana, that is certified under
the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and participates in
the Medicare program. On July 30, 2013, the Louisiana Department of Health and
Hospitals (State Agency) attempted to survey the lab, but could not find it at the address
provided. Ina letter dated September 24, 2013, CMS advised Lab Site that it would
cancel its approval to receive Medicare payments and suspend its CLIA certificate.

Petitioner timely requested review.
Subsequently, on March 18, 2014, surveyors were able to locate the lab at the appropriate
address, although they noted some irregularities.

Nevertheless, CMS revised its determination and rescinded the sanctions. By letter dated
March 24, 2014, CMS advised the lab that it had done so. On the same day, CMS asked
that Petitioner’s appeal be dismissed. Petitioner did not respond, and the deadline for
response has passed. 42 C.F.R. § 498.17(b).

A CLIA-certified laboratory’s hearing rights are established by federal regulations at 42
C.F.R. Part 498. 42 C.F.R. § 493.1844(a) and (f). A lab dissatisfied with an initial
determination is entitled to further review, but administrative actions that are not initial
determinations are not subject to appeal. 42 C.F.R. §§ 493.1844; 498.3(a). The
regulations specify which actions are “initial determinations” and set forth examples of
actions that are not. Suspension of a lab’s CLIA certificate and denial of a lab’s approval
to receive Medicare payments are initial determinations for which a facility may request
an ALJ hearing. 42 C.F.R. § 493.1844(b)(1) and (4). But a lab has no right to a hearing
unless CMS imposes one of the specified remedies. See 42 C.F.R. § 493.1844(c);
Premium Diagnostic Lab., Inc., DAB No. 1790 (2001).

Because CMS has imposed no remedies, Petitioner has no right to an ALJ hearing, and
this matter must be dismissed. 42 C.F.R. § 498.70(b). I therefore grant CMS’s motion.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Neurology Care Consultants, LLC,
(PTAN: HH237A; NPI: 1619227758)
Petitioner,

v.

Centers for Medicare & Medicaid Services.
Docket No. C-14-241
ALJ Ruling No. 2014-29

Date: April 9, 2014

REMAND

Petitioner, Neurology Care Consultants, LLC (Neurology Care), is a Florida group
medical practice organized as a limited partnership. Neurology Care applied for
enrollment in the Medicare program, and the Medicare contractor, acting on behalf of the
Centers for Medicare & Medicaid Services (CMS), granted its application, effective May
6, 2013 (with a billing date of April 6, 2013). Petitioner challenges that effective date,
pointing out that it began the application process on February 21, 2013, although it
initially submitted the wrong form.

For the reasons set forth below, I remand this case to CMS to consider the impact of
Neurology Care’s February 21, 2013 enrollment application on the effective date of its
Medicare enrollment, particularly in light of CMS’s instructions that contractors
“develop,” rather than return, an application submitted on the wrong form.

Discussion

To receive Medicare payments for services furnished to program beneficiaries, a
Medicare supplier must be enrolled in the Medicare program. 42 C.F.R. § 424.505.
“Enrollment” is the process used by CMS and its contractors to: 1) identify the
prospective supplier; 2) validate the supplier’s eligibility to provide items or services to
Medicare beneficiaries; 3) identify and confirm a supplier’s owners and practice location;
and 4) grant the supplier Medicare billing privileges. 42 C.F.R. § 424.502. To enroll in
Medicare, a prospective supplier must complete and submit an enrollment application.

42 C.F.R. §§ 424.510(d)(1); 424.515(a). An enrollment application is either a CMS-
approved paper application or an electronic process approved by the Office of
Management and Budget. 42 C.F.R. § 424.502.

When CMS determines that a physician or physician organization meets the applicable
enrollment requirements, it grants Medicare billing privileges, which means that the
physician/physician organization can submit claims and receive payments from Medicare
for covered services provided to program beneficiaries. The effective date for those
billing privileges “‘is the /ater of the date of filing” a subsequently approved enrollment
application or “the date an enrolled physician . . . first began furnishing services at a new
practice location.” 42 C.F.R. § 424.520(d) (emphasis added).

If a physician or physician organization meets all program requirements, CMS allows
im to bill retrospectively for up to “30 days prior to their effective date if circumstances
precluded enrollment in advance of providing services to Medicare beneficiaries.” 42
C.F.R. § 424.521(a)(1).

Here, Neurology Care applied for Medicare enrollment by signing Form CMS-855R on
February 21, 2013, and submitting it to the Medicare contractor, First Coast Service
Options, Inc., sometime thereafter. As indicated by the list of documentation submitted
on reconsideration, Petitioner submitted a copy of that application to the contractor’s
enrollment appeals officer (CMS Ex. 2 at 3), yet the contractor’s reconsidered
determination does not discuss it. With its hearing request, Petitioner includes the
application’s signature page, which shows that it was signed on February 21, 2013, yet
CMS does not mention it at all. As a result, the record does not indicate when the
contractor received the document nor how the contractor responded.

CMS may reject a Medicare enrollment application if the applicant fails to furnish
complete information within 30 days from the date the contractor requests it. 42 C.F.R.

§ 424.525(a)(1). Consistent with that regulation, the Medicare Program Integrity Manual
(MPIM) makes clear that a contractor may reject an application that is on the wrong
form, if the applicant does not submit a new or corrected complete application within 30
days of the contractor’s request. The manual specifically instructs CMS contractors to
develop, rather than return, any such wrong application. MPIM § 15.8.2A.

Thus, where an applicant initially files its application on the wrong form, but timely
corrects that error by furnishing the correct one, the contractor should consider these
submissions all part of the same application, with the earlier filing date preserved.
Assuming the contractor here followed CMS’s instructions (and I assume administrative
regularity), Neurology Care might have corrected its application error within the time
allowed by regulation, in which case, both forms were filed as part of the same
application process, and the February effective date was preserved.

Conclusion

I therefore remand this matter to CMS. On remand, CMS should consider whether the
contractor followed CMS instructions to develop Neurology Care’s February application
and, if so, whether Neurology Care timely corrected its filing errors and was therefore
entitled to an earlier effective date of enrollment.

/s/
Carolyn Cozad Hughes
Administrative Law Judge