Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
Social Security Administration, Office of the Inspector General,
Petitioner,
Vv.
Kendale Garrett,
Respondent.
Docket No. C-10-30
Decision No. CR2273

Date: October 22, 2010

DECISION

The Inspector General (IG) for the Social Security Administration (SSA) charges that
Respondent, Kendale Garrett, violated section 1129 of the Social Security Act (Act),
because she falsely reported her living arrangements in order to increase her monthly
Supplemental Security Income (SSI) benefits. The IG proposes imposing against
Respondent Garrett a $50,000 civil money penalty (CMP).

The IG has not established that Respondent Garrett made false statements when she
reported to SSA that she and her husband had separated. I therefore deny the proposed
penalties and assessments.

I. Background

Section 1129(a)(1) of the Act subjects to penalty any person (including an organization,
agency, or other entity) who: 1) knowingly misrepresents a material fact for SSA’s use in
determining a right to SSI benefits or the amount of those benefits; or 2) makes such a
statement with “knowing disregard of the truth.” Amendments to the statute, effective
November 28, 2006, expanded its scope, subjecting to penalty any person who knowingly
omits or otherwise withholds a fact, which he knows or should know is material to SSA’s
determining eligibility for benefits or benefit amounts. Pub. L. 108-203 (March 2, 2004).
Similarly, Social Security regulations authorize the IG to impose a penalty against any
person who “‘[h]as made . . . a statement or representation of a material fact” that is used
to determine the person’s eligibility for SSI benefits or the amount of those benefits or
payments, where the person “[k]new, or should have known, that the statement or
representation was false or misleading,” made the statement “with knowing disregard for
the truth,” or where the person omitted, “or otherwise withheld disclosure of” the
material fact. 20 C.F.R. § 498.102(a).

In this case, the IG contends that, after learning that SSA significantly reduced her SSI
benefits because of her husband’s income, Respondent Garret told SSA that she and her
husband were separated; in fact, they continued living together. According to the IG,
SSA paid her $26,000 to which she was not entitled because of her misrepresentation.
By letter dated August 25, 2009, the IG advised Respondent Garrett of his determination
and the proposed penalty. IG Ex. 24. Respondent Garrett requested a hearing.

I convened a hearing on May 26, 2010, in Charlotte, North Carolina, at which
Respondent Garrett represented herself. Ms. Debbie Shaw represented the IG.

I have admitted into evidence IG exhibits (Exs.) 1-27 and Respondent (Resp.) Exs. 1-4.
Order Scheduling Hearing §| 2 (April 8, 2010); Transcript (Tr.) at 6. The parties have also
filed initial briefs (IG Br.; Resp. Br.) and closing briefs (IG Cl. Br.; Resp. Cl. Br.).

II. Issues

The issues before me are: 1) Did Respondent Garrett make, or cause to be made, to SSA
a statement or representation of a material fact for its use in determining the amount of
her SSI payments that she knew or should have known was false and misleading, or did
she omit a material fact or make such a statement with knowing disregard for the truth;
and, 2) if so, is the proposed penalty — $50,000 — reasonable?

II. Discussion

A, The IG has not established that Respondent Garrett
made false statements to SSA for its use in determining
the amount of her SSI benefit.!

The SSI program (Title XVI of the Act) pays benefits to individuals who are aged, blind,
or disabled, and have limited income and resources. See 20 C.F.R. Part 416. A person’s
income “‘is a major factor” in determining eligibility and the amount of the benefit —

' My findings of fact/conclusions of law are set forth, in italics and bold, in the
discussion captions of this decision.
generally, the higher the income, the lower the benefit. 20 C.F.R. § 416.1100. Ifan
otherwise eligible individual lives in the same household with an ineligible spouse, SSA
“deems” some of the spouse’s income to the eligible individual, i.e., treats it as if it were
the individual’s own income. 20 C.F.R. § 416.1160.

When Respondent Garrett applied for SSI benefits in May 2002, she told SSA that she
was married and lived with her husband and three children. IG Ex. 1.

SSA finally approved her application for benefits on March 25, 2004.” Before it made
any payments, however, SSA required Respondent Garrett to update her claim. Among
other questions, the agency asked where she had lived and with whom since May 9, 2002,
the date of her original application. She also had to provide the names of any employers,
her pay stubs, and a list of all her resources. IG Ex. 2 at 1.

As part of the statement updating her information, SSA told her that the amount of her
SSI check would be based on the information she provided and that she must report any
changes to SSA.

Remember, a change may make the SSI monthly payment
bigger or smaller. Report changes in income of your
husband/wife who lives with you and changes in income,
school attendance and marital status of ineligible children
who live with you. You must report changes in things of
value that you and your spouse own.

IG Ex. 2 at 3. The statement told her to report changes by telephone, in person, or by
mail “within 10 days after the month it happens” and reminded her that anyone who lies
or misrepresents the truth is committing a crime. IG Ex. 2 at 2-3. See Resp. Br. at 2 (in
which Respondent Garrett concedes that she “was aware of her reporting responsibilities
to tell SSA every time there is a change within ten days after the month in which it
happens”).

In the statement, signed and dated May 18, 2004, Respondent Garrett advised SSA that,
since May 1, 2002, she had been living with her husband, Glenn and her three children at
7815 Stokes Ferry Road, Salisbury, North Carolina. IG Ex. 2 at 4, 9.

In a notice of award, dated May 31, 2004, SSA advised Respondent Garrett that she was
eligible for benefits. The notice explained that the amount of her benefits depended on
her living arrangements (where she lived, with whom, and how food and shelter expenses
were paid). Her benefits were greatly reduced — for some months she received no

> SSA initially denied Respondent Garrett’s application, but, on appeal, an administrative
law judge awarded benefits, hence the delay between the time of her application and the
approval. IG Exs. 2, 3.
payment at all — because of her husband’s income. IG Ex. 3 at 1-3. Specifically, SSA
paid her nothing for April 2004, and the notice advised her that SSA would pay her only
$112 from May 1 through June 30, 2004, and would pay nothing thereafter. IG Ex. 3 at
2.

Respondent Garrett’s Report of Separation. In August 2004, Respondent Garrett reported
to SSA that she and her husband no longer lived together. IG Ex. 14; IG Ex. 18 at 1-2
(Blackford Decl. § 3); IG Ex. 20 at 1, 2 (Littlejohn Decl. §§j 2, 5); Tr. at 33. According to
the IG, she told SSA that they had not lived together since April 2004. IG Br. at 3.
Respondent, however, denies ever claiming that she and her husband separated in April
2004; she maintains that she told SSA that they separated in August 2004, and, in fact,
they were separated at the time she reported it. Resp. Br. at 2.

Although the IG bases much of its case on Respondent Garrett’s purported oral
representation to SSA, it produces no direct evidence of that conversation. No report of
contact or other evidence memorializes the statements she purportedly made that induced
SSA to increase her benefits. The IG cannot even identify the SSA employee who took
down the information. According to SSA Claims Representative Margaret Blackford,
“Someone in the office did talk to [Respondent] in August 2004 and conducted an update
to her record. This is when she informed SSA that she was no longer living with her
spouse, Glenn Garrett.” IG Ex. 18 at 1-2 (Blackford Decl. 4 3).

In a notice dated August 23, 2004, SSA advised Respondent that her husband’s income
would no longer affect the amount of her SSI payments, and, beginning April 1, 2004,
she would receive $564 per month.* IG Ex. 5. Arguably, the notice should have
prompted Respondent Garrett to advise SSA of its error in order to avoid an
overpayment.* However, a conflicting notice, dated September 29, 2004, confirmed that,
in computing the amount of her SSI payments, SSA would no longer count her husband’s
income or assets “because you no longer lived with him beginning August 2004.”
(emphasis added) IG Ex. 6. Based on this later notice, Respondent could reasonably
have concluded that SSA’s information was accurate, and that she had no obligation to
correct their records.

Thus, the evidence — and absence of evidence — supports Respondent Garrett’s claim that
she told SSA that she and her husband separated in August 2004, but, in error, an
unidentified SSA employee computed benefits based on an April 2004 separation date.

> Her monthly payments increased to $579/month in 2005, $603/month in 2006,
$623/month in 2007, and $637/month in 2008. IG Ex. 7 at 3.

* As mentioned above, until late November 2006, the IG had no authority to impose
penalties for withholding material facts, so Respondent’s failure to report the error at this
juncture would not subject her to any CMP, even if she had done so deliberately in order
to obtain benefits to which she knew she was not entitled.
The 2004 separation. I also find that the more reliable evidence establishes that
Respondent Garrett was, in fact, separated from her husband when she made the August
2004 call to SSA, and that her separation continued at least through the end of October
2004. The IG does not dispute that the Garretts may have been separated for a short
while in August 2004, but, relying solely on testimony from Respondent’s mother, the IG
argues that the separation lasted only a few days.

When Respondent left her husband, she went to stay with her mother, Cathy Eubanks.
Mrs. Eubanks agreed that her daughter sometimes stayed with her, but claimed that it was
“very temporary,” seven to ten days per year from 2004 through 2007. IG Ex. 19 at 2, 6;
Tr. 11-12. I did not find this testimony reliable.

Iam not convinced that Mrs. Eubanks accurately recalls the events of 2004. She asserts
that she spoke to Claims Representative Blackford about her daughter’s separation on
“approximately” February 6, 2004. IG Ex. 19 at 5. But this date must be wildly
incorrect. Because Respondent Garrett’s SSI application was only approved on March
25, 2004, and Respondent advised SSA of her separation in August 2004, Claims
Representative Blackford had no reason to contact Mrs. Eubanks as early as February
2004. For her part, Claims Representative Blackford does not refer to any conversations
with Mrs. Eubanks prior to 2007. IG Ex. 18 at 3 (Blackford Decl. 4 10). At that time,
Mrs. Eubanks furnished Claims Representative Blackford with evidence purporting to
show that Respondent resided with her husband. IG Ex. 18 at 3-4 (Blackford Decl. 4 12);
see IG Ex. 19 at 6 (Eubanks Decl. 4 4); IG Exs. 10, 11; Resp. Ex. 3.

But none of the documents Mrs. Eubanks provided to SSA refute Respondent’s claim that
she and her husband were separated in August 2004:

e AJC Penny bill showing that Respondent “ordered an MP3 player to be
lelivered to her home at Kingsway.” IG Ex. 18 at 3.

The IG has not provided a copy of this bill. However, Respondent Garrett
produced a receipt showing that, in November 2006, she ordered an MP3 player
and children’s clothing from JC Penny. Although the receipt lists Kingsway
Drive as the billing address, it shows that the merchandise was shipped to Cathy
Eubank’s address. Resp. Ex. 3; Resp. Br. at 4. Thus, the document is irrelevant
to the question of where Respondent Garrett lived in August 2004, and, if
anything, it tends to support Respondent’s claim that she was separated from her
usband in November 2006.

> In June 2004, the Garretts purchased a house at 1210 Kingsway Drive, Salisbury, North
Carolina. IG Ex. 9 at 1; IG Ex. 14 at 2. Respondent Garrett concedes that the couple
reconciled and began living in that house on November 15, 2004. IG Ex. 17 at 2.
e A letter from Morgan Elementary School written to Mr. and Mrs. Glenn Garrett
about one of their children. IG Ex. 18 at 3.

The IG provides a copy of this letter. IG Ex. 11. It is dated November 29, 2006,
so it is irrelevant to the question of where Respondent Garrett lived in August
2004. In any event, I find such documentation of limited value in establishing
whether Respondent and her husband were living together. Whenever
Respondent left her husband, she simply moved in with her mother. She did not
sign a lease, open accounts with utility companies, or even have her mail
forwarded.

e Bank statements from February 17, 2006 to May 15, 2006, showing that the
Garretts shared a bank account and both were making deposits. IG Ex. 18 at 4.

The IG provides copies of bank statements (IG Ex. 10), which show that, from at
least March 2005, Respondent Garrett and her husband maintained a joint
checking account listing the Kingsway address. Bank statements from March
2005 through February 2007 show regular deposits (presumably from Glenn
Garrett’s employment) and monthly SSI deposits. While I agree that these
documents provide strong evidence that Respondent Garrett had access to her
husband’s income, and was therefore likely overpaid her SSI benefits, they do
not refute her claim that she left her husband in 2004. I note that she told SSA
about this bank account when she updated her financial information in May
2004. IG Ex. 2 at 5. I see no evidence that SSA even asked Respondent Garrett
about this account when she reported her separation, which might have been the
more prudent course.

e From December 2006, a love letter written to Mrs. Garrett from her husband. IG
Ex. 18 at 4.

The IG produces what appears to be a letter from Glenn Garrett® to Respondent,
but I found no date on it. IG Ex. 13. Claims Representative Blackford makes
much of language in the letter that refers to their having “been together for 13
years,” but that statement does not establish that the couple was never separated
during that time. Moreover, the letter describes an obviously volatile
relationship, and alludes to the couple’s separating (“I said I would take the kids
away from you”; “when we do get to spend time together I take it straight to
heart because it don’t (sic) happen very often”) as much as to their reconciling

® The letter is signed “Bryan,” which is Glenn Garrett’s middle name. See, e.g., IG Ex. 2
at 5.
9. 66

(“I hope that we still continue being together”; “I love every day I get home and
I see my beautiful wife”). IG Ex. 13 at 2-3. Ifit establishes anything, the letter
shows that this couple was either separated or on the verge of separation, and
Mr. Garrett, at least, was trying to reconcile.

e Date unsure, but a letter written by oldest daughter starting with the date of birth
and going through 2005, stating when they moved to their new home and
traveling on vacation as a family. IG Ex. 18 at 4.

The IG does not provide a copy of any such letter, and this characterization of it
does not establish that the Garretts were living together in August 2004.

Mrs. Eubanks describes a conversation in which Claims Representative Blackford asked
specific questions about her utility bills and other costs and, according to Mrs. Eubanks,
instructed Respondent to contribute $150 per month to cover her mother’s expenses. Had
Mrs. Eubanks told the claims representative that her daughter was not living with her,
Ms. Blackford would have had no reason to inquire about Mrs. Eubanks’s household
expenses nor to tell Respondent Garrett that she should contribute a portion of her
benefits to cover her mother’s costs. IG Ex. 19 at 1-2; Tr. 18-20.

Finally, the palpable hostility between mother and daughter makes it unlikely that Mrs.
Eubanks could fairly describe their living arrangements or any other aspect of her
relationship with her daughter.”

On the other hand, reliable evidence supports Respondent’s claim that the Garretts were
separated from August through the end of October 2004. In September 2004,
Respondent’s husband commenced a civil action against her, and she was served at her
mother’s address. Resp. Ex. 1. On October 18, 2004, a judge ordered Respondent to stay
away from her husband’s home and place of employment. Resp. Ex. 2. Based on these
documents, I am satisfied that Respondent Garrett lived separate from her husband from
August until at least November 2004, and she did not misrepresent her living situation
when she reported the separation to SSA.

Respondent Garrett’s February 2007 representations. Although not mentioned in its
August 25, 2009 notice letter (IG Ex. 24), the IG points to a second purported false
statement. According to Claims Representative Blackford, on February 7, 2007,
Respondent Garrett called SSA and reported that she had, in fact, separated from her
husband in February 2004, not April 2004. An SSA employee “took her at her word,”
changed her record to reflect the earlier date of separation, and sent her an additional

7 That Mrs. Eubanks would offer to SSA a very personal letter from Respondent’s
husband speaks volumes about the quality of the mother/daughter relationship.
$645.15. IG Ex. 18 at 3 (Blackford Decl. 4 9).° Again, the IG provides no direct
evidence of the conversation, and concedes that it cannot identify the SSA employee to
whom Respondent purportedly spoke. See IG Ex. 18 at 2 (Blackford Decl. § 5); Tr. at 9.
I therefore find that the IG has not established that Respondent Garrett made a false
statement in February 2007. In any event, the IG did not impose any penalty for this
purported false statement, explaining that it would not do so because it could not identify
the SSA employee who took the call. IG Cl. Br. at 10. I find this reasonable but note that
the IG also failed to identify the SSA employee to whom Respondent reported her
separation in August 2004.

B. The IG may not impose a penalty for violations of
section 1129, unless it has provided Respondent with
adequate notice and an opportunity to respond.

Respondent Garrett and her husband plainly have a tumultuous relationship. They fight.
She leaves him. They reconcile. Determining exactly when they were separated is
particularly difficult in this case because the testimony of those who had knowledge of
the living arrangements is unreliable. I did not find Mrs. Eubanks a credible witness for
the reasons discussed above. Respondent Garrett is no more credible and has made
numerous inconsistent claims regarding her past living arrangements. See, e.g., IG Ex.

14 at 3 (in which Respondent writes, “I admit that I am still legally married and spend [an
average of] 3 nights at home with Glenn and the children”); IG Ex. 27 (claiming
separation for all of 2005, 2006, 2007); Resp. Br. at 4; Tr. at 27 (claiming separation
from September 2004 through November 2006).”

® The actions of SSA personnel here are baffling. Three months earlier, on November
15, 2006, Glenn Garrett called the field office to report that he and Respondent were
separated, and that she had taken out a restraining order against him. IG Ex. 18 at 2
(Blackford Decl. 5); Tr. at 9. This was surprising news to SSA personnel since, for
more than two years, the agency had been determining her benefits based on her earlier
representation that she and her husband were separated. IG Ex. 18 at 2; see IG Ex. 7.
SSA eventually launched an investigation that led to these proceedings. See IG Ex. 18 at
4 (Blackford Decl. §j 13); IG Ex. 20 (Littlejohn Decl.). Yet, according to SSA, when
Respondent called demanding more money, they simply sent her a check without further
inquiry.
° Respondent also testified that, during the two and a half years she lived with her
mother, Ms. Eubanks “stole over $30,000 worth of jewelry acquired during Respondent’s
marriage.” Resp. Br. at 4; Tr. at 36. When asked whether she had reported to SSA that
she possessed assets of that value, she claimed that the jewelry “was stolen before I
applied for Social Security.” Tr. at 36-37; see IG Ex. | (stating “I do not own any type of
resource”). When counsel pointed out that she claimed to have lived with her mother
after she applied for (and, in fact, while she was receiving) SSI benefits, she
disingenuously claimed that she “didn’t know jewelry was considered a type of
(Continued...)

In any event, I need not sort out the Garretts’ living arrangements since November 28,
2006 (when the IG first had the authority to impose penalties for omissions) nor
determine whether, during the periods she reconciled with her husband, Respondent
Garrett knowingly withheld that information from SSA in order to increase the amount of
her SSI benefits. The IG has proposed remedies here for Respondent Garrett’s purported
misrepresentations of August 2004, not for her subsequently failing to report that she and
her husband reconciled.

By regulation, the IG sends written notice of his intent to impose a penalty. 20 C.F.R.
§ 498.109(a). The notice must include:

(2) A description of the false statements, representations, or
other actions . . . and incidents, as applicable, with respect to
which the penalty and assessment, as applicable, are
proposed.

Here, the IG’s notice letter charges that, in August 2004, Respondent Garrett “verbally
reported to SSA that [she] had separated from her husband,” when, in fact, they “have
been living together continuously since August 2004.” IG Ex. 24 at 1.'°

In its prehearing brief, the IG reiterated: “In this case the false statement at issue is when
Respondent verbally informed SSA in August 2004 that she no longer lived with her
usband effective April 2004.” IG Br. at 10.'!

In its closing brief, the IG claims, for the first time, a second basis for the proposed
penalties, stating: “Only the August 2004 statement and subsequent omissions were
subject to civil money penalty.” IG Cl. Br. at 10 (emphasis added). I recognize that the
IG might well have been able to show that Respondent Garrett deliberately withheld from

(...Continued)
° resource.” Tr. 37. Whether she deliberately hid those assets from SSA (which I find
unlikely) or unfairly accused her mother of stealing jewelry she did not possess (more
likely), the exchange hardly enhances her credibility.

'° The notice letter is troubling because it proposes a CMP of $10,000 (in addition to the
assessment in lieu of damages), even though it cites only one misrepresentation to
support that CMP. It does not cite withholding disclosure of a material fact as a basis for
imposing a penalty. The statute authorizes a maximum CMP of just $5,000 per
misrepresentation or receipt of benefits while withholding disclosure of a material fact.
Act § 1129(a)(1); see 20 C.F.R. § 498.103.

' Tn that brief, the IG discusses the purported “verbal false statement” of February 7,
2007, but, as discussed above, he has not imposed any penalty for it. IG Cl. Br. at 10.
10

SSA material information that she reconciled with her husband, at least for part of the
time after November 2004,” but the IG has not provided adequate notice that a penalty
would be based on those omissions. It may not add the issue at the close of the case.

IV. Conclusion

The IG failed to establish that Respondent Garrett made false statements to SSA for its
use in determining the amount of her SSI benefit, which was the basis for its proposed
penalty. I therefore deny the proposed penalties and assessments.

/s/
Carolyn Cozad Hughes
Administrative Law Judge

2 Even Respondent Garrett concedes that she lived part of this time with her husband,
although I doubt that she was with him in November 2006, since he filed yet another law
suit against her at that time, and, on November 24, 2006, the county sheriff served her
with a summons at her mother’s house. Resp. Ex. 4.


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

Laguna Honda Hospital and Rehabilitation Center
(PTAN 5676360001),
Petitioner

Vv.
Centers for Medicare & Medicaid Services.
Docket No. C-10-677
Decision No. CR2272

Date: October 18, 2010

DECISION

I grant the motion of the Centers for Medicare and Medicaid Services (CMS) for
summary disposition and sustain the revocation of Petitioner’ billing privileges as a
Medicare supplier of durable medical equipment, prosthetics, orthotics and supplies
(DMEPOS). I conclude based on undisputed evidence that Petitioner failed to timely
comply with requirements in the Medicare supplier regulations. Specifically, Petitioner
did not meet the requirements that it be accredited by a CMS-approved accrediting
organization by October 1, 2009, and that it provide CMS by October 2, 2009 with either
a surety bond meeting federal requirements or documentation that it qualified for an
exception as a government-operated DMEPOS supplier holding a comparable surety
bond under state law.

I. Applicable Law and Regulations

Section 1834(a)(20)(F)(i) of the Social Security Act (Act), 42 U.S.C. § 1395m(a)
(20)(F)(i), states that the Secretary of Health and Human Services (Secretary) “shall
require suppliers furnishing [Medicare supplies] . . . on or after October 1, 2009 . . . to
have submitted to the Secretary evidence of accreditation by an accreditation
organization designated . . . as meeting applicable quality standards ... .”

Section 1834(a)(16) of the Act states that the Secretary “shall not provide for the issuance
(or renewal) of a provider number for a supplier of durable medical equipment for
2

purposes of payment . . . for durable medical equipment furnished by the supplier, unless
the supplier provides the Secretary on a continuing basis . . . with a surety bond in a form
specified by the Secretary and in an amount that is not less than $50,000.”

CMS’s regulations implement these requirements among the “supplier standards” at 42
C.F.R. § 424.57(c), which states that “[t]he supplier must meet and must certify in its
application for billing privileges that it meets and will continue to meet the following
standards.” Section 424.57(c)(22) [supplier standard 22] states:.

All suppliers of DMEPOS and other items and services must be accredited
by a CMS-approved accreditation organization in order to receive and
retain a supplier billing number. The accreditation must indicate the
specific products and services, for which the supplier is accredited in order
for the supplier to receive payment for those specific products and services.

Section 424.57(c)(26) [supplier standard 26] requires that the supplier “[m]ust meet the
surety bond requirements specified in paragraph (d) of this section.” Those surety bond
requirements at section 424.57(d) in turn state, as relevant here, that “beginning October
2, 2009, each Medicare-enrolled DMEPOS supplier must meet the requirements of
paragraph (d),” which include submission of “a surety bond from an authorized surety of
$50,000” which bond “is continuous” and provides that “[t]he surety is liable for unpaid
claims, CMPs [civil money penalties], or assessments that occur during the term of the
bond.” 42 C.F.R. § 424.57(d)(1)(ii), (2), (4), (5). “The term of the initial surety bond
must be effective on the date that the application is submitted to the NSC [National
Supplier Clearinghouse, a Medicare contractor].” 42 C.F.R. § 424.57(d)(2). “Authorized
surety means a surety that has been issued a Certificate of Authority by the U.S.
Department of the Treasury as an acceptable surety on Federal bonds and the certificate
‘as neither expired nor been revoked.” 42 C.F.R. § 424.57(a).

The surety bond provision also states that “Government-operated DMEPOS suppliers are
provided an exception to the surety bond requirement if the DME supplier has provided
CMS with a comparable surety bond under State law.” 42 C.F.R. § 424.57(d)(15)
(emphasis added).

Failure to submit a surety bond as required is a ground for revocation of a supplier’s
billing privileges. 42 C.F.R. § 424.57(d)(11) (“CMS revokes the DMEPOS supplier’s
billing privileges if an enrolled supplier fails to obtain, file timely, or maintain a surety
bond as specified in this subpart and CMS instructions.”); see also 42 C.F.R.

§ 424.57(d)(4)(ii)(B) (“CMS revokes or denies a DMEPOS supplier’s billing privileges
based upon the submission of a bond that does not reflect the requirements of paragraph
(d) of this section.”). More generally, section 424.57 provides that CMS “will revoke a
supplier’s billing privileges if it is found not to meet” the supplier standards (including

3

the accreditation and surety bond requirements) or other requirements in section
424.57(c). 42 C.F.R. § 424.57(e) (formerly § 424.57(d)).'

A supplier that has had its billing privileges revoked is “barred from participating in the
Medicare program from the effective date of the revocation until the end of the re-
enrollment bar. The re-enrollment bar is a minimum of 1 year, but not greater than 3
years depending on the severity of the basis for revocation.” 42 C.F.R. § 424.535(c).

II. Background

By letter dated October 9, 2009, NSC revoked Petitioner’s DMEPOS supplier billing
privileges effective in 30 days for failure to comply with supplier standards 22 and 26,
the accreditation and surety bond requirements. CMS Ex. 1; P. Ex. 1, at 1-2. Petitioner
timely requested reconsideration from NSC by letter dated December 4, 2009, and an
NSC hearing officer sustained the termination in a reconsideration decision dated March
3, 2010, which Petitioner now appeals. P. Ex. 1, at 3-4; P. Ex. 2. The appeal was
assigned to me for hearing and decision pursuant to 42 C.F.R. § 498.44, which permits
designation of a Member of the Departmental Appeals Board (Board) to hear appeals
taken under Part 498. Pursuant to my order setting procedures for this case, CMS, on
June 4, 2010, submitted a motion for summary disposition and supporting brief (CMS
Br.), Petitioner submitted its response (P. Resp.) on July 7, 2010, and CMS requested and
was granted permission to file a reply (CMS Reply), which it did on July 20, 2010.

With its response, Petitioner submitted its Exhibits 1 through 5, among which are the
materials that Petitioner submitted earlier as exhibits to its hearing request (HR), and two
offers of witness testimony in the form of declarations (P. Ex. 3). CMS with its motion
and brief submitted its Exhibits 1 through 7, including a proffer of testimony of one
witness in the form of a declaration. CMS Ex. 2, at 1-2. In the absence of any
objections, I admit each of the parties’ exhibits to the record.” Petitioner requested a
hearing to cross-examine CMS’s witness. P. Resp. at 2.

' Paragraph (e) of section 424.57 was previously designated paragraph (d) and was
redesignated by the rulemaking that imposed the surety bond requirements at paragraph
(d); however, the redesignations were not incorporated in the volume of the Code of
Federal Regulations issued October 1, 2009 “due to inaccurate amendatory instruction,”
and the text added by revised paragraph (d) appears in that volume as an “Editorial Note”
to section 424.57. References are to the regulation as redesignated.

> The regulations governing ALJ hearings in supplier enrollment appeals require that a
Petitioner have “good cause” for submitting “new documentary evidence” for the first
time before me. 42 C.F.R. § 498.56(e). The two declarations in Petitioner’s Exhibit 3,
dated July 7, 2010, are proffers of testimony not considered documentary evidence
covered by that rule. Arkady B. Stern, M.D., DAB No. 2329, at 4 n.4 (2010)

(“[t]estimonial evidence that is submitted in written form in lieu of live in-person
(Continued. . .)
IIL. Issue, Applicable Standard, Findings of Fact and Conclusions of Law
A. Issue

The issue in this case is whether CMS is entitled to summary judgment on the ground that
the undisputed facts demonstrate that Petitioner failed to comply with at least one of the
two supplier standards at issue, authorizing the revocation of its DMEPOS billing
privileges.

B. Applicable Standard

CMS’s motion made clear that the summary disposition it seeks is in the nature of
summary judgment. CMS Br. at 8-9. The Board stated the standard for summary
judgment as follows.

Summary judgment is appropriate when the record shows that there is no
genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. . .. The party moving for summary judgment
bears the initial burden of showing that there are no genuine issues of
material fact for trial and that it is entitled to judgment as a matter of
law... . To defeat an adequately supported summary judgment motion, the
non-moving party may not rely on the denials in its pleadings or briefs, but
must furnish evidence of a dispute concerning a material fact — a fact that, if
proven, would affect the outcome of the case under governing 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.

Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted).
The role of an ALJ in deciding a summary judgment motion differs from the ALJ’s role
in resolving a case after a hearing. The ALJ should not assess credibility or evaluate the
weight of conflicting evidence. Holy Cross Vill. at Notre Dame, Inc, DAB No. 2291, at 5
(2009).

(Continued. . .)

testimony is not ‘documentary evidence’ within the meaning of 42 C.F.R. § 498.56(e)”).
The hearing officer’s analysis in the reconsideration decision indicates that Petitioner’s
other exhibits, not necessarily including materials issued by CMS or NSC, to which the
tule also does not apply, were submitted on reconsideration. In any event, CMS did not
object to any of Petitioner’s exhibits.
5

C. Findings of Fact and Conclusions of Law

My findings and conclusions are in the italicized headings supported by the subsequent
discussions below.

1. Undisputed facts establish that Petitioner did not comply with the two
supplier standards by the applicable deadlines, authorizing the revocation.

Petitioner does not dispute that it failed to obtain, or submit evidence to the Secretary (via
CMS and NSC) of, appropriate accreditation by October 1, 2010, and that it failed to
provide the Secretary a surety bond (or comparable surety bond under state law as
required of government-operated suppliers) by October 2, 2009, as required by statute
and regulation. Act § 1834(a)(16), (a)(20)(F)(i); 42 C.F.R. § 424.57(c)(22), (26), (d).
Indeed, Petitioner states that it “was not aware of the existence of either of these new
requirements for enrollment as a DMEPOS supplier before October 9, 2009” the date of
the revocation letter, and that it was thus “unable to provide evidence of its compliance”
with the two requirements. P. Resp. at 3.

When a supplier “is found not to meet” the supplier standards, “CMS will revoke” its
billing privileges, 42 C.F.R. § 424.57(e), as redesignated, and “failure to comply with
even one supplier standard is a sufficient basis for revoking a supplier’s billing
privileges,” 18661CPayday.com, L.L.C., DAB No. 22839, at 13 (2009). CMS argues it
was therefore authorized to revoke Petitioner’s billing privileges here.

Petitioner contends that the revocation should be reversed nevertheless. Petitioner argues
that it is exempt from the surety bond requirement because it is a government-operated
supplier, and further that its status as a government-owned and operated, dually-licensed
skilled nursing facility and acute care hospital supplying DMEPOS only to its patients in
itself assures that the purposes of the accreditation and surety bond requirements are met.

Petitioner also argues that CMS failed to inform Petitioner of the two requirements in
time to meet the deadlines for compliance, as Petitioner says CMS was obliged to do, and
is estopped from revoking Petitioner’s billing privileges because after the deadline, CMS
and NSC representatives told Petitioner that it was exempt from the surety bond
requirement. Petitioner argues that, at a minimum, summary disposition is not
appropriate because it has raised disputed issues of material fact over whether CMS
provided notice of the requirements before the deadline for compliance and incorrect
information after the revocation.

As explained below, none of these arguments provide any basis for reversing the
revocation. Moreover, while Petitioner raises disputes of fact and seeks to cross examine
CMS’s only witness, none of the facts Petitioner seeks to establish are material to the
issue before me, i.e. whether CMS had legal grounds to revoke Petitioner’s billing
privileges. Thus, summary judgment in CMS’s favor is appropriate.

2. Petitioner was neither exempt from the two requirements nor excused from
compliance by virtue of the nature of its business or its state licensure.

Petitioner argues that it should be “deemed to be in compliance with the Accreditation
Requirement because its state license combined with its status as a government-owned,
certified Medicare and MediCal provider ensures compliance with the DMEPOS quality
standards” and that it “is fundamentally in compliance with the Surety Bond requirement
because it poses no threat whatsoever of defrauding the Medicare system by failing to
pay its obligations.” HR at 4. Petitioner similarly argues that it should be held “exempt
from the Accreditation and Surety bond requirements under a reasonable interpretation of
the regulations” because it meets the purposes for which those rules were promulgated.

P. Resp. at 8.

These arguments must fail, given Petitioner’s undisputed failure to have timely complied
with the actual requirements of the two supplier standards. The essence of Petitioner’s
stance is that, notwithstanding the explicit requirements of the regulations, the
government should be obliged to accept Petitioner’s view that it can somehow be trusted
to achieve the same ends which the regulations were designed to fulfill simply because it
is state-owned and licensed. My role here, however, is to apply the law and regulations
as written and determine whether undisputed facts demonstrate that CMS had a legal
basis for the revocation. I have no authority to render an opinion over whether Petitioner
managed to achieve some or all of the goals underlying the supplier standards and CMS’s
quality standards, notwithstanding Petitioner’s undisputed failure to comply with the
specific requirements of the two supplier standards at issue.

Regarding the accreditation requirement, Petitioner reports that it submitted to NSC, as
evidence of its compliance, its state license, which Petitioner says “is only issued after an
extensive survey that ensures Laguna Honda is in compliance with participation
requirements ....” HR at 3-4. Petitioner acknowledges, however, that its state license
“is not strictly an accreditation by one of the ten approved national accreditation
organizations.” Jd. Petitioner offers no basis to conclude that the state licensing survey
covers the same requirements as Medicare demands of an accreditation organization.

The regulators might, perhaps, have chosen to include state surveys of state-owned
facilities as equivalent to the approved accreditation organizations, but they did not do so.
At best, Petitioner suggests that it would not be unreasonable to read such an extension
into the regulations. That suggestion does not suffice to overcome CMS’s reliance on the
plain language of the regulation. Petitioner has thus offered no basis for me to find
unreasonable CMS’s interpretation of the regulations as requiring compliance with their
explicit provisions. This is particularly so in light of the fact that the drafters plainly
contemplated government-owned suppliers (carving a specific exception for them in
7

relation to surety bonds as discussed next) and yet did not include any exception for
government-owned, state-licensed facilities from the accreditation requirement.

Petitioner also asserts that, as a government-owned supplier providing durable medical
equipment “only incident to its operation as one of the nation’s largest skilled nursing
facilities and rehabilitation centers” it “naturally follows” CMS’s DMEPOS quality
standards, which the approved accrediting organizations apply in issuing the accreditation
required by section 424.57(c)(22).* P. Resp. at 9. Petitioner argues that the accreditation
requirement “should be read to exclude” Petitioner because those quality standards,
which CMS has described as “‘basic good business practices,” 71 Fed. Reg. 48,354,
48,393 (Aug. 18, 2006), are aimed at for-profit “businesses that sell DMEPOS” and not
government-owned entities like Petitioner, which, it says, “already must implement the
type of quality standards that the Accreditation Requirement aims to ensure... .” P.
Resp. at 9.

In essence, Petitioner asks me to overlook the requirements of the law and regulations
and excuse its noncompliance, relief not available in this forum. The supplier standard
required Petitioner to both have been accredited by an approved accrediting organization,
and to have submitted evidence of the accreditation by October 1, 2009, neither of which
Petitioner did. I find nowhere in the preamble language Petitioner cites the suggestion
that in the circumstances of this case, the accreditation requirement could be met by
anything other than actual accreditation by one of the approved organizations.
Additionally, the revocation and this appeal concern compliance with the supplier
standards in § 424.57 424.57(c), not the quality standards addressed during the
accreditation process. 75 Fed. Reg. 52,629, 52,634 (Aug. 27, 2010) (“The supplier
standards in § 424.57 are separate from the quality standards which are used by
accrediting organizations.”). I am not empowered to substitute my judgment for that of
one of the approved accrediting organizations that is required to accredit DMEPOS
suppliers, which is essentially what Petitioner asks. None of Petitioner’s arguments
allege any actual error in the finding that Petitioner at the time of the revocation was not
in compliance with the two supplier standards.

Regarding the requirement to provide CMS with a compliant surety bond, Petitioner
argues that Laguna Honda, “because it is a government-owned skilled nursing facility, is
already in compliance with the Surety Bond requirement.” HR at 4. Petitioner cites the
preamble to the final rule implementing the surety bond requirement in the supplier
standards, where CMS explained that the basis for the exception to the surety bond

> CMS issued the DMEPOS quality standards in October 2008, pursuant to section
1834(a)(20) of the Act, which requires the Secretary to “establish and implement quality
standards for suppliers of items and services” described in the law, “to be applied by
recognized independent accreditation organizations.”
(www.cms.gov/MedicareProviderSupEnroll/Downloads/DMEPOSAccreditation
StandardsCMB. pdf, accessed Oct. 15, 2010.)

8

requirement for government-operated suppliers is that it is “unlikely that these DMEPOS
suppliers will be unable to pay their Medicare debts” and that such suppliers “by their
public nature, furnish a comparable or greater guarantee of payment than would be
afforded us by a surety bond issued by a private surety.” 74 Fed. Reg. 166, 167-68 (Jan.
2, 2009). The preamble, however, does not suggest any blanket exception for
government-operated suppliers. It instead makes clear that such suppliers would have to
qualify for the exception by providing CMS “with a comparable surety bond required
under State law,” and that a “government-operated supplier that did not qualify for an
exception would have to submit a surety bond.” Jd. at 167. Here, Petitioner cites only its
status as a government-owned and operated supplier and does not suggest that any bond
required under state law exists that affords CMS with protection comparable to that
which private suppliers must provide through a surety bond.* Thus, there is no basis to
conclude that Petitioner qualified for the exception for government-operated suppliers.

3. Petitioner’s lack of specific notice of the supplier standards and the
deadlines for compliance does not excuse its noncompliance.

Petitioner argues that CMS and NSC should not have revoked Petitioner’s billing
privileges because they were obligated but failed to have provided Petitioner with notice
of the accreditation and surety bond requirements prior to October 1, 2009, to allow it to
complete “the time-consuming accreditation process and purchase a surety bond.” P.
Resp. at 5. Petitioner argues that CMS “clearly recognized the need to inform suppliers
of the new regulations in advance of their implementation date,” /d., and cites as
evidence language in a CMS update to its Medicare Program Integrity Manual (PIM)
instructing NSC to take steps to notify suppliers of the surety bond requirement. The
update states:

The NSC shall conduct outreach to the DMEPOS community regarding the
new surety bond requirements. The NSC shall notify DMEPOS suppliers
about the requirements: (1) through listserv announcements, (2) via
announcements and presentations attended by the NSC with interested
organizations, and (3) by posting general information on the surety bond
requirement on the NSC Web site. Educational material shall be developed
and released no later than April 20, 2009.

* The reconsideration decision discusses why “a letter from the City and Council of San
Francisco regarding other insurance coverages for the facility” that Petitioner submitted
was “not comparable to a surety bond” and “does not satisfy the NSC requirements for an
acceptable surety bond for DMEPOS suppliers” as required by the supplier standard.
CMS Ex. 6, at 2. On appeal, Petitioner does not address this conclusion of the hearing
officer and does not assert that it has “provided CMS with a comparable surety bond
under State law” as required for the exception to apply. 42 C.F.R. § 424.57(d)(15).
9

P. Ex. 4, at 12 (CMS Pub. 100-08, Medicare Program Integrity, Trans. 287 (Mar. 27,
2009), www.cms.gov/Transmittals/Downloads/R287PL pdf, accessed Oct. 15, 2010).
Petitioner asserts that it “was never notified of either requirement through any listserv
announcement or other announcement by NSC” and notes that CMS in its motion for
summary disposition does not dispute that Petitioner was entitled to notice of the two
requirements before October 1, 2009. P. Resp. at 5-6. Petitioner disputes the proffered
testimony of CMS’s witness, Tanya Mattingly, an employee of NSC’s parent company
Palmetto GBA, that a letter was sent to Petitioner six weeks prior to the date of
compliance. Petitioner notes that the letter is a form letter addressed to “Supplier,”
denies having received a copy of the letter, and states that CMS has submitted no
evidence that Petitioner actually received it. CMS Ex. 2, at 1-3.

For the purpose of ruling on CMS’s motion for summary disposition, I resolve in
Petitioner’s favor any dispute over the factual issue of notice and assume that neither
CMS nor NSC provided specific, advance notice of the two requirements to Petitioner
individually. The failure to provide such notice, however, did not relieve Petitioner of
the requirement to attain timely compliance, notwithstanding any obligation that CMS
may have imposed on its contractor to notify suppliers of the surety bond requirements.
This is because two requirements were imposed by statute and duly promulgated
regulations, of which participating suppliers are presumed to have notice. See, e.g.,
Waterfront Terrace, Inc., DAB No. 2320, at 7 (2010) (provider of Medicare services
should be expected to possess at least a rudimentary understanding of program rules and
terminology), citing Heckler v. Community Health Servs. of Crawford County, 467 U.S.
51, 63, 64 (1984) (participant in the Medicare program had “duty to familiarize itself with
the legal requirements” for cost reimbursement); Thomas M. Horras and Christine
Richards, DAB No. 2015, at 34 (2006) (officer and principal of provider had
responsibility to be aware of and adhere to applicable law and regulations), aff'd Horras
v. Leavitt, 495 F.3d 894 (8 Cir. 2007).°

Additionally, CMS’s failure to have notified Petitioner individually does not empower
me to hold CMS estopped from enforcing the two requirements. As the Board and the
ALJs have repeatedly observed, estoppel against the federal government, if available at
all, is presumably unavailable absent “affirmative misconduct,” such as fraud. See, e.g.,
Pacific Islander Council of Leaders, DAB No. 2091, at 12 (2007); Office of Pers. Mgmt.
v. Richmond, 496 U.S. 414, 421 (1990). No such misconduct has been established here,

> CMS cited 42 C.F.R. § 41 1.406(e)(1) and (2) for the proposition that “Petitioner is
expected to know the content of CMS notices, including manual issuances, bulletins, or
other written guidelines or directives from Intermediaries, Carriers, or set forth in the
Federal Register.” CMS Reply at 2. CMS did not show that this regulation, titled
“Criteria for determining that a provider, practitioner, or supplier knew that services were
excluded from coverage as custodial care or as not reasonable and necessary,” is
applicable here.
10

and such a showing would not in any event authorize me to refuse to apply regulations
that by their plain language clearly authorized or required CMS to revoke Petitioner’s
billing privileges.

The existence of legal requirements for accreditation and surety bonds is not so novel as
Petitioner suggests. The Act’s requirement that suppliers submit evidence of their
accreditation by October 1, 2009 was imposed by a statute that became law on July 15,
2008. Medicare Improvements for Patients and Providers Act of 2008, Pub. L. No.
110-275, § 154(b)(1)(ii), (e); 122 Stat. 2564, 2568 2596. Even before enactment of that
law, the Act has, since December 8, 2003, required the Secretary to “establish and
implement quality standards for suppliers” to be applied “by recognized independent
accreditation organizations” and with which suppliers “shall be required to comply” in
order to receive Medicare reimbursement. Act § 1834(a)(20), Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. No. 108-173,

§ 302(a)(1). Pursuant to that law, CMS on August 18, 2006 published current supplier
standard 22, effective October 2, 2006, requiring that all DMEPOS suppliers “must be
accredited by a CMS-approved accreditation organization in order to receive and retain a
supplier billing number.” 71 Fed. Reg. at 48,409.

Moreover, while the current specific surety bond requirements in the supplier standards
were published January 2, 2009 (74 Fed. Reg. at 198), the rule was proposed on August
1, 2007 (72 Fed. Reg. 42,001, 42,009), and the Act provision requiring a surety bond had
been in place since August 5, 1997.° Pub. L. No. 105-33, § 4312(a), 111 Stat. 251, 386,
787.

Thus, I find puzzling Petitioner’s professed total ignorance of the existence of either of
these requirements, especially given Petitioner’s claimed status as a “one of the nation’s
largest skilled nursing facilities and rehabilitation centers.” HR at 3. I question the claim
that Petitioner could function at the level it describes and yet be totally unaware of the
existence of laws and regulations setting the conditions of its participation in the
Medicare program as a DMEPOS supplier. I can not overlook Petitioner’s failure to
apprize itself of and comply with federal laws and regulations governing its conduct as a
DMEPOS supplier claiming Medicare funds.

® CMS did not issue an earlier final rule to implement the surety bond requirement
because, as CMS explained in the preamble to the January 2, 2009 rule, the MMA in
2003 “prohibit[ed] the Secretary from finalizing a proposed rule related to Title 18 that
was published more than 3 years earlier except under exceptional circumstances.” 74
Fed. Reg. at 166-67.
11

4. I have no authority to find CMS estopped from applying the clear
requirements of the law and regulations, which are binding on the parties

and on this forum.

Petitioner further argues that CMS is estopped from revoking Petitioner’s billing
privileges for failure to timely comply with the surety bond requirement because
representatives of CMS and NSC told Petitioner, in response to its inquiries after
receiving the revocation notice, that it was exempt as a government supplier from the
surety bond requirement. Petitioner submitted a declaration of Diana Guevara, its
Director of Patient Financial Services, stating that she “spoke by telephone with Mark
Majestic, a representative of [NSC], who orally informed me that Laguna Honda was
exempt from the surety bond requirement due to its status as a government-owned
supplier.” P. Ex. 3, at 2. Petitioner also submitted e-mail dated November 10, 2009,
from Merle A. Corpuz, a CMS Health Insurance specialist from the CMS Division of
Financial Management, Fee for Service Operations, Program Protection Brand, stating
that “‘as a government-owned DMEPOS supplier, LH is exempt from obtaining a surety
bond.” Jd. at 7. CMS does not dispute that the CMS and NSC representatives provided
this advice as alleged; instead, CMS argues that “this CMS employee was not authorized
to speak on behalf of CMS concerning the issue affecting Petitioner’s DMEPOS supplier
status or this case.” CMS Br. at 8

As discussed above, federal courts and the Board have consistently held that the doctrine
of estoppel is not available against the federal government, absent a showing of
affirmative misconduct, and Petitioner has not demonstrated that incorrect understandings
of regulatory requirements apparently shared by CMS or contractor employees rises to
the level of affirmative misconduct. See, e.g., Huron Potawatomi, Inc., DAB No. 1889,
at 5 (2003) (allegation that incorrect advice was provided not evidence of affirmative
misconduct).

Additionally, even if I could hold CMS estopped, I would not be able to do so here, given
that Petitioner clearly did not rely on the erroneous advice in failing to meet the deadlines
for compliance with the two supplier standards. Petitioner admits it was unaware of the
two requirements prior to October 9, 2009, the date of the revocation notice, only after
which was the incorrect advice given that it was exempt from the surety bond
requirement as a government-owned supplier.” The Board has noted that “[c]ertainly

7 Petitioner submitted what appears to be a CMS web page with no date or URL visible,
listing without qualification “Government-owned suppliers” as among “DMEPOS
suppliers exempt from the bonding requirement” with no qualifying language. P. Ex. 1,
at 9. A current version of this web page, last modified August 9, 2010, is worded
differently and describes those suppliers as “Government-owned suppliers that have
provided CMS with a comparable surety bond under state law” which “shall state that

CMS is an obligee and cover obligations concerning claims... .”
(Continued. . .)
12

estoppel is unavailable where the party fails to show even the traditional elements of
estoppel, such as reasonable reliance.” Family Health Servs. of Darke County, Inc., DAB
No. 2269, at 19 (2009), citing Heckler, 467 U.S. at 60 (fiscal intermediary gave provider
incorrect advice but provider failed to show reasonable reliance). I am “bound by
applicable laws and regulations” /866/CPayday.com, L.L.C., DAB No. 2289, at 14.
Petitioner also points to no source of authority for me to waive the compliance
requirement or grant an exemption on equitable grounds.

Finally, even if I could Petitioner exempt from the surety bond requirement based on the
provision of incorrect information, Petitioner’s admitted failure to have complied with the
accreditation requirement provides sufficient legal grounds for CMS to revoke its billing
privileges.

I do not premise my rejection of Petitioner’s argument on CMS’s suggestion that
suppliers making program-related inquiries to CMS should assume that CMS Health
Insurance Specialists are not authorized to speak on behalf of or otherwise represent
CMS in its administration of the Medicare program. A narrower claim that such officials
are not authorized to alter CMS policy or make pronouncements binding on the agency
that are inconsistent with agency interpretations or policy might be well-founded. I note,
however, that CMS itself relied on the declaration of a Palmetto employee as support for
CMS’s position in this contested proceeding. Given that CMS does not challenge either
the e-mail from its employee stating that Petitioner was exempt from the surety bond
requirement or the declaration from Petitioner’s Director of Patient Financial Services
stating that she received similar information from NSC’s Mr. Majestic, I find unhelpful to
my resolution of this appeal CMS’s characterization of Petitioner assertions in this regard
as “disingenuous.” CMS Br. at 7. In any case, my conclusion is simply that Petitioner
has identified no material fact in dispute and that CMS’s action is authorized as a matter
of law.

(Continued. . .)
(www.cms.gov/MedicareProviderSupEnroll/05_DMEPOS%20Surety%20Bond.asp,
accessed Oct. 15, 2000). CMS did not question the validity of the undated page that
Petitioner submitted. Petitioner, however, made no claim that it reviewed or relied on the
web page at any time prior to the October 2, 2009 deadline for providing a surety bond.
13

IV. Conclusion

The undisputed facts demonstrate that Petitioner was not in compliance with two supplier
standards and entitle CMS to summary disposition as a matter of law. I therefore grant
summary judgment in favor of CMS and sustain the revocation of Petitioner’s billing
privileges.

/s/
Leslie A. Sussan
Board Member


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Northlake Nursing and Rehabilitation Center
(CCN: 155731),

Petitioner
Vv.
Centers for Medicare and Medicaid Services.
Docket Nos. C-10-572 and C-10-637
Decision No. CR2271

Date: October 20, 2010

DECISION DISMISSING PETITIONER’S
HEARING REQUESTS

I dismiss the hearing requests filed by Petitioner, North Lake Nursing and Rehabilitation
Center. I deny Petitioner’s cross motion for summary disposition.

I. Background

Petitioner is a skilled nursing facility in the State of Indiana. It has participated in the
Medicare program. Its participation in Medicare is governed by sections 1819 and 1866
of the Social Security Act (Act) and by implementing regulations at 42 C.F.R. Parts 483
and 488. Its hearing rights are governed by regulations at 42 C.F.R. Part 498.

This case arises from surveys that were conducted of Petitioner’s facility on November
13, 2009, December 16, 2009, December 18, 2009, February 5, 2010 (February Survey),
and March 26, 2010 (March 26 Survey). Petitioner was found not to be complying
substantially with Medicare participation requirements at each of these surveys, including
the March 26 Survey. CMS sent notices to Petitioner advising it that CMS had
determined to impose remedies against it. These remedies included: termination of
Petitioner’s participation in Medicare effective April 20, 2010 (originally, the proposed
termination date was April 13, 2010); civil money penalties totaling $42,500; and denial
of payment for new Medicare admissions beginning December 13, 2009 and continuing
through April 19, 2010.

Petitioner filed hearing two hearing requests challenging aspects of CMS’s
determinations. Petitioner filed its first request on March 17, 2010, and it was docketed
as C-10-572 (March 17 hearing request). It filed its second request on April 15, 2010,
and it was docketed as C-10-637 (April 15 hearing request). The two requests were
assigned to me for hearings and decisions. At Petitioner’s request, I consolidated the
cases into C-10-572. CMS then moved for summary affirmance. Petitioner cross-moved
for summary disposition and opposed CMS’s motion. CMS then opposed Petitioner’s
cross-motion.

CMS filed proposed exhibits that it identified as CMS Ex. 1 —- CMS Ex. 56. Petitioner
filed proposed exhibits that it identified as P. Ex. 1 — P. Ex. 5. I receive the parties’
exhibits into the record.

IL. Issue, Findings of Fact, and Conclusions of Law
A. Issue

Petitioner did not challenge CMS’s determinations to impose against it the remedies of
denial of payment for new admissions or civil money penalties. Consequently, CMS’s
authority to impose these remedies, and the reasonableness of the civil money penalty
amounts, are not issues that I may hear and decide. In its March 17, 2010 hearing
request, Petitioner referred to CMS’s determinations to impose denial of payment for new
admissions and civil money penalties, stating “Northlake has not yet filed a request for
hearing or administrative appeal as to these sanctions.” March 17 Hearing Request at 2.
In its April 15 hearing request, Petitioner recites that remedies imposed against it
included termination of participation, denial of payment for new admissions, and civil
money penalties. April 15 Hearing Request at 1. However, Petitioner challenged only
CMS’s determination to terminate its participation in Medicare. Jd. at 2-5.

The issue in this case is whether Petitioner has raised a challenge to CMS’s determination
to terminate Petitioner’s Medicare participation that I may hear and decide.

B. Findings of Fact and Conclusions of Law

CMS labeled its motion in this case as a motion for “summary affirmance.” However,
and on close scrutiny of CMS’s motion, it is evident that CMS moved to dismiss
Petitioner’s hearing requests. CMS’s argument is that its determination to terminate
Petitioner’s Medicare participation is administratively final and binding, because
Petitioner did not challenge the deficiency findings made at the March 26 Survey on
which that determination is based. Consequently, according to CMS, there is nothing in
this case that I may hear and decide, and Petitioner has no right to a hearing. CMS argues
also that the arguments that Petitioner made in opposition to CMS’s motion and as an
affirmative motion amount to arguments and contentions that are either irrelevant or
beyond the scope of my hearing and decision authority.

I make the following findings of fact and conclusions of law (Findings).

1. Petitioner has not made a legitimate challenge in fact or in law to
CMS ’s determination to terminate Petitioner’s participation in
Medicare.

CMS is authorized to terminate a skilled nursing facility’s participation in Medicare,
whenever that facility fails to comply with a Medicare participation requirement. Act §
1866(b)(2)(A); 42 C.F.R. § 488.456(b)(1)(i). There is no requirement in either the Act or
in implementing regulations that noncompliance persist over time before termination may
be imposed, nor is there a requirement that noncompliance be at a particular level of
scope and severity beyond “substantial” to authorize CMS to terminate a facility’s
participation. Any noncompliance that is substantial is sufficient basis for CMS to
terminate a facility’s participation in Medicare. Jd. Finally, CMS’s authority to impose
the remedy of termination of participation is not linked to, or contingent upon, action by
another entity or agency. Thus, CMS may act independently of a State agency in
determining to terminate a facility’s participation.

In this case, CMS acted to terminate Petitioner’s participation in Medicare after several
consecutive surveys of Petitioner’s facility revealed substantial noncompliance with
Medicare participation requirements. CMS could have acted to terminate Petitioner’s
participation at any stage of the survey process. It chose to do so after the March 26
Survey was completed. Any substantial noncompliance existing as of the March 26
Survey establishes a sufficient basis in law for CMS to impose the remedy of termination
of participation.

CMS argues, and I agree, that Petitioner did not challenge the findings of substantial
noncompliance that were made at the March 26 Survey. Consequently, those findings are
now administratively final, and they provide CMS with legal authority to terminate
Petitioner’s participation in Medicare.

Petitioner challenged findings of noncompliance that were made at surveys prior to the
March 26 Survey. Petitioner’s April 15 Hearing Request explicitly challenges the
findings of noncompliance that were made at the February Survey, but only in the context
of Petitioner’s contention that CMS lacks authority to terminate its Medicare
participation. Petitioner filed this request in response to a notice letter that CMS sent to
Petitioner on March 31, 2010. CMS Ex. 9. That letter advised Petitioner that its
participation in Medicare would be terminated on April 20, 2010, due to its failure to
attain substantial compliance with Medicare participation requirements, and it was based
on the noncompliance findings that were made at the February survey and previously
conducted surveys. /d. at 1. The April 15 Hearing Request refers to the March 31 notice
letter and attaches that letter as an exhibit (Exhibit A). Referring to that letter, Petitioner
states:

Northlake contends that it was in substantial compliance with all
participation requirements as of the date of this notification and, in any
event, before the April 20, 2010 discretionary termination date.

April 15 Hearing Request at 2.

On April 30, 2010, and after Petitioner filed its April 15 Hearing Request, CMS sent an
additional notice letter to Petitioner. CMS Ex. 10. In its opening paragraph, the April 30
notice refers to the March 31 notice. Then, it describes the findings of noncompliance
that were made at the March 26 Survey:

On March 26, 2010, the ISDH [Indiana State Department of Health]
completed complaint investigations and revisit surveys at your facility.
These surveys revealed that your facility continued not to be in substantial
compliance with the most serious deficiencies cited as follows... .

Id. at 1. The April 30 notice listed three instances of substantial noncompliance that had
been found during the March 26 Survey that were in addition to those that had been
found at previously conducted surveys and that had been challenged by Petitioner in its
previously filed hearing requests. These consisted of failures to comply substantially
with the requirements of 42 C.F.R. §§ 483.20(k)(3)(i), 483.65, and 483.75(1)(1). Id.

The April 30 letter then recited those remedies that CMS had previously determined to
impose against Petitioner, including termination of Petitioner’s participation in Medicare.
CMS Ex. 10 at 1. It advised Petitioner:

If you disagree with the finding of noncompliance found during the March
26, 2010 survey which resulted in the continuation of previously imposed
remedies, you or your legal representative may request a hearing before an
administrative law judge of the Department of Health and Human Services,
Departmental Appeals Board (DAB) . . . A written request for a hearing

must be filed no later than 60 days from receipt of this notice. . . .

Id. at 3 (boldfaced and underlined text in original, italicized text added to citation for
emphasis).

Petitioner filed no hearing request in response to the April 30, 2010 notice.
The April 30, 2010 notice to Petitioner was unambiguous in that it recited the findings of
the March 26 Survey as an additional basis to support the remedies — including
termination of participation — which CMS previously had determined to impose.
Petitioner, if it wanted to challenge these findings, had to file a new hearing request in
which it identified the deficiencies it was challenging and in which it stated the basis for
its challenge. 42 C.F.R. § 498.40(b)(1), (2). Petitioner’s failure to challenge the March
26 Survey findings in a hearing request responding to the April 30, 2010 notice meant
that the noncompliance findings that were made at the March 26 Survey became
administratively final and no longer subject to challenge.

The fact that there exist administratively final findings of substantial noncompliance
provides CMS with the legal authority to terminate Petitioner’s participation in Medicare.
As I discuss above, any finding of noncompliance, if that noncompliance is substantial,
provides CMS with authority to terminate participation. And, the fact that there are
unchallenged and administratively final findings of substantial noncompliance here
renders moot Petitioner’s challenges to noncompliance findings that were made at the
February Survey and previously.

In opposing CMS’s motion and moving on its own behalf for summary disposition
Petitioner argues, first, that:

the surveys at issue were triggered by the State of Indiana’s unlawful
conduct pertaining to . . . [Petitioner’s] facility license. The State’s
improper conduct set off a domino effect of sanctions culminating in the
present action.

North Lake’s Cross-Motion for Summary Disposition and Pre-Hearing Brief (Petitioner’s
Brief) at 1.

According to Petitioner, the issues in the consolidated case first arose from a survey that
took place on January 12, 2009. It argues that a single deficiency was found at this
survey. Petitioner’s Brief at 2. It contends that this finding of noncompliance resulted in
ISDH filing an administrative complaint to place Petitioner’s license on probation. That
action, according to Petitioner, was resolved by a consent decree in which Petitioner
agreed to a three-month probation of its license, conditioned on its receiving an
unrestricted license if, at the end of the probationary period no additional deficiencies
were found. /d. It then asserts that, in November 2009 it applied for a full license.
However, according to Petitioner, ISDH reneged on the terms of its agreement and
proceeded to issue Petitioner an additional probationary license. Id. at 3.

Next, according to Petitioner, ISDH conducted a series of surveys of Petitioner’s facility,
in November and December 2009. On February 1, 2010, Petitioner asserts ISDH issued
an emergency order directing that Petitioner’s residents be relocated. Petitioner’s Brief at
3. That action, according to Petitioner, was not prompted by any noncompliance but,
rather, by the determination of ISDH that Petitioner’s probationary license had expired.
Petitioner contends that it was this determination by ISDH — and not any finding of
noncompliance with participation requirements — that prompted CMS, on February 22, to
first advise Petitioner that its participation in Medicare would be terminated. Jd. at 4.

From these allegations, Petitioner argues that everything flows from ISDH’s allegedly
improper determinations not to grant Petitioner a full license and to order that its
residents be relocated. It asserts that it was these allegedly improper actions by ISDH
were the proximate cause of CMS’s subsequent determination to terminate Petitioner’s
participation in Medicare. It urges that I find CMS’s determination to be unauthorized,
because it is the end result of wrongful State action. Petitioner’s Brief at 5-6.

It is not necessary for me to address closely the history of Petitioner’s relations with
ISDH, or the lawfulness of ISDH’s actions, for me to find this argument to be without
merit. CMS’s determination to terminate Petitioner’s participation in Medicare is
authorized by the unchallenged findings of noncompliance that were made at the March
26 Survey. The findings of noncompliance at surveys conducted before the March 26
Survey, and all of Petitioner’s prior relationship with ISDH, are rendered moot by virtue
of those unchallenged March 26 survey findings. The March 26 Survey findings, without
reference to anything that may have happened previously, are in and of themselves, all
that CMS needs as authority to terminate Petitioner’s Medicare participation. Act §
1866(b)(2)(A); 42 C.F.R. § 488.456(b)(1)(i).

Petitioner’s argument also overlooks the fact that CMS’s determination is a federal
action, made pursuant to federal law, and not in any sense dependent on what may have
taken place at the State level. It is true that, at one point, CMS relied in part on ISDH’s
administrative action against Petitioner as a basis for terminating Petitioner’s
participation in Medicare. But, that basis for termination became unnecessary with
subsequent survey findings that gave CMS superseding grounds for terminating
Petitioner’s participation. Thus, CMS’s determination does not in any respect hinge on
State action.

Furthermore, even if the March 26 Survey would never had occurred but for some prior
action — wrongful or not — by ISDH, that survey nevertheless produced findings of
noncompliance that gave CMS authority to act once they became administratively final.
There is no “exclusionary rule” in these cases that prohibits CMS from relying on survey
findings even assuming that the facility would never have been surveyed but for some
error or even wrongful conduct by a State agency. If survey findings are substantiated or
become administratively final, as they have in this case, then they provide CMS with
sufficient basis to act no matter what motivated the State agency to perform the survey.

Petitioner argues also that the reason it failed to file a hearing request explicitly
responding to CMS’s April 30, 2010 notice and the March 26 Survey findings is that
“CMS’s notices are misleading and contradictory.” Petitioner’s Brief at 7. In essence
Petitioner argues that it was misled by CMS into believing that it did not have to
challenge the March 26 Survey findings to preserve its right to a hearing addressing all
issues of noncompliance including those deficiencies that were identified at the March 26
Survey. Thus, according to Petitioner, CMS’s allegedly misleading and contradictory
notices denied it due process of law and are unconstitutional. Petitioner’s Brief at 7-11.

As support for this contention Petitioner cites to language in the April 30, 2010 notice,
which states:

We have received a copy of your request for hearing to the Departmental
Appeals Board in Washington, D.C., where an Administrative Law Judge
will be designated to hear the case. You will be contacted by that office
concerning the time and place of hearing. The CMP [civil money penalty]
will not be collected until a final administrative decision upholding its
imposition has been made. There are no other outstanding appeal issues.

CMS Ex. 10 at 3. Petitioner contends that:

Any reasonable provider reviewing this section and the Notices as a whole
would understand it must have already submitted its objection and hearing
request and that no further action would be needed to perfect its appeal.
Thus, . . . [Petitioner] did not need to file a new hearing request because
CMS indicated it had already received it and was preparing to designate an
... [administrative law judge] to handle the appeal. Moreover, CMS
informed . . . [Petitioner] that there are “no other outstanding appeal issues”
in this case, therefore putting . . . [Petitioner] on notice that it had done all it
could do to object to the onslaught of evolving sanctions imposed against it.

Petitioner’s Brief at 7.

I disagree with Petitioner’s contention that the language it relies on in the April 30, 2010
letter is ambiguous and misleading. Perhaps, that language might be misleading if it were
read in a vacuum. But, the language relied on by Petitioner follows immediately after the
paragraph in which CMS informed Petitioner that it must file a new hearing request if it
intended to challenge the findings made at the March 26 Survey. CMS Ex. 10 at 3. The
meaning of the language cited by Petitioner is perfectly clear when read in context with
the immediately preceding paragraph in the April 30 letter. It refers solely to the hearing
requests previously filed by Petitioner and to the issues that were encompassed by those
requests but not to issues that were identified by the April 30 letter, including the
noncompliance findings that were made at the March 26 Survey.

Furthermore, Petitioner knew, or should have known, that its hearing requests did not
challenge the noncompliance findings that were made at the March 26 Survey.
Petitioner’s hearing requests plainly and explicitly did not challenge the March 26 Survey
noncompliance findings. Petitioner filed its hearing requests prior to April 30, 2010 and
before it had ever received notice of the March 26 Survey results.

Moreover, Petitioner never — not even in its response to CMS’s motion — challenged the
March 26 Survey findings of noncompliance. Petitioner’s brief offers no discussion as to
the merits of these noncompliance findings, and none of Petitioner’s proposed exhibits
address those findings. Thus, those noncompliance findings remain unchallenged by
Petitioner.

2. Petitioner has no right to a hearing and, therefore, I dismiss its
hearing requests.

Petitioner has no right to a hearing. It has failed to exercise its right to challenge the
remedies of civil money penalties and denial of payment for new admissions. CMS is
thus authorized to impose these remedies. CMS also is authorized to terminate
Petitioner’s participation in Medicare, because Petitioner failed to challenge the findings
of noncompliance that were made at the March 26 Survey.

Petitioner’s challenges of noncompliance findings made at the February Survey and
previous surveys are moot. CMS would be authorized to impose all of the remedies that
it determined to impose, including termination of Petitioner’s Medicare participation,
even if I were to rule in Petitioner’s favor as to deficiency findings made at surveys
conducted before the March 26 Survey. There is no relief from CMS’s remedy
determinations that I may grant Petitioner given its failures to challenge the imposition of
civil money penalties, denial of payment for new admissions, and the noncompliance
findings that were made at the March 26 Survey.

I may dismiss a hearing request where a party has no right to a hearing. 42 C.F.R. §
498.70(b). Petitioner has no right to a hearing inasmuch as there is no relief that I can
grant to it. I therefore dismiss Petitioner’s hearing requests.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Jacques Losman, M.D.,
Petitioner,
Vv.
Centers for Medicare & Medicaid Services.
Docket No. C-10-964
Decision No. CR2270

Date: October 15, 2010

DECISION DISMISSING APPEAL FOR CAUSE

For the reasons set forth below, I find that Petitioner, Jacques Losman, M.D., failed to
file a timely request for a hearing or establish good cause to extend the time for such
filing. 42 C.F.R. § 498.40(c). Petitioner therefore does not have a right to an
Administrative Law Judge (ALJ) hearing to review the Medicare contractor’s April 6,
2010 reconsideration decision. I therefore dismiss this case pursuant to 42 C.F.R.

§ 498.70(c).

I. Background

Petitioner was notified by letter dated July 22, 2009 that his billing privileges were
revoked effective June 12, 2009 through September 11, 2009 and a one year re-
enrollment bar had been imposed. Petitioner requested reconsideration and Highmark
Medicare Services, a CMS contractor, issued a reconsideration decision on April 6, 2010.
The contractor upheld the decision to revoke Petitioner’s billing privileges for three
months and to impose a one year re-enrollment bar. The contractor’s reconsideration
decision letter explained that appeal rights can be found at 42 C.F.R. 498 and advised
Petitioner of his right to appeal within 60 calendar days after the date of receipt of the
decision. By letter dated August 26, 2010, Petitioner filed an appeal and request for
earing before an Administrative Law Judge (ALJ).

Per 42 C.F.R. § 498.40(a)(2), Petitioner “must file the request [for hearing] in writing
within 60 days from receipt of the notice of initial, reconsidered, or revised
determination.” Pursuant to 42 C.F.R. § 498.40(c), if the request for hearing was not
filed within 60 days, the affected party must show good cause as to why I should extend
the time for filing a request for hearing. Accordingly, by Order to Show Cause dated
September 9, 2010, I directed Petitioner to show cause why this case should not be
dismissed as untimely.

Petitioner’s representative responded by letter dated September 20, 2010. CMS
submitted a reply to Petitioner’s response on September 27, 2010.

II. Issue

The issue in this case is whether, pursuant to 42 C.F.R. § 498.40(c), Petitioner has shown
good cause for me to extend the time for filing his request for hearing beyond 60 days
and not dismiss the case as untimely under 42 C.F.R. § 498.70(c).

III. Findings of Fact, Conclusions of Law, and Supporting Discussion

My findings of fact and conclusions of law are set out as separate headings followed by
supporting discussion.

A. Petitioner’s hearing request is untimely.

Petitioner alleges that he received the reconsideration decision on April 7, 2010. The
hearing request was required to be filed within 60 days of receipt of the reconsideration
decision under the authorities cited above. The number of days between the date of
receipt of the reconsideration decision (April 7, 2010) and the date of the request for
hearing (August 26, 2010) is 141 days.

It follows that Petitioner’s hearing request was filed 81 days late. Petitioner does not
deny that the request was untimely, and I find it undeniable on this record.
B. Petitioner has not demonstrated good cause to extend the time for filing
that 42 C.F.R. § 498.40(c)(2) provides.

Petitioner’s attorney responded to my Order to Show Cause, stating reasons why
Petitioner’s appeal should proceed. Petitioner’s attorney offers the following reasons
why the hearing request was untimely and Petitioner’s appeal should not be dismissed:

(1) Petitioner received the reconsideration decision on April 7, 2010 and
indicated to his counsel that he wanted to appeal the decision. Petitioner’s counsel
claims that Petitioner “was, at no time equivocal about wanting to appeal. . .” and
“i]t was clearly my responsibility to file the appeal, and I neglected to do so”; and

(2) It would be unfair to deny Petitioner’s right to a hearing because of the “clear
mistake” by his counsel; and

(3) Petitioner “has a meritorious defense to the one year bar of re-enrollment. . .
and it was arbitrary and capricious for Highmark Medical Services to impose a
one year re-enrollment bar under the circumstances of this case.”

Petitioner’s letter dated September 20, 2010, at 1-2. Petitioner also enclosed a
Certification of Joseph M. Gorrell, Esq. in support of Petitioner’s response. In addition to
the reasons listed above, Petitioner’s counsel states in the Certification that “[i]t was my
responsibility to file the appeal. . . . It is not clear to me, at this time, why I did not do so,
but it was clearly my responsibility to ensure that the appeal was filed.” Certification of
Joseph M. Gorrell, Esq., § 3. Petitioner’s counsel requests that Petitioner’s “right to

appeal not be lost due to the inadvertence of . . . his legal counsel.” Jd. § 4.

“For good cause shown, the ALJ may extend the time for filing the request for hearing.”
42 C.F.R. 498.40(c)(2). A definition of “good cause” does not exist in the applicable
regulations, and the “[Departmental Appeals] Board [(Board)] has never attempted to
provide an authoritative or complete definition of the term ‘good cause’ in section
498.40(c)(2).” Hillcrest Healthcare, L.L.C., DAB No. 1879, at 5 (2003).

While the Board has never precisely defined the term “good cause,” it is clear to me that
the “inadvertence” or inexplicable negligence of Petitioner’s legal counsel cannot be a
basis for a good cause determination. Petitioner has failed to demonstrate good cause for
filing his hearing request almost three months after the due date under any reasonable
meaning of “good cause.” The admission that Petitioner’s counsel made a “clear
mistake” is not sufficient to demonstrate good cause for such an untimely appeal.

I conclude that Petitioner has not demonstrated good cause to grant an extension of time
or filing his request for hearing.

IV. Conclusion

Petitioner did not timely file a request for hearing, and I do not find good cause to justify
extending the time for filing. I therefore, on my own motion, dismiss this case for cause.
42 CFR. § 498.70(c).

/s/
Leslie A. Sussan
Board Member