Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Keller Orthotics Inc.,
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-1206
Decision No. CR3085

Date: January 16, 2014

DECISION

The Centers for Medicare & Medicaid Services (CMS) revoked the Medicare billing
privileges of Petitioner, Keller Orthotics Inc. Petitioner appealed. As discussed below,
the evidence of record supports CMS’s determination. Therefore, I affirm the revocation
of Petitioner’s Medicare billing privileges.

I. Background

Petitioner was enrolled in the Medicare program as a supplier of durable medical
equipment, prosthetics, orthotics, and supplies (DMEPOS). CMS Exhibit (Ex.) 4. On
April 1 and 9, 2013, a CMS contractor from the National Supplier Clearinghouse (NSC)
attempted to conduct a site inspection at Petitioner’s location on file with CMS. CMS
Exs. 1, 4. A site inspection could not be completed on either date and, on May 3, 2013,
NSC issued an initial determination revoking Petitioner’s Medicare supplier number
effective April 9, 2013, the date CMS determined that Petitioner’s practice location was
not operational. CMS Ex. 4. NSC barred Petitioner from re-enrolling in the Medicare
program for two years from this effective date. CMS Ex. 4.
Petitioner filed a timely request for reconsideration with NSC and later submitted
evidence to the NSC hearing officer assigned to the case. CMS Exs. 2, 3. On June 24,
2013, the NSC hearing officer issued an unfavorable reconsidered determination
upholding the revocation of Petitioner’s Medicare billing privileges. CMS Ex. 1.

On August 13, 2013, Petitioner timely filed a request for hearing (RFH) before an
administrative law judge. On August 22, 2013, I issued an Acknowledgement and Pre-
hearing Order (Order). Pursuant to the Order, CMS filed its brief (CMS Br.) and four
exhibits (CMS Exs. 1-4). Petitioner submitted a brief (P. Br.) and five exhibits (P. Exs.
A-E).

II. Decision on the Record

In the absence of objection, I admit CMS Exs. 1-4 and P. Exs. A-E into the record.

My Pre-hearing Order advised the parties that they must submit written direct testimony
for each proposed witness and that an in-person hearing would only be necessary if the
opposing party requested an opportunity to cross-examine a witness. Order §f 8 - 11; see
Vandalia Park, DAB No. 1940 (2004); Pacific Regency Arvin, DAB No. 1823, at 7-8
(2002) (holding that the use of written direct testimony for witnesses is permissible so
long as the opposing party has the opportunity to cross-examine those witnesses).
Petitioner did not request to cross-examine NSC’s inspector and CMS did not request to
cross-examine either of the witnesses who signed a joint statement (P. Ex. E.).

Therefore, there is no need for an in-person hearing and I issue this decision based on the
written record. Order § 4 9-11.

III. Issue

Whether CMS had a legitimate basis for revoking Petitioner’s Medicare billing privileges
for failing to comply with Supplier Standards 7 and 10 (42 C.F.R. § 424.57(c)(7), (c)(10))
and failing to be operational (42 C.F.R. § 424.535(a)(5)). I have jurisdiction to decide
this issue. 42 C.F.R. §§ 498.3(b)(17), 498.5(1)(2); see also 42 U.S.C. § 1395cc(j)(8).

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

In order fora DMEPOS supplier to receive Medicare payments for items furnished to a
Medicare-eligible beneficiary, the Secretary of Health and Human Services must first

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

° My findings of fact and conclusions of law are set forth in italics and bold in the
discussion captions of this decision.
issue a supplier number to that DMEPOS supplier. 42 U.S.C. § 1395m(j)(1)(A). To
receive direct-billing privileges, a DMEPOS supplier must meet and maintain each of the
supplier enrollment standards, including the requirement to maintain a physical location
that is accessible and staffed during posted hours. 42 C.F.R. § 424.57(c)(7)(i)(C). CMS
may revoke a currently enrolled DMEPOS supplier’s Medicare enrollment and billing
privileges if CMS determines, upon on-site review, that the DMEPOS supplier is no
longer operational to furnish Medicare covered items or services, or the supplier fails to
satisfy any of the Medicare enrollment requirements, or has failed to furnish Medicare
covered items or services as required by the statute or regulations. 42 C.F.R.

§ 424.535(a)(5)(ii). After a DMEPOS supplier’s Medicare enrollment and billing
privileges are revoked, it is barred from reenrolling in the Medicare program for one to
three years. 42 C.F.R. § 424.535(c).

1, Petitioner’s location at 1611 West Harrison Street, Suite 109 in
Chicago, Illinois was open when an NSC inspector attempted to
conduct a site inspection on April 1, 2013, but the NSC inspector
decided to return to conduct the inspection on another date.

On April 1, 2013, at approximately 2:27 p.m., an NSC inspector attempted to conduct an
unannounced site inspection at Petitioner’s facility located at 1611 West Harrison Street,
Suite 109, Chicago, Illinois. CMS Ex. 4, at 14. According to the inspector’s report, this
attempt was made during Petitioner’s posted hours of operation and that the “office was

closed.” CMS Ex. 4, at 15, 19. Petitioner disputes that it was closed.

Petitioner submitted written testimony from two of its employees who spoke with the
NSC inspector on April 1, 2013. One of the employees was present at the 1611 West
Harrison Street location and spoke to the NSC inspector. Further, this employee
telephoned the other employee, Georg Keller. Mr. Keller spoke directly to the inspector
on the telephone and told her that he could be at the 1611 West Harrison Street office in
20 minutes in order to assist with the inspection. However, the NSC inspector indicated
that she could not wait that long and would return at a later date for another inspection.
P. Ex. E.

The written testimony of Petitioner’s two witnesses outweighs the limited evidence CMS
presents. Petitioner’s witnesses provided significantly more detail than the site inspector.
Their testimony is consistent with Petitioner’s request for reconsideration, which stated
that one of Petitioner’s employees was present at the 1611 West Harrison Street location
for the entire day and that “[t]he representative of NSC mentioned a return visit at a later
date.” CMS Ex. 3, at 2. In contrast, CMS only provided a brief notation about April 1
from the inspector’s report (CMS Ex. 4, at 19), which the inspector indicated was written,
contradictorily, on April 9 and 15, 2013. CMS Ex. 4, at 13, 18. Further, while the
inspector took a photograph of Petitioner’s location, the photograph merely proves that
the inspector was present at Petitioner’s office and does not prove that Petitioner’s office

was closed. Finally, the time and date stamp on the photograph indicates it was taken at
2:53 p.m. on April 1, 2013. CMS Ex. 4, at 21. The time stamped on the picture means
either that the inspector incorrectly stated in the report that she attempted the inspection
at 2:27 p.m., which would further undermine her report, or that Petitioner’s version of
events is likely to have happened because there would have been enough time from the
start of the inspection until the picture was taken for the inspector to engage in
conversations with two of Petitioner’s employees.

Therefore, I find that Petitioner’s 1611 West Harrison Street, Suite 109 in Chicago was
open and staffed on April 1, 2013. However, the site inspection was not completed on
that date.

2. Petitioner’s location at 1611 West Harrison Street, Suite 109,
Chicago, Illinois was not open, accessible, and staffed when an NSC
inspector attempted to conduct a site inspection on April 9, 2013.

On April 9, 2013, at approximately 10:56 a.m., the NSC inspector visited Petitioner’s
1611 West Harrison Street location for a second time and noted: “Second attempt office
was closed knock no answers. Lights off.” CMS Ex. 4, at 14, 19. Photographs taken by
the NSC inspector show that Petitioner’s posted business hours were Monday to Friday
from 8:00 a.m. to 4:30 p.m., and Petitioner does not dispute these posted hours of
operation. CMS Ex. 4, at 21-22. Only one of the photographs taken by the NSC
inspector clearly indicates it was taken on April 9, 2013. CMS Ex. 4, at 21.

The NSC inspector’s observation that Petitioner’s office was closed and no staff were
present during the second attempted site inspection is corroborated by Petitioner. In
Petitioner’s request for reconsideration, Petitioner states: ““When the representative of
NSC attempted to conduct a visit of our facility on 4/9/2013, the office staff was out of
the W. Harrison location due to a staff meeting at our Main facility. (Please see attached
Minutes of Meeting).” CMS Ex. 3, at 2; see also RFH at 6; CMS Ex. 3, at 5; P. Ex. D.
Petitioner states that it intends to correct this violation and “will post on our office door a
‘out of office sign’ along with time, our office will be reopened, with a contact phone
number.” CMS Ex. 3, at 2. In its brief, Petitioner states that there was one staff member
on site at the 1611 West Harrison Street location on April 9, 2013, but the staff member
“had stepped away for his break and was to return at noon, when the surveyor attempted
the second on-site inspection, however, there was a sign on the window . . . indicating a
return time of noon on Tuesday, April 9, 2013.” P. Br. at 5-6; CMS Ex. 4, at 21.

Therefore, based on the evidence of record, I find that the NSC inspector attempted to
conduct a site inspection of Petitioner’s location at 1611 West Harrison Street, Suite 109
in Chicago on April 9, 2013, at approximately 10:56 a.m., but that the NSC inspector was
unable to complete the inspection because the office was closed and none of Petitioner’s
personnel were present at the location.
3. CMS had a legitimate basis to revoke Petitioner’s Medicare billing
privileges because Petitioner’s location was not accessible and staffed
during posted hours of operation, and was not operational, as
required by 42 C.F.R. §§ 424.57(c)(7) and 424.535(a)(5).

For a supplier to be “operational,” it must be “open to the public for the purpose of
providing health care related services . . . and [be] properly staffed . . . to furnish these
services.” 42 C.F.R. § 424.502 (emphasis added). Further, DMEPOS suppliers must
permit CMS or its agents to conduct on-site inspections to ascertain supplier compliance
with enrollment standards, and the supplier must be accessible and staffed during posted
hours of operation to beneficiaries and to CMS. 42 C.F.R. § 424.57(c)(7)(i(C). CMS
may perform periodic site visits to determine whether the supplier is operational and
complying with Medicare enrollment requirements. 42 C.F.R. §§ 424.510(d)(8),
424.515(c), 424.517(a).

The facts in this case establish that Petitioner’s location was not open and available for
the NSC’s site inspector to conduct an inspection on April 9, 2013. Therefore, CMS had
a legitimate basis to conclude that Petitioner was not operational under 42 C.F.R.

§ 424.535(a)(5)(ii) and was not in compliance with the supplier standards found at

42 CFR. § 424.57(c)(7)(i(C).

In its brief, Petitioner argues that while all of Petitioner’s office staff was at a meeting at
Petitioner’s main office on the date of the second attempted site inspection; their
“practitioner” was at the 1611 West Harrison Street location on April 9, 2013. P. Br. at 4.
However, Petitioner contends that the practitioner “had stepped away for his break and
was to return at noon” when the NSC inspector attempted the second site inspection at
approximately 10:56 a.m. on April 9, 2013. P. Br. at 5.° Petitioner also asserts that the

> In its brief, Petitioner indicates that their practitioner is not considered “office staff.” P.
Br. at 4, n.1. However, later in the brief, Petitioner appears to refer to the practitioner as
a “staff member.” See P. Br. at 5. If Petitioner meant in its brief that a staff member
other than the practitioner was present during the attempted site inspection on April 9,
2013, Petitioner did not provide written testimony from the practitioner/staff member to
corroborate this, nor indicate that any person would have answered the door when the site
inspector knocked. Instead, Petitioner appears to indicate that the practitioner or staff
member had “stepped away for his break” at approximately 10:56 a.m. on April 9, 2013,
when NSC attempted the second site inspection. P. Br. at 5, 7. Moreover, any assertion
regarding a staff member’s presence at the 1611 West Harrison Street location at the time
of the attempted site inspection on April 9, 2013, has no evidentiary support in the record
and is contradicted by the Petitioner’s own statements in its request for reconsideration
and request for hearing. Thus, I will assume the practitioner was the only “staff member”

NSC inspector’s photographs show that a sign was posted on the door indicating that
someone would be back in the office at noon. P. Br. at 4.

However, a DMEPOS supplier is neither “open to the public” nor “accessible,” if the
supplier location is closed because the staff is out for lunch, on a break, or making patient
deliveries or visits. See Ita Udeobong, d/b/a Midland Care Med. Supply & Equip., DAB
No. 2324, at 6-7 (2010). Even assuming a staff member left a sign on Petitioner’s door
indicating someone would reopen the location at noon, this is not sufficient, as it does not
show that Petitioner was accessible and properly staffed when NSC attempted a site
inspection during Petitioner’s posted hours of normal operation. CMS Ex. 4, at 15, 21-
22; P. Ex. C. A supplier may not close, even temporarily, during its posted hours of
operation. Complete Home Care Inc., DAB No. 2525, at 5 (2013). It is incumbent on
Petitioner to make whatever reasonable arrangements are necessary to keep its business
open while allowing for patient consultations and visits as well as lunches and breaks for
staff members. As stated in a previous case:

A Medicare supplier differs from a strictly private business in that it is an
integral part of a publicly run program. The requirement that a supplier be
open at all times during normal business hours reflects CMS’s
determination that a supplier be available to beneficiaries to meet their
needs and to alleviate their medical conditions.

A to Z DME, LLC, DAB CR1995, at 6 (2009), aff'd DAB No. 2303 (2010). Also, the
regulatory drafters contemplated allowing facilities to temporarily close during posted
hours to account for circumstances including short-term closures, and chose to emphasize
that a supplier’s place of business must always remain publicly accessible during posted
hours. Complete Home Care Inc., DAB No. 2525, at 6. The drafters explained in the
preamble to the final rule that they believed a supplier “should be available during posted
business hours” and “should do its best to plan and staff for temporary absences.”

75 Fed. Reg. 52,629, 52,636 (2010).

Therefore, I conclude that CMS has presented sufficient evidence to support its
determination that Petitioner’s 1611 W. Harrison Street location was not operational,
because it was not accessible and staffed during posted business hours and CMS properly
revoked Petitioner’s Medicare billing privileges. 42 C.F.R. §§ 424.57(c)(7)()(C),
424.535(a)(5).

working the morning of April 9, 2013 at 1611 W. Harrison Street, Suite 109 in Chicago.
See P. Br. at 5-7.
4) Petitioner has demonstrated compliance with the requirements of
42 CF.R. § 424.57(c)(10)

In its initial and reconsidered determination, NSC determined that Petitioner’s liability
insurance lapsed on March 1, 2012. CMS Exs. 1, at 3; 4, at 2. However, Petitioner has
submitted proof of insurance coverage in an amount exceeding $300,000 commencing on
March 1, 2012 through March 1, 2013, and from March 1, 2013 through March 1, 2014.
P. Exs. A, B.* Because Petitioner has submitted evidence proving compliance with the
requirements of 42 C.F.R. § 424.57(c)(10), I find that CMS did not have a basis for
revoking Petitioner’s DMEPOS supplier number because Petitioner failed to provide a
certificate of insurance that demonstrated liability coverage from March 1, 2012 to
February 28, 2013 to CMS or NSC.

II. Conclusion

Based on the reasons stated above, I affirm the determination to revoke Petitioner’s
DMEPOS supplier number and Medicare billing privileges effective April 9, 2013,
pursuant to 42 C.F.R. §§ 424.57(c)(7)(i(C), 424.535(a)(5)(ii).

/s/
Scott Anderson
Administrative Law Judge

* The reconsidered determination indicates that Petitioner only submitted proof to NSC of
insurance coverage from March 1, 2013 through March 1, 2014. CMS Ex. 1, at 3.
Petitioner’s request for reconsideration appears to be consistent with this (CMS Ex. 3, at
3-4). However, Petitioner asserts in its brief that Petitioner submitted proof of its liability
insurance coverage from March 1, 2012 through March 1, 2013 with its reconsideration
request. P. Br. at 4, 6, 8. Because CMS did not specifically object to P. Ex. A (showing
insurance coverage from March 1, 2012 through March 1, 2013), as required by my
Acknowledgment and Pre-hearing Order at § 7, I admit P. Ex. A into the record and rely
on it in this decision.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

The Inspector General for the Social Security Administration
v.

Cindy Lopez

Docket No. C-13-612
Decision No. CR3083

Date: January 14, 2014

AMENDED DECISION

The Inspector General (IG) for the Social Security Administration (SSA) charges that
Respondent, Cindy Lopez, violated section 1129 of the Social Security Act (Act),
because she falsely reported her living arrangements and income in order to maintain her
minor son’s Supplemental Security Income (SSI) benefits. The IG proposes imposing
against Respondent Lopez a $34,266 civil money penalty (CMP).

For the reasons discussed below, I agree that Respondent Lopez deliberately misled SSA
about her living arrangements and household income so that her son’s SSI benefits would
not be reduced or cancelled. In light of her deliberate long-standing deception, I consider
$34,266 a reasonable penalty.

I. Background

SSI Rules. The SSI program (Title XVI of the Act) pays benefits to individuals who are
aged, blind, or disabled, and have limited income and resources. 20 C.F.R. §§ 416.202;
416.1100. In determining an individual’s eligibility for benefits, SSA considers his entire
household’s income and resources. For a child receiving SSI benefits, SSA “deems” to
the child “any resources not otherwise excluded” belonging to an ineligible parent or
stepparent living in the same household, whether or not those resources are available to
the child. 20 C.F.R. § 416.1202(b). SSA expects a stepparent living in the child’s
household to use some of his income to take care of the child’s needs, and SSA considers
the stepparent’s income in deciding eligibility for and/or the amount of benefits. 20
CFR. § 416.1160(a).

Representative Payees. Generally, if an SSI beneficiary is under age 18, SSA will pay his
benefits to a representative payee (rep payee). 20 C.F.R. § 416.610. Among other
requirements, the rep payee must notify SSA of any event or change affecting the
beneficiary’s right to benefits, amount of benefits, or how the beneficiary receives them.
20 C.F.R. § 416.635(d). She must also report changes in income, including an eligible
child’s income. 20 C.F.R. § 416.708.

Section 1129 Sanctions. 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; 2) makes such a statement with “knowing disregard of the truth”; or

3) knowingly omits or otherwise withholds a fact that she knows or should know is
material to SSA’s determining eligibility for benefits or benefit amounts.

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 “knew, or should have known, that the statement or
representation was false or misleading,” made the statement “with knowing disregard of
the truth,” or where the person omitted, “or otherwise withheld disclosure of” the
material fact. 20 C.F.R. § 498.102(a).

Factual/Procedural Background. In this case.
payee for her minor child, a recipient of SSI
deliberately withheld information and then a:
living arrangements. According to the IG, R:
er children began li

February 14, 2013, tl

, SSA designated Respondent Lopez as rep
benefits. The IG contends that she
ffirmatively misled SSA about the family’s
espondent Lopez did not reveal that she and

ving with her gainfully-employed boyfriend, who subsequently
became her husband, and she deliberately concealed his income. By letter dated
ie IG advised Respondent Lopez that he proposed imposing against

er a CMP of $34,266 (an $18,000 penalty p
damages). SSA Ex. 15.' Respondent Lopez

lus a $16,266 assessment in lieu of
requested a hearing.

' In error, the notice letter said that SSA based its CMP on Respondent Lopez’s false
statements and omissions regarding her marital status and income. The IG has since
clarified that it bases this action on Respondent’s false statements and omissions
regarding her living arrangements and income. The IG is not limited to the specific items
or information contained in his notice letter, so long as he provides adequate notice of
On May 1, 2013, I held a prehearing conference with both parties and thereafter issued an
Order and Schedule for Filing Briefs and Documentary Evidence, directing the parties to
file prehearing exchanges, which included written briefs, any proposed exhibits, and
witness statements. The IG timely filed its prehearing exchange, but Respondent Lopez
did not. She sent the IG a letter, dated September 1 but postmarked September 9, 2013,
(after her filing deadline had passed) with three short witness statements enclosed. IG
counsel forwarded copies of those documents to my office, and they have been added to
the record, the witness statements marked as Respondent’s (Resp.) Exhibits (Exs.) 1-3.

On September 23, 2013, I issued an Order to Show Cause, requiring Respondent Lopez
to show cause why I should not dismiss her hearing request for abandonment, pursuant to
20 C.F.R. § 498.202(f)(2) or as a sanction pursuant to 20 C.F.R. § 498.214(a), for failing
to comply with my order. On October 15, 2013, the Civil Remedies Division received a
letter from Respondent Lopez, dated October 3, 2013. She claimed that she
misunderstood her filing deadline and that she intended the statements she submitted (to
the IG) in September “to be used in [her] case on [her] behalf.”

In an order issued October 25, 2013, I directed the parties to inform my office, in writing,
whether an in-person hearing is necessary, and, if so, which witnesses they would like to
cross-examine at an in-person hearing. The order said that I would close the record and
decide the case on the written submissions, if I received no response. In a letter dated
November 4, 2013, IG counsel indicated that an in-person hearing was not necessary.
Respondent Lopez did not respond. I therefore closed the record and base this decision
on the parties’ written submissions.

The IG submitted a brief (IG Br.) and 23 exhibits (IG Exs. 1-23). In the absence of any
objection, I admit into evidence IG Exs. 1-23. I have also accepted Respondent Lopez’s
letters of September 9 and October 3, 2013, and the documents that accompanied her
September 9 letter. In the absence of any objection, I admit those documents into
evidence as Resp. Exs. 1-3.

IL. Issues
The issues before me are: 1) Did Respondent Lopez make, or cause to be made, to SSA,

a statement or representation of a material fact, which she knew or should have known
was false and misleading, for SSA’s use in determining her child’s right to SSI benefits

changes. 20 C.F.R. § 498.215 (e)(1). Here, the I.G. has provided the requisite notice. IG
Br. at 1, 11-12.

> We have marked Tracy Plock’s statement as Resp. Ex. 1; Debbie Wagner’s statement
as Resp. Ex. 2; and Misha Svoboda’s statement as Resp. Ex. 3.
and/or the amount of those benefits, 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 —
$34,266 — reasonable?

III. Discussion

A, Respondent Lopez violated section 1129 of the Act,
because she deliberately withheld material facts and
made false statements to SSA for its use in determining
her child’s eligibility for SSI benefits.°

Respondent Lopez has acted as her son’s rep payee since February 2007. SSA Ex. 1.
Throughout her tenure as rep payee, she has agreed to notify SSA of changes in her son’s
living arrangements. See, e.g., SSA Ex. 1 at 3. For its part, SSA has emphasized that she
is required to notify the administration “promptly” if: 1) the claimant’s “HOUSEHOLD
CHANGES (someone moves in/out of the place where the claimant lives)”; 2) the
claimant’s income or the income of “anyone in the claimant’s household” changes; and
3) the claimant’s resources or the resources of anyone in the household changes. SSA
Ex. | at 4. Periodically, SSA reminded Respondent Lopez of her reporting obligations,
specifically instructing her to report any changes “within 10 days after the end of the
month [the change] occurs,” and warning that a penalty could be imposed if she fails to
do so. SSA Ex. 2 at 6-9; SSA Ex. 3 at 7-9; SSA Ex. 4 at 6-8; SSA Ex. 5 at 5-7; SSA Ex.
8 at 7. Respondent Lopez has not denied that she was fully informed of her obligations.

On January 28, 2011, Respondent Lopez and her then-boyfriend/fiancé, Andrew Lopez,
jointly signed a residential lease for a home located at 1709 2™ Street, Columbus,
Nebraska, with the term beginning on February 15, 2011. SSA Ex. 18. Respondent
Lopez did not then report this new living arrangement to SSA, as required by SSA
regulations. 20 C.F.R. §§ 416.708, 416.714. She and Andrew Lopez were married on
July 30, 2011. SSA Ex. 21 at 2 (Kent Decl. { 4).

On August 19, 2011, Respondent Lopez took her marriage license into the SSA district
office in Grand Island, Nebraska, requesting a name change. She reported that her
husband worked full time at Camco and earned $15.22 per hour. SSA Ex. 6 at 2; SSA
Ex. 21 at 2 (Kent Decl. 4 4). On October 5, 2011, the Grand Island district office staff
called Respondent Lopez to verify her address. She told staff that the family would be
moving on the following weekend to 1604 16" Street, Columbus, Nebraska. SSA Ex. 6
at 2.

* My findings of fact/conclusions of law are set forth, in italics and bold, in the
discussion captions of this decision.
On October 8, 2011, Respondent Lopez and her husband signed a lease for the home at
1604 16" Street, Columbus. SSA Ex. 19. In the accompanying rental application, she
listed the household members who would be living in the unit: herself, her husband
(Andrew); and her two children. SSA Ex. 19 at 5.

Thus, compelling evidence establishes that Andrew Lopez began living with Respondent
and her two children as least as early as mid-February 2011.

The Grand Island SSA office reported Respondent’s marriage, and, in response, SSA
Claims Representative Brian Kent (who works in the SSA field office in Norfolk,
Nebraska) scheduled a telephone appointment with her in order to update her son’s SSI
eligibility. SSA Ex. 6 at 2; SSA Ex. 7; SSA Ex. 21 at 2-3 (Kent Decl. 45). He
interviewed the respondent on March 29, 2012. SSA Ex. 21 at 3 (Kent Decl. § 6). She
told him that:

e Beginning August 15, 2010, she was living with her son (the SSI beneficiary) and
daughter in a home that she rented at 1410 11" Street, Columbus, Nebraska. She
listed no other member of the household and said that the household received no
help or money from anyone else. SSA Ex. 8 at 2.

© On February 13, 2011, she and the children began living at 1709 2" Street, which
is consistent with the lease she and Andrew signed (SSA Ex. 18). But she listed
no other member of the household — omitting Andrew — and denied receiving help
or money from anyone else. SSA Ex. 8 at 2-3.

e On February 1, 2012, she and the two children began living in a home she had
rented at 1604 16" Street, Columbus, Nebraska, but, again, she listed no other
member of the household and denied receiving help or money from anyone else.
SSA Ex. 8 at 3. Notwithstanding the lease she and her husband had signed for that
rental property, she did not mention Andrew Lopez.

Claims Representative Kent specifically remembers that he twice asked Respondent
Lopez if, at any time since November 1, 2010, she and her children lived with anyone
else. He remembers doing so “because I knew her response was not true based on what
the Grand Island Office recorded ....” SSA Ex. 21 at 3 (Kent Decl. 4 7).

Respondent Lopez now concedes that she and her children began living with her husband
at least as early as July 30, 2011, the date of her marriage, and, except for about a month
of separation in February 2012, they have continued living together. Her witness
statements say the same. Resp. Exs. 1-3. One of her witnesses claims that the couple did
not begin living together until the time of her marriage, but Respondent Lopez herself has
not made this claim. Resp. Ex. 3; see Resp. Sept. letter. Nor has Respondent come
forward with any evidence (separate lease, utility bill, or other correspondence)
suggesting that Andrew Lopez maintained a separate address. I therefore conclude that
Andrew Lopez began living with the family at least as early as February 15, 2011, the
effective date of the lease he and Respondent signed, and the approximate date (within
two days) that Respondent Lopez told SSA that she and her children began living at the
2™ Street address."

On March 29, 2012, Respondent Lopez completed, on her son’s behalf, a summary of
income and resources. She reported monthly income of $1,432.20 from January 2011
through August 2012, except in March and September 2011, when she said that she
earned $2,148.30. She denied receiving any other type of income. SSA Ex. 9 at 3. She
did not mention her husband’s earnings. See SSA Ex. 21 at 3-4 (Kent Decl. § 8). The
evidence shows that she significantly understated her income. Comparing her assertions
to wage information compiled by the Nebraska Department of Labor shows that she
earned significantly more than she reported:

© She claimed to have earned $5,012.70 during the first quarter of 2011 (2 months
@ $1,432.20 + 1 month @ $2, 148.30). According to the state agency, she
earned $8,015.53 that quarter.

¢ She claimed to have earned $4,296.60 during the second quarter of 2011
($1,432.20 x 3= $4,296.60). The state’s document indicates that she earned
$7,267.47.

© She claimed to have earned $5,012.70 during the third quarter of 2011, but the
state’s document shows that she earned $8,275.16.

¢ She claimed to have earned $4,296.60 during the fourth quarter of 2011, but the
state’s document shows that she earned $6,710.09.

© She claimed to have earned $4,296.60 during the first quarter of 2012, but the
state’s document shows that she earned $8,817.75.

Compare SSA Ex. 9 at 3 with SSA Ex. 11 at 2.

Her husband’s earnings for this period were: $5,399.87 for the first quarter of 2011;
$6,495.92 for the second quarter of 2011; $8,261.75 for the third quarter of 2011;
$10,493.74 for the fourth quarter of 2011; and $8,845.26 for the first quarter of 2012.

+ SSA submits evidence — Andrew’s vehicle registrations — indicating that he lived at
Respondent’s residence as far back as 2009. SSA Ex. 20. However, SSA has not relied
on that evidence to justify the penalty here. In any event, even if the couple began living
together in July 2011, her deception about the living arrangement from that later date
would justify the relatively small penalty. See discussion below.
SSA Ex. 11 at 1. With an annual household income exceeding $60,000 for 2011,
Respondent’s son would probably not have qualified for SSI benefits. Even if qualified,
his benefits certainly would have been reduced. See SSA Ex. 21 at 4-5 (Kent Decl. 4 10,
12, 13); 20 C.F.R. §§ 416.202(c), 416.1100; 416.1165.

Claims Representative Kent referred this matter to SSA’s Office of Investigations on
August 13, 2012. SSA Ex. 21 at 4 (Kent Decl. § 9). Thereafter, SSA investigator, Shane
Taylor, interviewed Respondent Lopez, who conceded that she and her husband resided
together with her two children. SSA Ex. 12 at 2.

The documentary evidence thus establishes that Respondent Lopez deceived SSA about
her living arrangements. On January 28, 2011, she and Andrew Lopez signed a lease
together for the home on 2™ Street, with an effective date of February 15. On July 30,
2011, they were married. On October 8, 2011, they signed a lease for a second home on
16" Street and filled out a rental agreement, which included Andrew as a member of the
household. Accepting that the couple separated for a month in February 2012 does not
alter the fact that, for a year, she failed to report the significant change in her living
arrangements, and, when directly asked, she deliberately misrepresented the situation.
She therefore violated section 1129 of the Act, and the IG may impose penalties against
her.”

B. The LG. proposes reasonable penalties against
Respondent Lopez.

Penalty. The statute allows SSA to impose a penalty of not more than $5,000 for each
false statement or misrepresentation and $5,000 for each receipt of benefits or payments
while withholding disclosure of material facts. Act §1129(a)(1); 20 C.F.R. § 498.103(a),
(b).

Even counting the number of false statements in a manner most favorable to the
respondent, during her March 29 interview alone, Respondent Lopez made at least three
false statements regarding her living situation and one regarding her income. SSA Ex. 8
at 2-3; SSA Ex. 9 at 3. She also collected a year’s worth of benefit checks (i.e., twelve
monthly checks) while withholding disclosure of material facts. SSA’s proposed penalty,
$18,000, thus represents a fraction of Respondent’s potential liability.

Assessment in lieu of damages. SSA may also impose an assessment in lieu of damages
of not more than twice the amount of benefits or payments paid as a result of the false

> Respondent Lopez also faults SSA for its purported failure to contact her after she
reported her marriage. SSA Ex. 14 at 6; SSA Ex. 16. In light of the thoroughly-
documented communications between her and Claims Representative Kent, I find this
claim not only false, but baffling. SSA Exs. 8-10.
statements or misrepresentations or the withholding of disclosure. Act § 1129(a)(1); 20
C.F.R. § 498.104.

The IG proposes an assessment in lieu of damages of $16,266, which is, in fact, much
lower than twice the amount of the benefits paid as a result of her misrepresentations and
withholding of disclosure. Based solely on the discrepancies between Respondent’s
reported income and her actual income from December 2010 until August 2012, Claims
Representative Kent determined that her son had been paid $8,133.45 to which he was
not entitled. The claims representative was not then aware that Andrew Lopez was living
in the household, so he did not consider Andrew’s income when he made his
determination. SSA Ex. 21 at 4 (Kent Decl. § 12). Had Andrew’s income been factored
in, the overpayment would have been greater. SSA Ex. 21 at 5 (Kent Decl. § 13).

The proposed $16,266 assessment in lieu of damages is therefore within statutory and
regulatory limits.

Regulatory criteria. I now apply regulatory criteria to assess the appropriateness of the
penalty. I am specifically authorized to affirm, deny, increase, or reduce the penalties
proposed by the IG. 20 C.F.R. § 498.220. In determining the appropriateness of the
penalty, I must consider: 1) the nature of the statements and representations and the
circumstances under which they occurred; 2) the degree of culpability of the person
committing the offense; 3) the history of prior offenses of the person committing the
offense; 4) the financial condition of the person committing the offense; and 5) such other
matters as justice may require. 20 C.F.R. § 498.106.

SSA does not contend that that Respondent has a history of prior offenses. SSA Ex. 15 at
3.

With respect to her financial condition, the IG is correct that Respondent bears the burden
of establishing that her financial condition prevents her from paying the penalty. SSA v.
Clara Sloan, DAB CR1081 (2003); Recommended Decision to Decline Review, App.
Div., Dkt. No. A-04-03 at 2 (Feb. 9, 2004) (finding “no basis to disturb the ALJ’s...
legal conclusions.”). Respondent Lopez submitted a financial disclosure form to the IG
in response to the IG’s November 6, 2012 warning letter. SSA Exs. 12, 14. The form is
dated November 22, 2012. In it, Respondent claims that she and her husband left their
prior jobs in August 2012, and that she earned only $10 an hour at her new job, which she
began just three weeks earlier. She claims that her husband has no earnings. SSA Ex. 14
at 1-2. According to the form, the household’s only additional income at that time was
$443 per month in child support “if the fathers pay.” SSA Ex. 14 at 2. She offers no
explanation for the sudden decline in her household’s income and provides no
documentary evidence to support her claims of such reduced income and resources. In
the absence of such support, and in light of her well-demonstrated lack of veracity, I find
that she has not met her burden of establishing that her financial condition prevents her

from paying the penalty. Moreover, her misconduct here merits a significant penalty, and
the one SSA has proposed is relatively modest in light of her potential exposure. Thus,
even if I accepted her unsupported claims of financial reversals, I would not reduce the
penalty.

As to the other factors, Respondent Lopez engaged in deception that lasted for an entire
year. During that time, she knowingly withheld material information from SSA, and,
when directly questioned about her living arrangements and household income, she lied.
Her degree of culpability is substantial and would justify a CMP greater than that
imposed here.

Finally, I note that the integrity of the SSI program depends on each beneficiary, or his
rep payee, accurately reporting household income and assets so that SSA can determine
whether he qualifies and, if he does, so that SSI can determine the accurate amount of his
benefits. Where, as here, the rep payee deliberately misrepresents the make-up and
income of the household, she undermines the integrity of that system.

IV. Conclusion

Respondent Lopez violated section 1129 of the Act, because she deliberately withheld
material facts and made false statements to SSA for its use in determining her child’s
continuing eligibility for SSI benefits. I consider the $34,266 CMP reasonable.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

NORPRO Orthotics & Prosthetics, Inc.,
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-1137
Decision No. CR3081

Date: January 14, 2014

DECISION

Palmetto GBA National Supplier Clearinghouse (NSC), an administrative
contractor acting on behalf of the Centers for Medicare & Medicaid Services
(CMS), determined that Petitioner, NORPRO Orthotics & Prosthetics, Inc.
(Supplier No. 0644080006), was not in compliance with Supplier Standard 7 and
revoked Petitioner’s Medicare billing privileges as a supplier. Petitioner appealed.
Because the record establishes that Petitioner was not open to the public and
properly staffed when an NSC inspector attempted three site visits, I uphold
NSC’s revocation of Petitioner’s Medicare billing privileges. However, because
Petitioner was only revoked due to a violation of the Supplier Standards, I am
modifying the effective date of revocation to April 17, 2013. Therefore, Petitioner
may bill Medicare for any covered items or services provided between March 5,
2013 and April 16, 2013.
I. Background

Petitioner was enrolled in the Medicare program as a supplier of durable medical
equipment, orthotics, prosthetics, and supplies (DMEPOS). Petitioner has
multiple offices in Florida, including an office located at 4175 South Congress
Avenue, Lake Worth, Florida 33461.

In an April 2, 2013 initial determination, NSC informed Petitioner that it was
revoking Petitioner’s Medicare billing privileges, citing 42 C.F.R. §§ 424.57(c)(1)
(failure to have a state license); 424.57(c)(7) (failure to maintain facility on an
appropriate site); 424.57(c)(10) (failure to have liability insurance); and
424.535(a)(5)(ii) (failure to be operational). The revocation was retroactively
effective to March 5, 2013, and NSC established a two-year reenrollment bar.
CMS Exhibit (Ex.) 1.

Petitioner filed a timely request for reconsideration disputing that there was a basis
to revoke its Medicare billing privileges. Petitioner attached documentation as
proof that Petitioner was in compliance with the regulations. CMS Ex. 3.

Ina June 24, 2013 reconsidered determination, an NSC hearing officer found
Petitioner compliant with 42 C.F.R. § 424.57(c)(1) and (c)(10). CMS Ex. 4, at 3-
4. However, the NSC hearing officer upheld the revocation based on finding a
violation of 42 C.F.R. § 424.57(c)(7), stating:

The fact remains that the site inspector was unable to complete a site
investigation for Norpro Prosthetics & Orthotics, Inc., Inc [sic]
because the facility location on record with the NSC was not open
during the posted hours of operation, therefore, not properly staffed
at the times of the site visit attempts, and the site inspector was
unable to verify compliance with the supplier standards.

CMS Ex. 4, at 3.

Petitioner timely filed a request for a hearing (RFH) before an administrative law
judge. In response to my August 9, 2013 Acknowledgment and Pre-hearing Order
(Order), CMS filed a Motion for Summary Judgment (CMS Br.) and four
proposed exhibits (CMS Exs. 1-4). Petitioner did not file a response. On
November 8, 2013, I issued an Order to Show Cause why I should not dismiss
Petitioner’s RFH as abandoned. Petitioner responded that it did not believe it
needed to respond to CMS’s submission and requested that I issue a decision
based on the information already in the record.

II. Decision on the Record

Petitioner submitted a written waiver of its right to an in-person hearing, and I do
not find that any of the exceptions to issuing a decision on the record apply.

See 42 C.F.R. § 498.66(a)-(b). In particular, neither party submitted a witness list
or written direct testimony from any witnesses. Order at { 8. Therefore, I find
that an in-person hearing is unnecessary and grant Petitioner’s motion for a
decision on the record. See Order at § 11. In the absence of objection from
Petitioner, I admit CMS Exs. 1-4 into the record. See 42 C.F.R. § 498.66(d)(1).

III. Issues

1. Whether CMS has a legitimate basis to revoke Petitioner’s enrollment as a
DMEPOS supplier in the Medicare program based on a determination that
Petitioner did not comply with Supplier Standard 7 (42 C.F.R.

§ 424.57(c)(7)).

2. Whether the effective date of revocation should be altered because the
reconsidered determination based revocation only on a violation of Supplier
Standard 7 (42 C.F.R. § 424.57(c)(7)).

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

I. An NSC inspector attempted three site visits at Petitioner’s office located
at 4175 South Congress Avenue, Lake Worth, Florida, on February 21,
2013, and March 5, 2013; however, no staff was present to allow the
inspector to enter the office and inspect it.

On Thursday, February 21, 2013, at 12:29 p.m., an NSC site inspector went to
Petitioner’s office at 4175 South Congress Avenue to conduct an “ad hoc” site
visit. CMS Ex. 2, at 1, 6. The inspector documented this attempt with
photographs. CMS Ex. 2, at 8-9. In particular, the inspector noted that she was
present during the hours of operation that Petitioner posted, which were 8:30 to
5:00 p.m., Monday through Thursday, and Friday by appointment. CMS Ex. 2, at
2, 6, 9. The site inspector indicated that the door to the office was locked and that
despite knocking several times, no one answered the door.

The NSC site inspector attempted another site visit at Petitioner’s office on March
5, 2013, at 10:06 a.m. and 11:23 am. CMS Ex. 2, at 1, 6. The site inspector
described her efforts as follows:

' My numbered findings of fact and conclusions of law appear in bold and italics.
On 3/5/13 at 10:06 am, I attempted to conduct a [site visit] during
the posted hours of operation. The front door to the facility was
unlocked. Upon entering, I observed no one present in the lobby
area or behind a reception desk. After waiting a few minutes for
someone to arrive, I called out several times but no response. I tried
to open an interior door that allows passage from the lobby into the
facility but found it locked. I knocked very loudly several times on
the interior door and still no response. The lights were on inside and
only the faint sound of a radio playing in the rear of the facility was
heard. I returned later at 11:23 am, when I again found no one
responding to me being present in the facility.

CMS Ex. 2, at 6. The site inspector documented these attempted site visits with
photographs. CMS Ex. 2, at 10-14.

Petitioner asserted in its request for reconsideration that its office located at 4175
South Congress Avenue was open and should have been staffed on the days and at
the times that NSC’s site inspector attempted to perform the site visits.
Specifically, Petitioner stated that an unnamed former employee was hired to
make certain that Petitioner’s office was staffed during its hours of operation.
Petitioner indicated that the employee would have been present all day, except
from noon until 1:00 p.m., because that was the employee’s lunch time. Petitioner
indicated that if the employee was not present, Petitioner did not have any
knowledge of it. CMS Ex. 3, at 1. Petitioner also submitted a schedule of patient
appointments from February 25 and 26, 2013, and March 5, 11, and 12, 2013.
CMS Ex. 3, at 5-7.

In Petitioner’s RFH, Petitioner indicated that it paid an employee to staff its 4175
South Congress Avenue office, but that it appears the employee may not have
been doing her job. RFH at 1. Although Petitioner maintains it paid an employee
to be present during its hours of operation, Petitioner admits that it cannot dispute
the site inspector’s report. See Petitioner’s November 15, 2013 Response to Order
to Show Cause.

Based on the evidence of record, I find that Petitioner’s office was not open when
the NSC site inspector attempted site visits on February 21, 2013 and March 5,
2013.

2. CMS was required to revoke Petitioner’s enrollment in the Medicare
program because Petitioner’s office located at 4175 South Congress
Avenue, Lake Worth, Florida, was not accessible and staffed during the
posted hours of operation in violation of Supplier Standard 7 (42 C.F.R §
424.57(¢)(7)).
The Social Security Act requires DMEPOS suppliers to maintain a physical
facility on an appropriate site and authorizes the Secretary of Health and Human
Services (Secretary) to create other requirements for DMEPOS suppliers.

42 U.S.C. § 1395m(j)(1)(B)(ii). The Secretary promulgated regulations (i.e., the
Supplier Standards) establishing requirements for DMEPOS suppliers at 42 C.F.R.
§ 424.57. Supplier Standard 7 requires that a DMEPOS supplier maintain a
physical facility on an appropriate site that is “accessible and staffed during posted
hours of operation.” 42 C.F.R. § 424.57(c)(7)(i)(C). CMS has authority to
perform off cycle site visits to verify information on file with the contractor and to
confirm compliance with Medicare enrollment requirements and the Supplier
Standards. 42 C.F.R. §§ 424.57(c)(8), 424.515(d), 424.517(a).

In the present matter, CMS provided sufficient evidence to show that Petitioner’s
office was not accessible and staffed during its posted hours of operation and
Petitioner has not refuted CMS’s evidence. However, Petitioner raises some
issues in its defense. None of these assertions provides a legal excuse to
Petitioner’s failure to comply with Supplier Standard 7.

Petitioner asserts that Petitioner’s employee was to be at the office during the
posted hours of operation, except for a lunch break from noon until 1:00 p.m., and
if the employee was not present, Petitioner did not know it. The site visit
attempted on February 21, 2013, took place during the employee’s lunch time and
this may be the reason that no one answered the door when the site inspector
knocked. However, the office’s posted hours of operation did not indicate that the
office would be closed from noon until 1:00 p.m. CMS Ex. 2, at 9. Petitioner
needed to expressly indicate that the office would not be open from noon until
1:00 p.m. See Ita Udeobong, d/b/a Midland Care Medical Supply and Equipment,
DAB No. 2324, at 6-7 (2010).” Even if Petitioner was unaware that its employee
was not present during the posted hours of operation on March 5, 2013, Petitioner
is responsible for ensuring compliance with the Supplier Standards and for the
conduct of its employees. Cf: Louis J. Gaefke, D.P.M., DAB No. 2554, at 5-6
(2013) (holding that a supplier is responsible for improper claims filed by others
on his behalf).

Petitioner submitted its schedule of patient appointments at the office for February
and March 2013. Presumably this documentation is meant to show that
Petitioner’s office was open and operating. However, none of the scheduled
appointments occurred during any of the attempted site visits. Therefore, I cannot
consider this as evidence that Petitioner was in fact open and staffed during its

> Administrative decisions cited in this decision are accessible on the internet at:
http://www.hhs.gov/dab/decisions/index.html.
6

posted hours of operation because the site inspector noted days and times when
Petitioner was not open or staffed during its posted hours. Complete Home Care
Inc., DAB No. 2525, at 6 (2013) (“Because [petitioner’s] facility was not
continually staffed during its posted hours of operation on the two days that the
inspector attempted to visit, . . . [petitioner] did not meet the requirements of
section 424.57(c)(7)(i)(C).”).

Petitioner asserts that it has corrected the situation at its office and the office is
now staffed and open during posted business hours. Further, the employee
Petitioner blames for failing to be present during the attempted site visits is no
longer employed by Petitioner. Although it is laudable that Petitioner has taken
corrective action, I am unable to consider this because I do not have jurisdiction to
review CMS’s determination as to whether to accept a corrective action plan
implemented by a supplier. See DMS Imaging, DAB No. 2313, at 7-10 (2010).

I conclude that Petitioner violated Supplier Standard 7 (42 C.F.R. § 424.57(c)(7)).
When CMS determines that a DMEPOS supplier has violated the Supplier
Standards, it must revoke the supplier’s billing privileges. 42 C.F.R. § 424.57(d).
Even a single violation requires revocation. 1866/CPayday.com, DAB No. 2289,
at 13 (2009). Therefore, the regulations required CMS to revoke Petitioner’s
Medicare billing privileges.

3. Because the only basis for revocation upheld in the reconsidered
determination was Supplier Standard 7 (42 C.F.R. § 424.57(c)(7)), the
effective date for the revocation is governed by 42 C.F.R. § 424.57(d),
which requires the revocation to be effective 15 days after the date of the
initial determination.

NSC’s initial determination indicated that Petitioner was not operational and
identified 42 C.F.R. § 424.535(a)(5)(ii) as one of the bases for revocation. Based
on this finding, NSC imposed retroactive revocation back to March 5, 2013, the
date NSC determined that Petitioner was not operational. CMS Ex. 1, at 1. The
regulations state that “the revocation is effective with the date . . . that CMS or its
contractor determined that the . . . supplier was no longer operational.” 42 C.F.R.
§ 424.535(g).

However, in the reconsidered determination, NSC did not make any finding that
Petitioner was not operational and relied solely on a violation of Supplier Standard
7 as the basis to revoke Petitioner.? CMS Ex. 4. When a revocation is based on a

> Similarly, CMS’s brief in this case only argues that Petitioner violated Supplier
Standard 7.
failure to meet the Supplier Standards, “revocation is effective 15 days after the
entity is sent notice of the revocation.” 42 C.F.R. § 424.57(d).

In a provider or supplier enrollment case, it is the reconsidered determination upon
which administrative law judge review is predicated. See Hiva Vakil, M.D., DAB
No. 2460, at 4-5 (2012) (holding that a supplier cannot obtain administrative law
judge review of the initial determination; the supplier may only obtain
administrative law judge review when there is a reconsidered determination); see
also 42 C.F.R. §§ 498.5(1), 498.20(b)(1), 498.24(c), 498.25(b)(2).

In the present case, NSC issued a reconsidered determination that significantly
modified the initial determination’s stated reasons for revocation. Based on that
determination, the effective date for Petitioner’s revocation is April 17, 2013, or
15 days from the issuance of the April 2, 2013 initial determination. Petitioner is,
therefore, eligible to file claims for the items or services provided to Medicare
beneficiaries from March 5, 2013 through April 16, 2013.

V. Conclusion

For the reasons stated above, I affirm NSC’s revocation of Petitioner’s Medicare
billing privileges, but modify the effective date of the revocation to April 17,
2013.

/s/
Scott Anderson
Administrative Law Judge


The Center

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant,
v.
Steve Katsetos d/b/a Steve’s Mini Market,

Respondent.

Docket No. C-14-155

FDA Docket No. FDA-2013-H-1369
Decision No. CR3080

Date: January 13, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

‘or Tobacco Products (CTP) initiated the above-captioned matter when it

filed an Administrative Complaint for Civil Money Penalties (Complaint) with the
Departmental Appeals Board, Civil Remedies Division (CRD) and the Food and Drug
Administration’s (FDA) Division of Dockets Management. CTP seeks to impose civil

money penal

ties under the Federal Food, Drug, and Cosmetic Act (Act) and the Act’s

implementing regulations.

The Complaint alleges the following facts. Respondent owns an establishment that sells

tobacco pro

ucts and is located at 6691 Maddox Boulevard, Chincoteague Island,

Virginia 23336. Complaint § 3. CTP conducted two inspections of the establishment.

Complaint §

9. During a January 27, 2013 inspection of Respondent’s establishment, an

FDA-commissioned inspector observed that “. . . a person younger than 18 years of age
was able to purchase a package of Newport Box cigarettes . . . at approximately 2:54 PM

ET.” Comp

aint J 10.
On February 21, 2013, CTP issued a warning letter to Respondent specifying the
violation that the inspector observed. The letter warned Respondent that if it failed to
correct the violation, civil money penalties could be imposed on it and that it was
Respondent’s responsibility to ensure compliance with the law. Complaint § 10.

Steve Katsetsos responded to the warning letter in a February 27, 2013 telephone call. In
response to the violation CTP alleged in the warning letter:

Mr. Katsetos stated that the establishment is strict about checking the
identification of tobacco purchasers, and that he will instruct employees to
double-check identification to prevent another sale to a minor. Mr. Katsetos
also stated that he would speak with every employee about the Warning
Letter, and explained that the employee present at the establishment during
the sale to the minor was a new hire at the time.

Complaint § 11.

During a subsequent inspection of Respondent’s establishment, FDA-commissioned
inspectors documented that “. . . a person younger than 18 years of age was able to
purchase a package of Newport Box cigarettes on May 22, 2013, at approximately 4:15
PM.” Complaint § 1.

In compliance with 21 C.F.R. §§ 17.5 and 17.7, CTP served Respondent with the
Complaint on November 14, 2013, via United Parcel Service. CTP charged Respondent
with violating 21 C.F.R. § 1140.14(a) (sale of tobacco products to a minor). Complaint
4 1, 10. CTP asked the CRD to impose a $250 civil money penalty based on two
alleged violations of the regulations in a 12-month period. Complaint § 13.

The Complaint provided detailed instructions related to filing an answer and requesting
an extension of time to file an answer. Complaint J 14-18, 20-22. The Complaint stated
that failure to file an answer could result in the imposition of a civil money penalty
against Respondent. Complaint § 19. Further, after CTP filed the Complaint, CRD sent
Respondent an Initial Order informing Respondent of the requirement to file an answer to
avoid a default judgment. CRD sent a form answer along with the Initial Order that
Respondent could fill out and file with CRD. Respondent neither filed an answer nor
requested an extension of time within the 30-day time period prescribed in 21 C.F.R.

§ 17.9.
3

If a respondent does not file an answer within 30 days of a properly served complaint, the
regulations provide that:

[T]he presiding officer shall assume the facts alleged in the complaint to be
true, and, if such facts establish liability under the relevant statute, the
presiding officer shall issue an initial decision within 30 days of the time
the answer was due, imposing:

(1) The maximum amount of penalties provided for by law for the

violations alleged; or

(2) The amount asked for in the complaint, whichever amount is smaller.

21 C.F.R. § 17.11(a). Further, a failure to file a timely answer means that “the
respondent waives any right to a hearing and to contest the amount of the penalties and
assessments” imposed in the initial decision. 21 C.F.R. § 17.11(b).

Accepting the facts alleged in the Complaint as true, I find that those facts establish
Respondent’s liability under the Act. See 21 U.S.C. §§ 333(f)(9), 387c(a)(7)(B), 387£(d);
21 C.F.R. §§ 1140.1(b), 1140.14. Lalso find that CTP’s request to impose a $250 civil
money penalty is permissible. See 21 C.F.R. § 17.2.

Therefore, Respondent is directed to pay a civil money penalty in the amount of $250.
This initial decision becomes final and binding upon both parties 30 days after the date of
its issuance. 21 C.F.R. § 17.11(b).

It is so ordered.

/s/
Joseph Grow
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant,
v.
Innovations Inc. d/b/a The Tobacco Discount Store,

Respondent.

Docket No. C-14-162

FDA Docket No. FDA-2013-H-1383
Decision No. CR3079

Date: January 13, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) initiated the above-captioned matter when it
filed an Administrative Complaint for Civil Money Penalties (Complaint) with the
Departmental Appeals Board, Civil Remedies Division (CRD) and the Food and Drug
Administration’s (FDA) Division of Dockets Management. CTP previously initiated a
civil money penalty action, CRD Docket Number C-13-243, FDA-2013-H-0017, against
the Respondent, which ended when Respondent admitted the previous violations and
CRD closed the case.! CTP now seeks to impose additional civil money penalties under
the Federal Food, Drug, and Cosmetic Act (Act) and the Act’s implementing regulations.

' CTP initiated the previous action by filing an Administrative Complaint for Civil
Money Penalties with CRD dated January 2, 2013 (January 2, 2013 Complaint). CTP
attached the January 2, 2013 Complaint to the Complaint it filed when it initiated the
present matter.
2
The Complaint alleges the following facts. Respondent owns an establishment that sells
tobacco products and is located at 1312 South Baltimore Street, Kirksville, Missouri
63501. Complaint § 3. CTP conducted three inspections of the establishment.
Complaint § 9.

In the civil money penalty action that CTP initiated on January 3, 2013, CTP alleged that
Respondent had committed four violations of regulations found at 21 C.F.R. Part 1140.
Complaint § 10. These violations occurred on October 7, 2011, and April 22, 2012.
January 2, 2013 Complaint §§j 1, 10. Omar Farug settled the claims against Respondent
when:

[He] admitt[ed] that the violations described in the Complaint filed in FDA
Docket Number FDA-2013-H-0017, CRD Docket Number C-13-243
occurred, waiv[ed] his ability to contest the violations in the future, and
stat[ed] that he understood that the violations may be counted in
determining the total number of violations for purposes of future
enforcement actions.

Complaint § 11. As a result, CRD closed the case on February 14, 2013. Complaint
qi.

During a subsequent inspection of Respondent’s establishment, FDA-commissioned
inspectors documented the following:

[A] person younger than 18 years of age was able to purchase a package of
L & M cigarettes on April 22, 2013, at approximately 9:36 AM; and... the
minor’s identification was not verified before the sale, as detailed above, on
April 22, 2013, at approximately 9:36 AM.

Complaint {

In compliance with 21 C.F.R. §§ 17.5 and 17.7, CTP served Respondent with the
Complaint on November 14, 2013, via United Parcel Service. Respondent previously
admitted that it had committed four violations of 21 C.F.R. Part 1140. Complaint fj 10-
11. CTP charged Respondent with new violations of 21 C.F.R. § 1140.14(a) (sale of
tobacco products to a minor) and 21 C.F.R. § 1140.14(b)(1) (failure to verify the age of a
person purchasing tobacco products by means of photographic identification containing
the bearer’s date of birth). Complaint § 1. CTP asked the CRD to impose a $10,000 civil
money penalty based on six alleged violations of the regulations in a 48-month period.
Complaint § 13.
3
The Complaint provided detailed instructions related to filing an answer and requesting
an extension of time to file an answer. Complaint J 14-18, 20-22. The Complaint stated
that failure to file an answer could result in the imposition of a civil money penalty
against Respondent. Complaint § 19. Further, after CTP filed the Complaint, CRD sent
Respondent an Initial Order informing Respondent of the requirement to file an answer to
avoid a default judgment. CRD sent a form answer along with the Initial Order that
Respondent could fill out and file with CRD. Respondent neither filed an answer nor
requested an extension of time within the 30-day time period prescribed in 21 C.F.R.
§ 17.9.

If a respondent does not file an answer within 30 days of a properly served complaint, the
regulations provide that:

[T]he presiding officer shall assume the facts alleged in the complaint to be
true, and, if such facts establish liability under the relevant statute, the
presiding officer shall issue an initial decision within 30 days of the time
the answer was due, imposing:

(1) The maximum amount of penalties provided for by law for the

violations alleged; or

(2) The amount asked for in the complaint, whichever amount is smaller.

21 C.F.R. § 17.11(a). Further, a failure to file a timely answer means that “the
respondent waives any right to a hearing and to contest the amount of the penalties and
assessments” imposed in the initial decision. 21 C.F.R. § 17.11(b).

Accepting the facts alleged in the Complaint as true, I find that those facts establish
Respondent’s liability under the Act. See 21 U.S.C. §§ 333(f)(9), 387c(a)(7)(B), 387£(d);
21 C.F.R. §§ 1140.1(b), 1140.14. I also find that CTP’s request to impose a $10,000 civil
money penalty is permissible. See 21 C.F.R. § 17.2.

Therefore, Respondent is directed to pay a civil money penalty in the amount of $10,000.
This initial decision becomes final and binding upon both parties 30 days after the date of
its issuance. 21 C.F.R. § 17.11(b).

It is so ordered.

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Genuine Care Rehabilitation Services, Inc.
Petitioner,

v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-1185
Decision No. CR3077

Date: January 14, 2014

DECISION

The Centers for Medicare & Medicaid Services (CMS) revoked Petitioner’s Medicare
supplier number. Petitioner, Genuine Care Rehabilitation Services, Inc., appeals. As
discussed below, the uncontroverted facts compel revocation of Petitioner’s supplier
billing number. Therefore, I affirm the decision to revoke Petitioner’s billing privileges.

I. Background

The following facts are undisputed unless otherwise noted. Petitioner was enrolled in the
Medicare program as a supplier of durable medical equipment, prosthetics, orthotics, and
supplies (DMEPOS). CMS Exhibit (Ex.) 2, at 7. A CMS contractor from the National
Supplier Clearinghouse (NSC) attempted to conduct two site inspections at Petitioner’s
location on file with the NSC: 7520 Broadway Ext., Suite 204, Oklahoma City,
Oklahoma 73116. CMS Ex.1, at 3; CMS Ex. 2, at 27-33. The first was May 20, 2013 at
approximately 11 a.m. and the second on May 21, 2013 at approximately 10 am. At the
time of the two inspection attempts, Petitioner’s posted hours of operation at the business
entrance were Monday through Friday, from 9:30 a.m. to 4 p.m. CMS Ex. 2, at 33.' On

' A photo of Petitioner’s front door indicates its hours of operation and immediately
below what appears to be a telephone number with one of the numbers missing and with
no area code. CMS Ex. 2, at 33.
both visits, the NSC inspector knocked on the door and no one answered, and the
windows were heavily tinted so the inspector was unable to see inside. CMS Ex. 2, at 32.
The door was locked. There was no one at the location to provide entry to the facility so
that the inspector could continue the on-site inspection. CMS Ex. 2, at 32. On June 5,
2013, NSC sent a letter notifying Petitioner that it was revoking Petitioner’s supplier
number effective May 21, 2013, the date CMS determined that Petitioner’s practice
location was not operational. CMS Ex. 2, at 7. NSC barred Petitioner from re-enrolling
for two years from this effective date. Id.

The notice letter specifically stated that the basis for the revocation was that Petitioner
was in violation of 42 C.F.R. § 424.57(c)(7) and 42 C.F.R. § 424.535(a)(5)(ii)” because it
was closed during posted hours of operation when a NSC inspector attempted to
complete site inspections to verify Petitioner’s compliance with supplier standards. Jd. at
2. The notice letter further informed Petitioner of its right to request reconsideration of
the revocation determination within 60 days of the postmark of the notice. Petitioner
filed a timely request for reconsideration on June 13, 2013. CMS Ex. 2, at 11. On July
24, 2013, a hearing officer issued an unfavorable decision and upheld the revocation of
Petitioner’s supplier number because Petitioner was not in compliance with Suppler
Standard 7. CMS Ex. 1, at 2; 42 C.F.R. § 424.57(c)(7).

By submission-filed on August 6, 2013, Petitioner requested a hearing with the Civil
Remedies Division of the Departmental Appeals Board (DAB). With its hearing request,
Petitioner attached a copy of the reconsideration decision as well as a 12 other
attachments and six photos. This case was assigned to me for decision.

On September 19, 2013, we received Petitioner’s prehearing exchange consisting of 15
exhibits, P. Exs. 1-15. On September 20, 2013, CMS filed its prehearing exchange and
brief supporting its motion for summary judgment together with two exhibits, CMS Exs.
1-2. On December 6, 2013, we received Petitioner’s “Written Summary” dated

> This subsection states: “(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: . . . (5) On-site
review. CMS determines, upon on-site review, that the provider or supplier is no longer
operational to furnish Medicare covered items or services, or is not meeting Medicare
enrollment requirements under statute or regulation to supervise treatment of or to
provide Medicare covered items or services for, Medicare patients. Upon on-site review,
CMS determines that -- . . . (ii) A Medicare Part B supplier is no longer operational to
furnish Medicare covered items or services, or the supplier has failed to satisfy any or all
of the Medicare enrollment requirements, or has failed to furnish Medicare covered items
or services as required by the statute or regulations.”

November 26, 2013, postmarked November 27, 2013, together with three additional
exhibits marked P. Exs. 1-3, in response to CMS’s brief. To avoid any confusion with
Petitioner’s other exhibits, I re-mark these exhibits as P. Exs. 16-18.°

II. Applicable Law

To receive Medicare payments for items furnished to a Medicare-eligible beneficiary, the
Secretary of the U.S. Department of Health and Human Services issues a supplier number
toa DMEPOS supplier. Social Security Act (Act) § 1834(j)(1)(A). To receive such
direct-billing privileges, a DMEPOS supplier must also meet and maintain each of the 25
supplier enrollment standards set forth in 42 C.F.R. § 424.57(c)(1)-(25). Among other
things, a DMEPOS supplier must maintain a physical facility on an appropriate site
which is accessible to the public, is accessible and staffed during posted hours of
operation, and which maintains a visible sign and posted hours of operation. 42 C.F.R.

§ 424.57(c)(7). Also, a DMEPOS must permit CMS or its agent to conduct on-site
inspections to ascertain supplier compliance with each of these enrollment standards. 42
C.F.R. § 424.57(c)(8). A provider or supplier is operational if it “has a qualified physical
practice location, is open to the public for the purpose of providing health care related
services, is prepared to submit valid Medicare claims, and is properly staffed, equipped,
and stocked . . . to furnish these items or services.” 42 C.F.R. § 424.502. CMS will
revoke a currently-enrolled Medicare supplier’s billing privileges if CMS or its agent
determines that the supplier is not in compliance with any supplier enrollment standard.
See 42 C.F.R. § 424.57(d); A to Z DME, LLC, DAB No. 2303, at 3 (2010); see also
1866I1CPayday.com, DAB No. 22839, at 13 (2009) (“[F]ailure to comply with even one
supplier standard is a sufficient basis for revoking a supplier’s billing privileges.”).

Suppliers who have had their billing privileges revoked “are barred from participating in
the Medicare program from the effective date of the revocation until the end of the re-
enrollment bar,” which 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).

> Also, the DAB E-file record (items 15 and 16) indicates we uploaded to our system on
December 30, 2013 duplicates of Petitioner’s December 6, 2013 submission which
apparently were mailed to our office on October 3, 2013 (received October 15, 2013) and
October 11, 2013 (received October 17, 2013), but were not uploaded to the DAB E-file
system at that time due to the government shutdown. Because I was not aware of these
submissions, I issued an Order to Show Cause to Petitioner to which Petitioner promptly
responded. In retrospect there was no need for the Order to Show Cause as Petitioner
timely responded to CMS’s submission. P. Ex. 16 is the BOC Accreditation Certificate
for Petitioner’s 7510 Broadway location; P. Ex. 17 is the BOC Accreditation Certificate
for Petitioner’s 4800 N. Classen Boulevard location; and P. Ex. 18 is a copy of a
November 13, 2013 email from Mr. Barlow to my staff attorney.

III. Issue

The issue is whether CMS had a legitimate basis to revoke Petitioner’s Medicare billing
privileges.

IV. Findings of Fact and Conclusions of Law
A. This case is appropriate for summary judgment.

CMS filed a Motion for Summary Judgment. Board Members of the Appellate Division
of the DAB (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, DAB No. 2291, at 4-5
(2009). Here, Petitioner has not disputed the material facts that CMS alleges: no one
was present at Petitioner’s location during the Medicare on-site visits attempted during
Petitioner’s posted hours of operation.

B. CMS had a legitimate basis to revoke Petitioner’s supplier number
because Petitioner was not open and accessible to inspectors or the
public.

On May 20, 2013, the NSC inspector attempted at 11:00 a.m. to conduct an unannounced
site inspection on behalf of CMS at Petitioner’s location during its posted hours of
operation. However, she found that she could not enter because the office was closed.
She noted that the door sign indicated that office hours were Monday through Friday,
9:30 a.m. through 4 p.m. CMS Ex. 2, at 28. She knocked, but no one answered. CMS
Ex. 2, at 32. The inspector made a second attempt to inspect arriving on May 21, 2013 at
10 a.m. CMS Ex. 2, at 27. Again the office was closed.

The inspector took date-stamped photographs of the suite’s door with the posted hours of
operation as well as photographs of the exterior of the building and the handicap access
to the building. CMS Ex. 2, at 33. Petitioner did not have any staff at the store to allow
the inspector access, nor was the store “open” on these two occasions for business during
posted hours of business.

Petitioner concedes that at the time of the two site visits, the staff was temporarily
unavailable at the 7510 Broadway location. Petitioner explains that it did not schedule
appointments on these days and had the phone forwarded to the office administration for
emergencies because Petitioner’s staff were in meetings related to the relocation and
remodel to a new location, 4800 N. Classen Boulevard. RFH; November 26, 2013
Written Summary (P. Summary). Petitioner contends nevertheless that it was
operational. Petitioner further contends that a contact number was located on the
entrance to the facility, and the inspector could have called and someone would have
responded as soon as possible. P. Summary. Petitioner further argues that knowing the
ramifications of a revoked billing privilege, a courtesy call should have been made and
that it was just coincidence that the very days of the onsite inspections, the staff were in
meetings discussing and planning for the relocation. Petitioner contends that this
revocation will put Petitioner out of business.

Petitioner presented certain documents in an effort to show that its business was an
ongoing concern. However, these records and documents do not present a dispute of
material fact as to whether anyone was present when the inspector attempted the on-site
visits. P. Ex. 3 (Liability Insurance effective March 16, 2013); P. Ex. 7 (the rental
agreement for the new location indicating that the rental began on July 8, 2013); P. Ex.
13 (a facility relocation application from Petitioner to the Board of
Certification/Accreditation indicating Petitioner’s new address and its hours of operation,
dated August 6, 2013).

For a supplier to be “operational,” it must be “open to the public for the purpose of
providing health care related services . . . and [be] properly staffed . . . to furnish these
services.” 42 C.F.R. § 424.502 (emphasis added). Among other things, a DMEPOS
supplier must permit CMS or its agent to conduct on-site inspections to ascertain supplier
compliance with each of the enrollment standards, and the supplier must be accessible
and staffed during posted hours of operation to beneficiaries and to CMS. 42 C.F.R.

§ 424.57(c)(7). A supplier is neither “open to the public” nor “accessible,” if the
supplier’s location is closed due to staff out for lunch, on a break, or making patient
deliveries or visits. It is incumbent on Petitioner to make whatever reasonable
arrangements are necessary to keep its business open while allowing for patient
consultations and visits. “A Medicare supplier differs from a strictly private business in
that it is an integral part of a publicly run program. The requirement that a supplier be
open at all times during normal business hours reflects CMS’s determination that a
supplier be available to beneficiaries to meet their needs and to alleviate their medical
conditions.” A to Z DME, LLC, DAB CR1995, at 6 (2009), aff'd A to Z DME, LLC, DAB
No. 2303 (2010).

The Board also has held that the supplier standard “would have no meaning if suppliers
could deviate from their posted hours of operation on a regular basis.” [ta Udeobong,
d/b/a/ Midland Care Med. Supply and Equipment, DAB No. 2324, at 7 (2010). In
Udeobong, the petitioner admitted that it was closed from noon until 1:00 p.m. every day
for lunch, which was during its regularly posted hours of 10 a.m. to 5 p.m., Monday
through Friday. The Board further held that “‘[t]his problem would not be cured even if. .
. its employees posted temporary signs when they left, stating when they would return.”
Id. CMS and its contractors have limited resources and cannot be compelled to attempt
multiple on-site inspections during a supplier’s posted business hours to determine if a
supplier is complying with all Medicare requirements.

While Petitioner submitted evidence, such as copies of its liability insurance and surety
bond riders, that would indicate its intention to remain a DMEPOS at the new location,
there was no evidence to show that Petitioner was open and accessible on May 20 and 21,
2013. Nor is there evidence to show that somehow the NSC inspector would have reason
to know why Petitioner’s offices were closed on the two days she tried to inspect the
facility. Moreover, while Petitioner contends that the inspector should have called, the
part of the telephone number on the door was missing. See CMS Ex. 2 at 33 (photo of
door shows digit missing from phone number). Nevertheless, even if Petitioner’s staff
were reachable by phone during temporary absences, Petitioner would still not meet the
requirement to remain open and accessible during its hours of operation. Complete Home
Care, Inc., DAB No. 2525, at 6 (2013). What the inspector could ascertain, and what
would appear to the general public if they were to arrive at this location, was that the
office was closed for two consecutive days and it was not open or accessible.

C. Tam unauthorized to grant Petitioner’s requests for equitable relief
Sor enrollment because it did not meet the legal requirements for
enrollment.

Petitioner makes various arguments for equitable relief despite not meeting the legal
requirements for being open and accessible during posted business hours on the dates and
times of the two attempted site visits. However, I am without authority to order CMS to
provide an exemption to Petitioner under the circumstances because Petitioner’s equitable
arguments give me no grounds to restore Petitioner’s billing privileges. See 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.”). Moreover, I have no authority to declare statutes
or regulations invalid or ultra vires. 1866/CPayday.com, L.L.C., DAB No. 2289, at 14
(2009) (“[a]n ALJ is bound by applicable laws and regulations and may not invalidate
either a law or regulation on any ground.”).

V. Conclusion

I find Petitioner was not in compliance with Medicare enrollment requirements when it
was not open and accessible on two separate occasions during its posted hours of
operation. I therefore grant CMS’s motion for summary judgment and sustain the
revocation of Petitioner’s supplier number for DMEPOS Medicare billing privileges,
effective May 21, 2013. Accordingly, Petitioner is barred from re-enrolling for two years
from the effective date of its revocation.

/s/
Joseph Grow
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Saad Mheirat
d/b/a Corner Grocery/Winchester Market,

Respondent.

Docket No. C-13-1239
FDA Docket No. FDA-2013-H-1026

Decision No. CR3075
Date: January 10, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, Saad Mheirat d/b/a Corner Grocery/Winchester
Market, alleging facts and legal authority sufficient to justify the imposition of a
civil money penalty of $2,000. Although Respondent timely answered the
Complaint and requested a hearing through its counsel, it failed to comply with the
provisions of my pre-hearing order. I issued a show cause order that directed
Respondent to explain why it failed to comply with the pre-hearing order. The
show cause order informed Respondent that if it failed to respond or to
demonstrate good cause for its non-compliance with the pre-hearing order, I may
impose sanctions against it. Respondent did not file a response. Therefore, I
sanction Respondent by striking its answer, entering a default judgment against
Respondent and ordering Respondent to pay a civil money penalty in the amount
of $2,000.
CTP initiated this case by serving a Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent unlawfully sold
cigarettes to a minor, failed to verify that a cigarette purchaser was of sufficient
age and impermissibly sold single cigarettes, 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 $2,000.

On September 5, 2013, CTP served the Complaint on Respondent by United
Parcel Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days Respondent should
pay the penalty, file an answer, or request an extension of time within which to file
an answer. CTP warned Respondent that if it failed to take one of these actions
within 30 days an Administrative Law Judge could, pursuant to 21 C.F.R.

§ 17.11, issue an initial decision by default ordering Respondent to pay the full
amount of the proposed penalty.

On October 31, 2013, I issued an Acknowledgment and Pre-hearing Order (Pre-
hearing Order) that acknowledged receipt of Respondent’s answer and notified the
parties of a mandatory settlement conference scheduled for December 4, 2013, at
2:00 PM ET. The Pre-hearing Order also required the parties to provide my office
with a telephone number where that party could be reached at the time of the
settlement conference. Respondent failed to provide my office with a telephone
number prior to the settlement conference.

On December 4, 2013, neither Respondent nor his counsel appeared at the
mandatory settlement conference at 2:00 PM ET. Twice during the time period
scheduled for the settlement conference, the settlement attorney I assigned to
conduct the conference attempted to call the telephone number Respondent’s
counsel listed on the notice of appearance he filed, but the settlement attorney
could not reach Respondent’s counsel.

On December 11, 2013, I issued an Order to Show Cause (Order) to determine
whether Respondent had good cause for failing to comply with the Pre-hearing
Order. I ordered Respondent to explain why it failed to provide my office with a
telephone number where it could be reached at the time of the settlement
conference and why it failed to appear for the mandatory settlement conference on
December 4, 2013, at 2:00 PM ET. The Order explained that I might accept
Respondent’s late response if it could show good cause for the delay. The Order
further explained that if Respondent could not show good cause, I might dismiss
its request for hearing and enter a default judgment. See 21 C.F.R. § 17.35(a)(1)-
(3).(¢).

Respondent had the obligation to maintain contact with my office and to
participate in the mandatory settlement conference that I scheduled or explain why
it did not do so. Respondent’s failure to communicate with me after it filed an
answer in this case constitutes failure to comply with my pre-hearing orders,
failure to defend this cause of action, and misconduct that interferes with the
speedy, orderly, or fair conduct of the hearing in this case. 21 C.F.R.

§ 17.35(a)(1)-(3). Therefore, as authorized by the regulations, I strike
Respondent’s answer and enter a default judgment pursuant to the provisions of 21
C.F.R. § 17.35.

Striking Respondent’s answer leaves the Complaint unanswered. For purposes of
this decision, I assume the facts alleged in the Complaint are true and conclude
that default judgment is merited based on the allegations of the Complaint and
Respondent’s abandonment of the proceeding. 21 C.F.R. § 17.11(a). In support
of that conclusion, I make the following findings of fact and conclusions of law:

On September 5, 2013, CTP served the Complaint on Respondent by United
Parcel Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. Specifically, CTP’s
Complaint alleges that:

e Respondent owns Corner Grocery, an establishment that sells tobacco
products and is located at 4232 Winchester Road, Memphis, Tennessee
38118. Complaint § 3.

e On August 23, 2012, during an inspection of Respondent’s establishment,
an FDA-commissioned inspector observed a violation of 21 C.F.R.
§ 1140.14(d) “for selling individual cigarettes... .” Complaint § 10.

e On November 29, 2012, CTP issued a Warning Letter to Corner Grocery
explaining that the inspector’s August 23, 2012 observation constituted a
violation of a regulation found at 21 C.F.R. § 1140.14(d). In addition to
describing the violation, the letter advised Respondent that the FDA may
initiate a civil money penalty action or take other regulatory action against
Respondent if it failed to correct the violation. The letter also stated that it
was Respondent’s responsibility to comply with the law. Complaint § 10.

e¢ On December 12, 2012, Fayeq Ahashem responded to the Warning Letter
on Respondent’s behalf by telephone and electronic mail. “Mr. Ahashem
stated that the employee who sold the individual cigarette was
reprimanded[ ] and retrained regarding the sale of tobacco products to
minors. Mr. Ahashem also stated that he posted signs stating ‘no individual
cigarettes’ and ‘18 or older to purchase tobacco.” Complaint § 11.

e During a two-part inspection of Respondent’s establishment conducted on
February 28, 2013, and March 14, 2013, FDA-commissioned inspectors
documented additional violations of 21 C.F.R. Part 1140. The inspectors
documented that “a person younger than 18 years of age was able to
purchase a package of Marlboro cigarettes on February 28, 2013, at
approximately 5:26 PM[ ] and [that] . . . the minor’s identification was not
verified before the sale . . .”. The inspectors also documented a violation for
“selling individual cigarettes...” 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), retailers may not 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. Under 21 C.F.R.

§ 1140.14(d), retailers are prohibited from breaking or otherwise opening any
cigarette package to sell or distribute individual cigarettes.

Here, Respondent violated 21 C.F.R. § 1140.14(d) by selling individual cigarettes
on August 23, 2012, and during a two-part inspection conducted on February 28,
2013, and March 14, 2013. On February 28, 2013, Respondent violated 21 C.F.R.
§ 1140.14(a) when its staff sold cigarettes to a minor. On that same date,
Respondent also violated 21 C.F.R. § 1140.14(b)(1) when Respondent’s staff
failed to verify, by checking a cigarette purchaser’s photo identification, that a
cigarette purchaser was 18 years of age or older. Therefore, Respondent’s actions
on multiple occasions at the same retail outlet constitute violations of law that
merit a civil money penalty. Accordingly, I find that a civil money penalty of
$2,000 is permissible for four violations of 21 CFR Part 1140 within a 24-month
period. 21 C.F.R. § 17.2. Therefore, Respondent is directed to pay a civil money
penalty in the amount of $2,000

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.
On The Way Mini Mart, Inc.,
Respondent.

Docket No. C-14-217
FDA Docket No. FDA-2013-H-1405

Decision No. CR3073

Date: January 9, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against On The Way Mini Mart, Inc. (Respondent), which alleges
facts and legal authority sufficient to justify imposing a $500 civil money penalty.
Respondent did not timely answer the Complaint, nor did Respondent request an
extension of time within which to file an Answer. Therefore, I enter a default
judgment against Respondent and assess a civil money penalty of $500.

CTP initiated this case by serving a Complaint on Respondent and filing a copy of
the Complaint with the Civil Remedies Division (CRD) and the Food and Drug
Administration’s (FDA) Division of Dockets Management. The Complaint
alleges that Respondent utilized a self-service display of regulated tobacco
products in a non-exempt facility, sold a regulated tobacco product to a minor, and
failed to verify that a purchaser of a tobacco product was of sufficient age, thereby
violating the Federal Food, Drug, and Cosmetic Act (Act), codified at 21 U.S.C.
§§ 301 — 399d, and its implementing regulations, found at 21 C.F.R. Part 1140.
In compliance with 21 C.F.R. §§ 17.5 and 17.7, CTP served Respondent with the
Complaint on November 27, 2013, via United Parcel Service. The Complaint and
accompanying cover letter stated 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 neither filed an Answer within the time provided by regulation,
nor timely requested an extension. Pursuant to 21 C.F.R. § 17.11(a), I am required
to “assume the facts alleged in the complaint to be true, and, if such facts establish
liability under [the Act],” issue an initial decision and impose a civil money
penalty. Accordingly, I must determine whether the allegations in the Complaint
establish violations of the Act.

Specifically, CTP alleges that:

e Respondent owns On The Way Mini Mart, an establishment that sells
tobacco products and is located at 9356 West State Road 44, Manilla,
Indiana 46150. Complaint § 3.

¢ On September 5, 2012, an FDA-commissioned inspector observed
Respondent “using a self-service display in a non-exempt facility, in
violation of 21 C.F.R. § 1140.16(c).” Specifically, the facility, “which was
opened to the general public, had customer-accessible shelves containing
cigarette tobacco and smokeless tobacco on the sales floor.” Complaint
q 10.

e¢ On December 6, 2012, CTP issued a Warning Letter to Respondent
regarding the inspector’s observation from September 5, 2012. The letter
explained that the observation constituted a violation of a regulation found
at 21 C.F.R. § 1140.16(c), and that the named violation was 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 violation,
regulatory action by the FDA or a civil money penalty action could occur
and that Respondent is responsible for complying with the law. Complaint
q 10.

¢ On December 19, 2012, an unidentified person responded in writing to the
Warning Letter on Respondent’s behalf. “The response stated that a lock
was placed on the case that contained the tobacco products, and that a
notice was [also] placed on the case indicating that it was ‘not a self-service
display.’”” Complaint § 11.

e During a subsequent inspection conducted on June 6, 2013, and June 11,
2013, FDA-commissioned inspectors documented additional violations of
21 C.F.R. Part 1140 at Respondent’s establishment. Specifically, ““a person
younger than 18 years of age was able to purchase a package of Grizzly
Long Cut Premium Wintergreen smokeless tobacco on June 6, 2013, at
approximately 10:00 AM[.]” The inspectors also documented that “the
minor’s identification was not verified before the sale . . . on June 6, 2013
....” Complaint § 1.

I find that these facts, which I must assume are true, establish that Respondent is
liable under the Act. See 21 C.F.R. § 17.11(a). 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,
codified at 21 U.S.C. § 387f(d). See 21 U.S.C. § 387(a)(7)(B); 21 C.F.R.

§ 1140.1(b). The regulations prohibit the sale of cigarettes or smokeless tobacco
to any person younger than 18 years of age. 21 C.F.R. § 1140.14(a). Retailers are
required to verify, by means of photo identification containing the purchaser’s date
of birth, that no purchaser of cigarettes or smokeless tobacco is younger than 18
years of age. 21 C.F.R. § 1140.14(b)(1). Pursuant to 21 C.F.R. § 1140.16(c)(1), a
retailer may sell cigarettes and smokeless tobacco only in a direct, face-to-face
exchange between the retailer and the consumer. Self-service displays are a
method of sale that is not permitted under the regulations, 21 C.F.R.

§ 1140.16(c)(1), except when located in facilities where the retailer ensures that no
person younger than 18 years of age is present, or permitted to enter, at any time.
21 C.F.R. § 1140.16(c)(2)(ii).

In the present case, on September 5, 2012, Respondent utilized a self-service
display in violation of 21 C.F.R.§1140.16(c). On June 6, 2013, Respondent sold a
regulated tobacco product to a person younger than 18 years of age, in violation of
21 C.F.R. § 1140.14(a), and failed to verify by means of photographic
identification that the purchaser of the tobacco product was of sufficient age, in
violation of 21 C.F.R. § 1140.14(b)(1). Respondent’s actions and omissions at
the same retail outlet constitute violations of law that warrant a civil money
penalty.

The regulations require me to impose a civil money penalty that is either the
maximum amount provided for by law, or the amount sought in the Complaint,
whichever amount is smaller. 21 C.F.R. § 17.11(a)(1)-(2). The maximum penalty
for these actions is $500. See 21 C.F.R. § 17.2. In its Complaint, CTP seeks a
civil money penalty in the amount of $500. Accordingly, I find that a civil money
penalty is permissible under 21 C.F.R. § 17.2.

/s/
Steven T. Kessel
Administrative Law Judge