Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Mercy Hospital Lebanon,
(CCN: 26-0059),

Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-236
Decision No. CR3320
Date: August 7, 2014
DECISION
Petitioner, Mercy Hospital Lebanon, has shown that its remote location in Rolla,
Missouri met the provider-based status requirements of 42 C.F.R. § 413.65, including the
public awareness requirement of 42 C.F.R. § 413.65(d)(4); the ownership and control
requirement of 42 C.F.R. § 413.65(e)(1); and the alternative location requirement of 42
CER. § 413.65(e)(3)(iii).'
I. Background
Petitioner is a general acute care, non-profit hospital located in Lebanon, Missouri.

Petitioner seeks provider-based status for a remote location in Rolla, Missouri (remote
location). Wisconsin Physicians Service (WPS), the Medicare contractor, received

' Citations are to the 2011 revision of the Code of Federal Regulations (C.F.R.), unless
otherwise stated.
Petitioner’s application for provider-based status” for the remote location on February 27,
2012. The Parties’ Stipulations of Fact and Joint Statement of the Issues (Jt. Stip.) {J 1-
2,7, 8.

On July 10, 2012, the Centers for Medicare & Medicaid Services (CMS) denied
Petitioner’s application for provider-based status for the remote location on grounds that
the remote location did not meet the requirements for provider-based status established
by 42 C.F.R. § 413.65(e)(1) and (3). Jt. Stip. f] 22-23; CMS Exhibit (Ex.) 1. Petitioner
timely requested reconsideration on September 6, 2012. The initial denial of provider-
based status was upheld on reconsideration. Jt. Stip. {J 27-28; CMS Ex. 2.

Petitioner requested a hearing by an administrative law judge (ALJ) by letter dated
November 11, 2013. On November 25, 2013, the case was assigned to me for hearing
and decision and an Acknowledgement and Prehearing Order (Prehearing Order) was
issued at my direction. On May 8, 2014, CMS filed a motion for summary disposition,
which I construe to be a motion for summary judgment (CMS Br.). Petitioner filed a
cross-motion for summary judgment, also on May 8, 2014 (P. Br.). CMS replied to
Petitioner’s motion on June 9, 2014 (CMS Reply). Petitioner also filed its reply on June
9, 2014 (P. Reply). CMS filed CMS Exs. | through 8 and Petitioner filed Petitioner’s
exhibits (P. Exs.) 1 through 8. The parties have not objected to my consideration of the
proffered exhibits and all are admitted for purposes of this decision on summary
judgment.

II. Discussion
A. Issues

Whether Petitioner’s remote location meets requirements for provider-based
status; and

Whether summary judgment is appropriate.
B. Applicable Law
Petitioner, a hospital, is a “provider of services” (provider) under the Social Security Act

(Act). Act § 1861(u); 42 C.F.R. § 400.202. Under Medicare Part A, a provider is entitled
to reimbursement from Medicare for certain medical care and services provided to

> The regulation refers to the application as the “provider-based attestation.” 42 C.F.R.
§ 413.65(b)(3).
Medicare eligible beneficiaries. Act §§ 1811-12, 1814-15. Since the beginning of
Medicare, “main providers” have owned and operated other facilities, whether on the

same campus as the main provider or remote

treated under Medicare as being “provider-based.”
mentioned in the Act. In 1983, provider-based statu:
reimbursement available to provider-based
acilities. For example, Medicare

visit with a doctor includes a component
for the facility and the professional services of the p!

providers due to the more favorable Medicare
entities verses that available to free-standing
reimbursement for a hospital outpatient clinic

rom t!

main provider, which have been
Provider-based status is not
s became more important to main

ysician, while reimbursement for a

physician visit in a physician’s office, a free-standing facility, does not include a
component for the facility. The Health Care Financing Administration (HCFA), the

predecessor to CMS, proposed a new regulation, 42
eg. 47,552, 47,587-92 (Sept. 8, 1998). The
final rule establishing 42 C.F.R. § 413.65 was issue

control over provider-based status. 63 Fed. R

C.F.R. § 413.65, to gain some

18,433 (Apr. 7, 2000) as amended at 65 Fed.

effective date of the regulation); CMS Br. at 4-5.

on April 7, 2000. 65 Fed. Reg.

Reg. 58,920 (Oct. 3, 2000) (delayed the

A main provider, such as Petitioner in this case, must show that the requirements for
provider-based status established by 42 C.F.R. § 413.65, are met in order to receive
reimbursement at the provider-based rate for qualified medical care and services
delivered to Medicare-eligible beneficiaries at its remote location. The regulation
provides the following definitions pertinent to this case:

Main provider means a provider that either creates, or
acquires ownership of, another entity to deliver additional
health care services under its name, ownership, and financial

and administrative control.

Provider-based entity means a provider of health care
services, or an RHC [rural health clinic] as defined in §
405.2401(b) of this chapter, that is either created by, or
acquired by, a main provider for the purpose of furnishing

health care services of a different type from those of the main
provider under the ownership and administrative and financial
control of the main provider, in accordance with the
provisions of this section. A provider-based entity comprises
both the specific physical facility that serves as the site of
services of a type for which payment could be claimed under
the Medicare or Medicaid program, and the personnel and
equipment needed to deliver the services at that facility. A
provider-based entity may, by itself, be qualified to
participate in Medicare as a provider under § 489.2 of this
chapter, and the Medicare conditions of participation do apply
to a provider-based entity as an independent entity.

Provider-based status means the relationship between a main
provider and a provider-based entity or a department of a
provider, remote location of a hospital, or satellite facility,
that complies with the provisions of this section.

Remote location of a hospital means a facility or an
organization that is either created by, or acquired by, a
ospital that is a main provider for the purpose of furnishing
inpatient hospital services under the name, ownership, and
financial and administrative control of the main provider, in
accordance with the provisions of this section. A remote
location of a hospital comprises both the specific physical
facility that serves as the site of services for which separate
payment could be claimed under the Medicare or Medicaid
program, and the personnel and equipment needed to deliver
the services at that facility. The Medicare conditions of
participation do not apply to a remote location of a hospital as
an independent entity. For purposes of this part, the term
“remote location of a hospital” does not include a satellite
facility as defined in §§ 412.22(h)(1) and 412.25(e)(1) of this
chapter.

42 C.F.R. § 413.65 (a)(2) (emphasis in original). A facility that does not meet provider-
based status requirements is treated as a free-standing facility. 42 C.F.R. § 413.65 (a)(2),
(b).

The regulation provides that an entity is not entitled to be treated as provider-based,
simply because the main provider believes the entity is provider-based. 42 C.F.R.

§ 413.65(b)(1). Facilities for which provider-based status is sought that are on the same
campus as the main provider are treated differently than facilities that are remote from the
main campus. 42 C.F.R. § 413.65(b)(2)-(4). All entities for which provider-based status
is sought must meet the requirements of 42 C.F.R. § 413.65(d). An off-campus facility
must meet the additional provider-based requirements in 42 C.F.R. § 413.65(e) and (h).
Provider-based status related to a hospital triggers the additional requirements of 42
C.F.R. § 413.65(g). A main provider seeking provider-based status for an entity must
submit to CMS an attestation that the applicable requirements of 42 C.F.R. § 413.65 are
met so that CMS may “make a determination as to whether the facility or organization is
provider-based.” 42 C.F.R. § 413.65(b)(3). The regulation clearly requires that the main
provider maintain and produce the documentation that is the basis for its attestation either

at CMS request or with the attestation. 42 C.F.R. § 413.65(b)(3)(i) and (ii). In a case
such as this, where the main provider seeks provider-based status for a remote location,
the main provider is required to submit evidence supporting its attestations with the
attestations. 42 C.F.R. § 413.65(b)(3)(ii).

Determinations by CMS or its contractor pursuant to 42 C.F.R. § 413.65 that a facility
qualifies for provider-based status or that a facility no longer qualifies for such status, are
initial determinations subject to the right to request reconsideration and review by an ALJ
and the Departmental Appeals Board (the Board). 42 C.F.R. §§ 498.3(b)(2), 498.22,
498.82; Union Hospital, Inc. DAB No. 2463 at 2 (2012). Procedures applicable to ALJ
review and Board appeals of CMS determinations affecting participation in Medicare are
established by 42 C.F.R. pt. 498. The procedures of 42 C.F.R. pt. 498 do not address the
allocation of the burden of production (burden of coming forward with the evidence), the
burden of persuasion,” or the evidentiary standards or quantum of evidence necessary to
satisfy the burdens. In the absence of adequate regulations, the Board has found it
necessary to adopt interpretive rules addressing the burden of proof and the evidentiary
standard. Because the Board’s decisions are only interpretative rules applicable in the
individual case being adjudicated and not substantive rules of general application, it is
necessary to analyze in each case subject to 42 C.F.R. pt. 498 the appropriate allocation
of the burden of proof and the evidentiary standard to be applied. I find that the Board’s
analysis is persuasive and appropriately applied to this case. The hearing before an ALJ
is a de novo proceeding, i.e., “a fresh look by a neutral decision-maker at the legal and
factual basis for” the CMS action. Life Care Ctr. of Bardstown, DAB No. 2479 at 32
(2012) (citation omitted); The Residence at Salem Woods, DAB No. 2052 (2006); Cal
Turner Extended Care, DAB No. 2030 (2006); Beechwood Sanitarium, DAB No. 1906
(2004); Emerald Oaks, DAB No. 1800 at 11 (2001); Anesthesiologists Affiliated, DAB
CR65 (1990), aff’d, 941 F.2d 678 (8th Cir. 1991). The standard of proof is a
preponderance of the evidence. CMS has the burden of coming forward with the
evidence and making a prima facie showing of a basis for imposition of an enforcement
remedy. Petitioner bears the burden of persuasion to show by a preponderance of the
evidence that it met statutory or regulatory requirements or any affirmative defense.
Batavia Nursing & Convalescent Inn, DAB No. 1911 (2004); Batavia Nursing &
Convalescent Ctr., DAB No. 1904 (2004), aff'd, 129 F. App’x 181 (6th Cir. 2005);

> The burden of production and the burden of persuasion are, together, referred to as the
burden of proof. Black’s Law Dictionary 209 (8th ed. 2004).
Emerald Oaks, DAB No. 1800; Cross Creek Health Care Ctr., DAB No. 1665 (1998);
Hillman Rehab. Ctr., DAB No. 1611 (1997) (remand), DAB No. 1663 (1998) (afi.
remand), aff'd, Hillman Rehab. Ctr. v. United States, No. 98-3789 (GEB), 1999 WL
34813783 (D.N.J. May 13, 1999).

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

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

The specific issues before me are narrow. The July 10, 2012 CMS letter advising
Petitioner of the initial determination to deny provider-based status for the remote
location (CMS Ex. 1) cited two grounds:

e The remote location did not meet the provider-based location requirements
of 42 C.F.R. § 413.65(e)(3); and

e The remote location did not meet the ownership and control requirements
of 42 C.F.R. § 413.65(e)(1).

The letter explained in further detail the CMS determinations related to the specific
attestations of Petitioner regarding location of the remote facility under the requirements
of 42 C.F.R. § 413.65(e)(3). The regulation requires for provider-based status that the
remote location meet at least one of the specified location requirements. CMS concluded
that the following location requirements were not satisfied in this case.

* “Credible evidence’ is evidence that is worthy of belief. Black’s Law Dictionary 596.
The “weight of evidence” is the persuasiveness of some evidence compared to other
evidence. Jd. at 1625.
(1) The remote facility is 55 miles from Petitioner and does not satisfy the
requirement of 42 C.F.R. § 413.65(e)(3)(i), that the remote location be within 35
miles of the main provider’s campus.

(2) The remote facility is located in Phelps County, Missouri and Petitioner did
not have an agreement with Phelps County to provide health care to low-income
individuals not covered by Medicare or Medicaid in that county. Therefore,
Petitioner did not satisfy the requirement of 42 C.F.R. § 413.65(e)(3)(ii)(C).

(3) Petitioner did not define the patient populations and Petitioner and the remote
location do not serve the same patient population. Therefore, CMS concluded that
Petitioner did not meet the 75 percent overlap requirement of 42 C.F.R. §
413.65(e)(3)(iii).

Regarding the ownership and control requirements of 42 C.F.R. § 413.65(e)(1), CMS
explained:

(1) The lease for the remote location listed St. John’s Health System, which was
recently renamed Mercy Health System, as the tenant of the remote location rather
than Petitioner. Based on this fact, CMS concluded that the remote location was
owned and controlled by Mercy Health System rather than Petitioner.

(2) CMS also reviewed the websites for the remote location and Petitioner and
determined that they show that the remote location and Petitioner are separate and
unrelated entities in the Mercy Health System.

CMS Ex. | at 2. The denial of provider-based status for the remote location was upheld
on reconsideration. CMS Ex. 2. The notice of the reconsideration decision dated
September 13, 2013, advised Petitioner that the reconsideration official concluded that
Petitioner’s remote location did not meet the provider-based location requirements of 42
C.F.R. § 413.65(e)(3). On reconsideration Petitioner conceded that the remote location
was more than 35 miles from Petitioner’s main campus. Therefore, the reconsideration
official considered the alternative location requirements of the regulation that Petitioner
alleged it met. According to the reconsideration decision, Petitioner specifically argued
that the remote location met the requirement of 42 C.F.R. § 413.65(e)(3)(iii)(A), the 75
percent overlap requirement. The reconsideration hearing officer rejected Petitioner’s
analysis of the application of the rule and also rejected Petitioner’s argument that CMS
failed to publish notice of the methodology it applied in this case and, therefore, the
application of that methodology was impermissible. CMS Ex. 2 at 2-4. Petitioner also
argued that it met the alternative location requirement of 42 C.F.R. § 413.65(e)(3)(ii)(C)
because it served over 500 residents from Laclede County, Missouri, the county with
which Petitioner does have a contract to provide health care services for low-income
individuals. The reconsideration hearing officer rejected this argument stating that it was
unpersuasive for the same reason stated in the initial denial. CMS Ex. 2 at 4. Because
the reconsideration hearing officer concluded that Petitioner’s remote location did not
satisfy the location requirements of 42 C.F.R. § 413.65(e)(3), she declined to address
whether Petitioner met the ownership and control requirements of 42 C.F.R.

§ 413.65(e)(1). The reconsideration hearing officer states that “we reserve our right to
consider this issue in the future, if necessary.” CMS Ex. 2 at 4. In the initial
determination, the websites of Petitioner and the remote location were considered and it
was concluded that the websites indicate that Petitioner and the remote location were
separate and unrelated entities in the Mercy Health System. The conclusion that
Petitioner and the remote location were separate entities was cited in the initial
determination that the ownership and control requirements of 42 C.F.R. § 413.65(e)(1)
were not satisfied. CMS Ex. | at 2. The reconsideration hearing officer, however,
concluded that the website evidence and additional evidence submitted on
reconsideration showing signage at the remote location and a business card used by
employees at the remote location showed that Petitioner failed to satisfy the public
awareness requirement of 42 C.F.R. § 413.65(d)(4).

Petitioner has the burden to show that: it meets at least one of the alternative location
requirements of 42 C.F.R. § 413.65(e)(3); it meets the ownership and control
requirements of 42 C.F.R. § 413.65(e)(1); and it meets the public awareness requirements
of 42 C.F.R. § 413.65(d)(4). The fact that 42 C.F.R. § 413.65(d)(4) was not cited in the
initial determination as a basis for denial of provider-based status, does not relieve
Petitioner of the burden to show that it satisfies that requirement at this level as this de
novo review is to determine whether or not Petitioner’s remote location meets the
requirements for provider-based status. The regulation requires that Petitioner show that
its remote location meets all the requirements for provider-based status, including those
in 42 C.F.R. § 413.65(d) and (e). 42 C.F.R. § 413.65(b). Further, Petitioner was clearly
given notice by the reconsideration decision that it was concluded by CMS that Petitioner
did not satisfy the requirements of 42 C.F.R. § 413.65(d)(4). The failure of the
reconsideration hearing officer to address whether or not Petitioner met the requirements
of 42 C.F.R. § 413.65(e)(1) does not deprive me of jurisdiction to determine, whether or
not Petitioner has established that it meets operation and control requirements. The
reconsideration hearing officer suggests that her intent was to preserve for her subsequent
review the issue of ownership and control, in the event the CMS interpretation of the
application of the regulations is rejected on ALJ review or appeal to the Board. There is
no statutory or regulatory authority that permits the agency to, in essence, compel a
remand by declining to rule upon an issue specifically raised on reconsideration. To the
contrary, 42 C.F.R. § 498.24(c) unambiguously requires that the reconsideration hearing
officer make “a reconsidered determination, affirming or modifying the initial
determination and the findings on which it was based.” The regulation gives the
reconsideration hearing officer no discretion to “reserve” on any issue on which there
were findings and conclusions on the initial determination. Although, the reconsideration
hearing officer’s failure to address the issue of ownership and control under 42 C.F.R.

§ 413.65(e)(1) could be treated as being a waiver of that issue by CMS, I do not treat the
issue as waived.° Rather, Petitioner received notice by the initial determination that there
was an issue of whether it satisfied the requirements of 42 C.F.R. § 413.65(e)(1) and
Petitioner bears the burden to prove it did, even though the reconsideration hearing
officer erroneously failed to address that issue.

1. Summary judgment is appropriate.

The Secretary of Health and Human Services (Secretary) has granted Petitioner the right
to request reconsideration by CMS and to review by an ALJ and the Board under the
procedures established by 42 C.F.R. pt. 498. Generally, an oral hearing before an ALJ is
contemplated under the Act and 42 C.F.R. pt. 498. Crestview Parke Care Ctr. v.
Thompson, 373 F.3d 743, 748-51 (6th Cir. 2004). A party may waive appearance at an
oral hearing, but must do so affirmatively in writing. 42 C.F.R. § 498.66. In this case,
both parties have moved for summary judgment. However, Petitioner has advised me
that if summary judgment is not deemed appropriate, it does not waive its right to an oral
hearing or otherwise consent to decision based only upon the documentary evidence or
pleadings. Petitioner also advised me that CMS does not object to having an oral hearing
if summary judgment is not deemed appropriate. Letter from Petitioner’s Counsel,
regarding Mercy Hospital Lebanon v. CMS, Joint Status Report, dated May 13, 2014.

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

Summary judgment is appropriate and no hearing is required where either: there are no
disputed issues of material fact and the only questions that must be decided involve
application of law to the undisputed facts; or, the moving party must prevail as a matter

> Applying the doctrine of waiver may have the beneficial effect of deterring future
reconsideration hearing officers from failure to fulfill their regulatory duty. However,
applying wavier in this case would also prevent consideration of whether or not provider-
based requirements are actually met. I conclude it is better to consider the issue rather
than potentially adversely affect the integrity of the program.
10

of law even if all disputed facts are resolved in favor of the party against whom the
motion is made. The Board follows the general approach of the federal courts in
evaluating whether or not summary judgment in lieu of a hearing is appropriate.

The movant bears the initial burden of demonstrating that there are no genuine issues of
material fact for trial and that the movant is entitled to judgment as a matter of law.
When confronted with a properly supported motion for summary judgment, the
nonmoving party “may not rest upon the mere allegations or denials of his pleading, but .
. . must set forth specific facts showing that there is a genuine issue for trial.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (quoting First Nat’l Bank of Az. v. Cities
Serv. Co., 391 U.S. 253, 249 (1968)); see also, Fed. R. Civ. P. 56(c); Ill. Knights Templar
Home, DAB No. 2274, at 3-4 (2009); Garden City Med. Clinic, DAB No. 1763 (2001),
Everett Rehab. & Med. Ctr., DAB No. 1628, at 3 (1997) (in-person hearing required
where nonmovant shows there are material facts in dispute that require testimony); Big
Bend Hosp. Corp., d/b/a Big Bend Hosp. Ctr., DAB No. 1814, at 13 (2002) (in some
cases, any factual issue is resolved on the face of the written record because the proffered
testimony, even if accepted as true, would not make a difference). In opposing the
motion for summary judgment, the nonmovant bears the burden of showing that there are
material facts that are disputed either affecting the movant’s prima facie case or that
might establish a defense. It is insufficient for the nonmovant to rely upon mere
allegations or denials to defeat the motion and proceed to hearing. The nonmovant must,
by affidavits or other evidence that sets forth specific facts, show that there is a genuine
issue for trial. If the nonmovant cannot show by some credible evidence that there exists
some genuine issue for trial, then summary judgment is appropriate and the movant
prevails as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247. A test
for whether an issue is regarded as genuine is if “the evidence [as to that issue] is such
that a reasonable jury could return a verdict for the nonmoving party.” Jd. at 248. In
evaluating whether there is a genuine issue as to a material fact, an ALJ must view the
facts and the inferences to be drawn from the facts in the light most favorable to the
nonmoving party. Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir.
1986).

In Venetian Gardens, DAB No. 2286, at 10-11 (2009) and ///. Knights Templar Home,
DAB No. 2274, at 3-4, the Board provided very specific guidance. If CMS asserted in its
motion for summary judgment the facts necessary to establish its prima facie case, the
first question is whether the facility conceded all those facts. If the facility did not
concede all those facts, the next question is whether the facility averred facts and
proffered evidence sufficient to show a genuine dispute of material fact. If, when viewed
in a light most favorable to the facility, the evidence might permit a rational trier of fact
to decide in favor of the facility, summary judge is not appropriate. The Board explained,
consistent with its prior decisions, that the ALJ’s role in deciding summary judgment is
different from deciding a case on the merits after a hearing. On summary judgment,
credibility determinations are not made, the evidence is not weighed, and the ALJ does

11

not decide which inferences to draw from the facts. Rather, the evidence of record is
construed in a light most favorable to the nonmovant without determining which version
of the facts is more likely true. I//. Knights Templar Home, DAB No. 2274, at 8.

I conclude based upon my review of the pleadings and the documentary evidence that
summary judgment is appropriate in this case. This case turns upon the interpretation of
the law and, once interpreted, the application of that law to the undisputed facts in this
case.

2. Petitioner meets the ownership and control requirements of 42
C.F.R. § 413.65(e)(1).

The CMS initial determination was that Petitioner’s remote location did not satisfy
ownership and control requirements of 42 C.F.R. § 413.65(e)(1), because: (1) Petitioner
was not listed on the lease for the remote location; and (2) the websites for Petitioner and
the remote location showed that Petitioner and the remote location were separate and
unrelated entities within the Mercy Health System. The reconsideration hearing officer
did not make any findings and conclusions regarding ownership and control, but
purportedly reserved the right to decide later.

The parties have resolved the ownership and control issue by stipulations. The parties
stipulated that any irregularities previously noted by CMS regarding the lease for the
remote location do not bar provider-based status for the remote location. The parties also
stipulated that although CMS originally determined that Petitioner’s website and the
website for the remote location showed that the two were separate and unrelated entities,
CMS concedes that the issue has been resolved and does not bar provider-based status.
Jt. Stip. § 31 c. and d.

3. Petitioner and the remote location meet the public awareness
requirements of 42 C.F.R. § 413.65(d)(4).

The reconsideration hearing officer concluded that Petitioner and the remote location did
not met the public awareness requirement of 42 C.F.R. § 413.65(d)(4). The regulation
requires:

(4) Public awareness. The facility or organization seeking
status as a department of a provider, a remote location of a
hospital, or a satellite facility is held out to the public and
other payers as part of the main provider. When patients
enter the provider-based facility or organization, they are
aware that they are entering the main provider and are billed
accordingly.
12

42 C.F.R. § 413.65(d)(4). The reconsideration hearing officer acknowledged that a
photograph of the main door for the remote location clearly indicated that the
departments at the remote location are departments of Petitioner. However, the
reconsideration hearing officer found that interior signs and a business card used by staff
at the remote location indicated that the departments at the remote location were still part
of “St. John’s Hospital-Lebanon,” Petitioner’s prior name. The reconsideration hearing
officer was unconvinced that a patient entering the remote location would be aware that it
was part of Petitioner. CMS Ex. 2 at 4.

The signs shown in photographs in evidence list “St. John’s Hospital — Lebanon” rather
than “Mercy Hospital — Lebanon.” CMS Ex. 3 at 81 - 90. The sample business card lists
“Mercy/St. John’s.” CMS Ex. 3 at 91. However, the parties stipulated that when
Petitioner submitted its attestations that are in evidence as CMS Ex. 3, which includes the
photographs of signs and the business card, Petitioner was in the process of changing its
name from St. John’s Hospital Lebanon to Mercy Hospital-Lebanon. The parties also
stipulated that the name change was not due to a change of ownership. Jt. Stip. 4 5.
Subsequent photographs reflect that the remote location is part of Petitioner as the signs
reflect the name “Mercy.” P. Ex. 7 at 1-2. The parties also stipulated that the websites
for Petitioner and the remote location are not a bar to provider-based status in this case.
Jt. Stip. § 31d. Screen shots of the remote location webpages submitted as evidence
reflect a relationship between the remote location and Petitioner. P. Ex. 7 at 3. Based on
the documentary evidence admitted without objection; the parties’ stipulations; and the
fact that CMS does not argue to me that the public awareness requirements of 42 C.F.R.
§ 413.65(d)(4) are not met, I conclude that the public awareness requirements for
provider-based status are satisfied.

4. Petitioner meets the alternative location requirements of 42 C.F.R.
§ 413.65(e)(3)(iii).

5. Petitioner’s remote location in Rolla, Missouri does satisfy the
requirements for provider-based status.

The regulation establishes alternative location requirements that must be met for a remote
location of a main provider to be eligible for provider-based status. 42 C.F.R.

§ 413.65(b)(3)(ii) and (e)(3). The remote location must either be within a 35-mile radius
of the main provider or meet one of the other location requirements established by 42
C.F.R. § 413.65(e)(3). In this case, there is no dispute that the remote location in Rolla,
Missouri is more than 35 miles from the main campus of Petitioner in Lebanon, Missouri.
Therefore, it is necessary for Petitioner to prove that its remote location meets one of the
alternative location requirements for the remote location to be eligible for provider-based
status. Petitioner argues that it meets both of the following alternative location
requirements:
13

(ii) The facility or organization is owned and operated by a
hospital or CAH that has a disproportionate share adjustment
(as determined under § 412.106 of this chapter) greater than
11.75 percent or is described in § 412.106(c)(2) of this
chapter implementing section 1886(d)(5)(F)(i)(ID of the Act
and is—

oe Rk

(C) A private hospital that has a contract with a State or local
government that includes the operation of clinics located off
the main campus of the hospital to assure access in a well-
defined service area to health care services for low-income
individuals who are not entitled to benefits under Medicare
(or medical assistance under a Medicaid State plan).

42 CFR. § 413.65(e)(3)(ii); or

(iii) The facility or organization demonstrates a high level of
integration with the main provider by showing that it meets
all of the other provider-based criteria and demonstrates that
it serves the same patient population as the main provider, by
submitting records showing that, during the 12-month period
immediately preceding the first day of the month in which the
application for provider-based status is filed with CMS, and
for each subsequent 12-month period—

(A) At least 75 percent of the patients served by the facility or
organization reside in the same zip code areas as at least 75
percent of the patients served by the main provider; or

(B) At least 75 percent of the patients served by the facility or
organization who required the type of care furnished by the
main provider received that care from that provider (for
example, at least 75 percent of the patients of an RHC
seeking provider-based status received inpatient hospital
services from the hospital that is the main provider).

42 C.F.R. § 413.65(e)(3)(iii). These requirements are discussed in the order in which
they appear in the regulation.
14

a. 42 C.F.R. § 413.65(e)(3)(ii)
The regulation requires:
(1) That the remote location be owned and operated by Petitioner;

(2) That Petitioner have a disproportionate share adjustment greater than 11.75
percent; and

(3) That Petitioner is a private hospital with a contract with a state or local
government that provides for the operation of clinics located off the main campus
of the hospital for the purpose of ensuring that health care services are available to
low-income individuals who are not entitled to benefits under Medicare or
Medicaid.

I conclude that Petitioner does not meet this alternative location requirement.

There is no dispute that the remote location in Rolla is owned and operated by Petitioner.
Also, the parties stipulated that Petitioner has a disproportionate share adjustment of 12
percent, which is greater than 11.75 percent. Thus, the first two elements of the
regulation are satisfied. But, Petitioner fails to meet the third element.

The parties stipulated that Petitioner has an agreement with Laclede County, Missouri to
provide health care services for low-income individuals residing in Laclede County,
Missouri. Jt. Stip. § 15. The agreement between Petitioner and Laclede County is dated
February 16, 2012, and purports to have been effective on February 1, 2012. The
agreement provides that Petitioner “will provide health care services to low income
individuals residing in Laclede County who are not entitled to benefits” under Medicare
and Medicaid in an amount determined by Petitioner’s board of directors. CMS Ex. 3 at
214. The parties stipulated that Petitioner is located in Laclede County but the remote
location in Rolla, Missouri is in Phelps County. Jt. Stip. § 1, 2.

There is no question that Petitioner is a private hospital with a contract with Laclede
County to provide medical services to low-income individuals in Laclede County.
However, those facts do not satisfy the third element of the regulation, even if Petitioner
provides some medical services to low-income individuals from Laclede County at the
remote location. The regulation, although not artfully drafted, specifically requires that
“the operation of clinics located off the main campus of the hospital” be to assure access
for low-income individuals who are not otherwise entitled to Medicare or Medicaid.
Petitioner points to no evidence and does not argue that the remote location in Rolla was
established to provide access to medical care for low income individuals from Laclede
County. The parties stipulated that the remote location in Rolla actually served 500
15

patients from zip codes partially or totally within Laclede County during the 12-month
period that ended January 31, 2012. Jt. Stip. § 16; P. Br. at 4, 25-26. The parties did not
stipulate that the 500 patients were low-income and not entitled to Medicare or Medicaid
and they did not stipulate that the remote location in Rolla was established, at least in
part, for the purpose of providing services to low-income individuals from Laclede
County, Missouri. If Petitioner had an agreement with Phelps County and other evidence
that the remote location was established, at least in part to serve low-income individuals
without Medicare or Medicaid, that may have been persuasive, but those are not the facts
in this case.

Accordingly, I conclude that Petitioner did not meet the alternative location requirement
of 42 C.F.R. § 413.65(e)(3)(ii).

b. 42 C.F.R. § 413.65(e)(3)(iii)

In order to meet the alternative location requirement of 42 C.F.R. § 413.65(e)(3)(iii),
Petitioner must show that there is a high-level of integration between Petitioner and the
remote location. The regulation specifies that the high-level of integration requires a
showing that:

(1) All other provider-based criteria are met;

(2) The remote location serves the same patient population as the main provider
based on records for the 12-month period that ended the day before the first day of
the month in which the provider-based application was filed with CMS or its
contractor and for each subsequent 12-month period. The records must show:

(a) At least 75 percent of the patients served by the remote location reside
in the same zip codes as at least 75 percent of the patients served by
Petitioner; or

(b) At least75 percent of patients served at the remote location who
required care of the type provided by Petitioner, received that care from
Petitioner.

I have concluded that Petitioner satisfied the ownership and control requirements and the
public awareness requirements, and there is no dispute that Petitioner’s remote location
meets all other provider based criteria. Therefore, the first element is satisfied.

The 75 percent tests have caused the parties a great deal of consternation as there is
disagreement as to the meaning and application of the two alternative tests. My
conclusion is that the plain language of the regulation is clear and should control and no
interpretation is required. Review of the regulatory history supports my conclusion that
16

the language is clear. The language of 42 C.F.R. § 413.65(e)(3)(iii) and its 75 percent
tests was originally promulgated as 42 C.F.R. § 413.65(d)(7). 65 Fed. Reg. 18,433 (Apr.
7, 2000) as amended at 65 Fed. Reg. 58,920 (Oct. 3, 2000) (delayed the effective date of
the regulation). HCFA adopted the 75 percent tests in response to comments to the notice
of proposed rule-making that HCFA needed more specific tests to determine whether or
not a main provider and remote location served the same patient population. HCFA
commented:

We agree that more precise criteria are needed. Therefore,
we have revised the regulations to provide that a prospective
provider-based facility or organization will be considered
to serve the same patient population as the main provider
if, during the 12-month period immediately preceding the first
day of the month in which the application for provider-based
status is filed with us, at least 75 percent of the patients
served by the facility or organization seeking provider-
based status reside in the same zip code areas as at least
75 percent of the patients served by the main provider.

As an alternative, we would consider a facility or
organization to serve the same patient population if, during
the same 12-month period described above, at least 75
percent of the patients served by the prospective provider-
based facility or organization who required the type of care
furnished by the main provider received that care from the
main provider. We require this “same patient population” test
to be met for the 12-month period used to support an initial
determination of provider-based status, and it must continue
to be met for each subsequent 12-month period to justify a
continuation of provider-based status.

65 Fed. Reg. 18,433, 18,516 (emphasis added).
In response to another comment, HCFA responded:

We recognize that patient populations will not be identical in
all cases, and thus have adopted a patient population criterion
under which there may be a divergence of up to 25 percent
between the main provider and the facility or organization
seeking provider-based status. We believe this provides a
reasonable allowance for differences in patient population.

Id.
17

HCFA’s comments show that the drafters intended that the main provider and remote
location serve the same patient population. The drafters were willing to conclude that the
main provider and remote location serve the same patient population so long as there is
an overlap at least 75 percent of the patient population. The patient population overlap is
determined using the data of the main provider and the remote location for the 12 months
ending prior to the first day of the month in which the application for provider-based
status is made. The drafters created two alternative requirements:

e 75 percent of the remote location patients must have lived in the same zip codes as
75 percent of the patients of the main provider in the same 12-month period, or

e 75 percent of the remote location patients must have received care from the main
provider.

The second of the 75 percent tests, which is clear in what it requires, is not at issue in this
case. The first 75 percent test is at issue and what it requires is also clear from the plain
language of the regulation. No statistician, mathematician, or accountant is required to
apply the test. The following steps are required in applying the test in this case:

Step 1 — Identify the pertinent 12-month period that ended the last day of the
month prior to the first day of the month in which the provider-based application
was filed. In this case, the application was received by WPS on February 27,
2012. Therefore, the pertinent 12-mongh period is February 1, 2011 through
January 31, 2012.

Step 2 — Compile a list of the zip codes for all patients served by the main provider
during the period February 1, 2011 through January 31, 2012.

Step 3 — Compile a list of the zip codes for all patients served by the remote
location during the period February 1, 2011 through January 31, 2012.°

Step 4 — Compare the list of zip codes compiled in steps 2 and 3 for the main
provider and remote location and, based on that comparison, compile a new list of
the zip codes that are common to both.

® No argument has been made that 42 C.F.R. § 413.65(e)(3)(iv) should apply in this case
because the remote location was not operational for the full 12-month period from
February 1, 2011 through January 31, 2012.
18

Step 5 — Tally the number of patients served by the main provider in the common

zip codes.

Step 6 — Tally the number of patients served by the remote location in the common

zip codes.

Step 7 — Divide the number of patients served by the main provider in the common

zip codes by the total of all patients served

by the main provider during the period

February 1, 2011 through January 31, 2012, and multiple that result by 100.

Step 8 — Divide the number of patients served by the remote location in the
common zip codes by the total of all patients served by the remote location during
the period February 1, 2011 through January 31, 2012, and multiple that result by

100.

Step 9 — If the product in both steps 7 and 8 is at least 75 percent, the alternative
location test of 42 C.F.R. § 413.65(e)(3)(iii)(A) is satisfied for provider-based

status.

The initial determination shows that CMS did not

follow the test established by 42 C.F.R.

§ 413.65(e)(3)(iii)(A). The initial determination states that the test was applied as

follows:

The number of patients per zip code should be arrayed in

order of the highest number of patie
the hospital and clinic. In order to s|

by the clinic should be included in t

nts to the lowest for both
ow that the hospital and

the clinic serve the same patient population, all of the zip
codes that represent the top 75 percent of the patients served

e zip codes that represent

the top 75 percent of the hospital’s patients.

CMS Ex. | at 2. This approach may be summarized as follows:

Step 1 — Compile the list of zip codes for a
during the pertinent period.

Step 2 — Compile the list of zip codes for a
during the pertinent period.

Step 3 — Determine the number of patients
pertinent period for each zip code.

| patients served by the main provider

| patients served by the remote location

served by the main provider during the
19

Step 4 — Determine the number of patients served by the remote location during
the pertinent period for each zip code.

Step 5 — Display the data from the largest number of patients per zip code to the
least number of patients per zip code for the main provider.

Step 6 — Display the data from the largest number of patients per zip code to the
least number of patients per zip code for the remote campus.

Step 7 — Starting with the zip codes with the largest number of patients served by
the remote location, add the number of patients served in each of the zip codes
until the number equals 75 percent of the total number of patients served during
the pertinent period by the remote location.

Step 8 — Starting with the zip codes with the largest number of patients served by
the main provider, add the number of patients served in each of the zip codes until
the number equals 75 percent of the total number of patients served during the
pertinent period by the main provider.

Step 9 — Compare the zip codes under Steps 7 and 8 that are treated as comprising
the “top 75 percent” of patients. According to the initial determination, the test is
satisfied only if the zip codes are the same.

The test as applied in the initial determination is inconsistent with the test required by 42
C.F.R. § 413.65(e)(3)(iii)(A). The test described in the initial determination compares
patients served by geographic area as demonstrated by the CMS calculations in CMS Ex.
6.’ The test required by 42 C.F.R. § 413.65(e)(3)(iii)(A) is based upon the pool of

7 CMS argues in its reply brief that the regulation requires “a geographically contiguous
and homogenous area.” CMS Reply at 2. CMS does not identify the actual language of
the regulation that supports that interpretation. CMS does cite to a comment by the
drafters during rule-making that proximity is an important indicator but the drafters did
not state that a geographic test was adopted or that proximity is determinative of
provider-based status. CMS Exs. 6 and 7 clearly show that the application of the test
advocated by CMS focuses upon the geographic area served by the hospital and remote
location rather than the patient population served that is common to both. For example,
the largest number of patients served by the hospital is in the zip code which is the zip
code for Lebanon, Missouri. The greatest number served by the remote location in Rolla
is, as one would expect, from the Rolla, Missouri zip code. Ordering the data according
to zip code has the effect of limiting the 75 percent to the pool of patients largely located
(Footnote continued next page.)
20

patients common to both the main provider and remote location that are served during the
pertinent period. CMS argues that “[t]he regulations do not prescribe the methodology
CMS must use to determine provider-based status.” CMS Br. at 6. The CMS argument
is clearly in error because 42 C.F.R. § 413.65 is extremely detailed regarding the
requirements for provider-based status and the tests that must be met to satisfy the
requirements. Indeed, 42 C.F.R. § 413.65(e)(3)(iii)(A) tells CMS exactly how to apply
the 75 percent test. CMS offers no explanation for how or why the initial determination
and the reconsideration determination, which simply restated the same test as the initial
determination, departed so significantly from the test actually required by the regulation.®
But, CMS argues that because the 75 percent test of 42 C.F.R. § 413.65(e)(3)(iii)(A) is
not clear, CMS should be given deference to apply the test it sees fit. CMS Br. at 1, 7-10.
Contrary to CMS’s argument, 42 C.F.R. § 413.65(e)(3)(iii)(A) clearly sets forth the 75
percent test. Thus, there is no need for CMS to interpret the regulation, and the erroneous
interpretation of CMS reflected in the initial and reconsideration determinations are
entitled to no deference.”

(Footnote continued.)

around the hospital or remote location rather than determining whether each facility
serves 75 percent of the patients from the pool of patients common to both, which was
the test intended by the drafters of the regulation.

® T note that WPS concluded that Petitioner did meet the requirement of 42 C.F.R.

§ 413.65(e)(3)(iii) or (iv). CMS Ex. 3 at 15 (Item 2). WPS only questioned the source of
the data Petitioner relied on to show it met the 75 percent test because the data was from
Petitioner’s own records, not an unbiased source. CMS Ex. 3 at 6, 8.

° CMS cites a number of federal cases in support of its argument that I should give
deference to the CMS interpretation. CMS Br. at 1, 8, 10. Because the regulation is
clear, no interpretation of the regulation is required, and the CMS application of the
regulation that deviates from the plain language is entitled to no deference. I further note
that the cases cited discuss whether the federal courts should give agency interpretations
deference. Those cases are inapposite to ALJ de novo review and the Boards review both
of which act for or on behalf of the Secretary in issuing final decisions on the Secretary’s
behalf. In practical effect, the CMS argument is that the Secretary must give deference to
the actions of CMS, which acts with the delegated authority of the Secretary. CMS
overlooks that it is the Secretary who is ultimately responsible for the administration of
Medicare under the Act. CMS also overlooks the fact that it is no longer the final
decision-maker on behalf of the Secretary when review of the CMS decision is requested.
42 CFR. §§ 498.74(b), 498.90(a), 498.103(b).

21

It is necessary to apply the actual 75 percent test of 42 C.F.R. § 413.65(e)(iii)(A) in this
case. The parties stipulated that, considering all patients in all zip codes (in or out of
state),'° 98.33 percent of patients served at the remote location resided in the same zip
codes as 92.66 percent of the patients that received services at Petitioner, that is, a single
set of zip codes included 98.33 percent of the remote location patients and 92.66 percent
of Petitioner’s patients. Jt. Stip. § 14. The undisputed data was admitted by CMS as
CMS Exs. 3 at 207-09; 4 at 2-4. The parties stipulated that the calculations were based
on patient data from the period February 1, 2011 through January 31, 2012. Jt. Stip. ¥ 11.
The parties also stipulated to the procedure Petitioner used in applying the 75 percent test
of 42 C.F.R. § 413.65(e)(3)(ili)(A), which I find is consistent with the procedure required
by the regulation. Jt. Stip § 11; CMS Ex. 3 at 20.

Accordingly, I conclude that Petitioner and the remote location in Rolla satisfied the 75
percent alternative location test established by 42 C.F.R. § 413.65(e)(3)(iii)(A).
Therefore, Petitioner satisfied the location requirement for provider-based status.

HI. Conclusion
For the foregoing reasons, I conclude that Petitioner meets all requirements for the

remote location to be granted provider-based status.

/s/
Keith W. Sickendick
Administrative Law Judge

'° CMS expresses concern about the geographic dispersion of the patients with some
patient zip codes from as far away as Texas. CMS Br. at 3, 6-9. The reasons why
Petitioner and the remote location served patients with zip codes from as far away as
Texas, is not a fact considered in comparing patient populations rather than the
geographic distribution of the patient population. However, it is interesting to know that
Lebanon and Rolla, Missouri are both on a major interstate highway that connects the
southwestern United States to St. Louis; a major military installation, presumably with
dependent families from across the nation, lies between both cities; and the area is an
attraction for fishermen from across the country.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
(FDA No. FDA-2014-H-0778)

Complainant
v.
Nurul Enterprise, LLC d/b/a Food Land / Citgo,
Respondent.
Docket No. C-14-1285
Decision No. CR3319

Date: August 8, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) began this matter by serving an administrative
complaint on Respondent, Nurul Enterprise, LLC d/b/a Food Land / Citgo, at 831 Maple
Avenue, Hartford, Connecticut 06114, and by filing a copy of the complaint with the
Food and Drug Administration’s (FDA) Division of Dockets Management. The
complaint alleges that Food Land / Citgo unlawfully sold cigarettes to minors and failed
to verify, by means of photo identification containing a date of birth, that cigarette
purchasers were 18 years of age or older, thereby violating the Federal Food, Drug, and
Cosmetic Act (Act), 21 U.S.C.

§ 301 et seq., and its implementing regulations, 21 C.F.R. pt. 1140. CTP seeks to impose
a $500 civil money penalty against Respondent Food Land / Citgo.

As provided for in 21 C.F.R. §§ 17.5 and 17.7, on June 12, 2014, CTP served the
complaint on Respondent Food Land / Citgo by United Parcel Service. In the complaint
and accompanying cover letter, CTP explained that, within 30 days, Respondent should
pay the penalty, file an answer, or request an extension of time in which to file an answer.
CTP warned Respondent that, if it failed to take one of these actions within 30 days, the
Administrative Law Judge could, pursuant to 21 C.F.R. § 17.11, issue an initial decision
ordering it to pay the full amount of the proposed penalty.

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

e At Respondent’s business establishment, 831 Maple Avenue, Hartford,
Connecticut 06114, on April 5, 2013, at approximately 2:16 PM, an FDA-
commissioned inspector observed Respondent’s staff sell a package of Newport
Box cigarettes to a person younger than 18 years of age. The inspector also noted
that Respondent’s staff failed to verify, by means of photo identification
containing the bearer’s date of birth, that the cigarette purchaser was 18 years of
age or older;

e Ina warning letter issued on April 25, 2013, CTP informed Respondent of the
inspector’s observations from April 5, 2013, and that such actions violate federal
law, 21 C.F.R. § 1140.14(a) and (b)(1). The letter further warned that if
Respondent failed to correct its violations, the FDA could impose a civil money
penalty or take other regulatory action;

e At Respondent’s business establishment, 831 Maple Avenue, Hartford,
Connecticut 06114, on January 15, 2014, at approximately 10:47 AM, FDA-
commissioned inspectors documented Respondent’s staff selling a package of
Newport Box cigarettes to a person younger than 18 years of age. The inspectors
also noted that Respondent’s staff failed to verify, by means of photo
identification containing the bearer’s date of birth, that the cigarette purchaser was
18 years of age or older.

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

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

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

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

/s/
Catherine Ravinski
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL

APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,

Comp!

lainant

Vv.

Raed Iwais / Rafat Iwies
d/b/a Sunoco,

Respondent.

Docket No.

. C-14-1217

FDA Docket No. FDA-2014-H-0719

Decision No. CR3318

Date: August 6, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP)

filed an Administrative Complaint

(Complaint) against Respondent, Raed Iwais / Rafat Iwies d/b/a Sunoco, alleging

facts and legal authority sufficient to just
$500. Respondent did not timely answer
request an extension of time within whic
default judgment against Respondent an
penalty in the amount of $500.

ify imposing a civil money penalty of
the Complaint, nor did Respondent

to file an answer. Therefore, I enter a
order that Respondent pay a civil money

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

the Complaint with the Food and Drug A

dministration’s (FDA) Division of

Dockets Management. The Complaint al

leges that Respondent’s staff unlawfully

sold cigarettes to minors and failed to verify that cigarette purchasers were of
sufficient age, thereby violating the Federal Food, Drug, and Cosmetic Act (Act)
and its implementing regulations, found at 21 C.F.R. pt. 1140. CTP seeks a civil

money penalty of $500.
On June 11, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days Respondent should
pay the penalty, file an answer, or request an extension of time within which to file
an answer. CTP warned Respondent that if it failed to take one of these actions
within 30 days an Administrative Law Judge could, 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.

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

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

e Respondent owns Sunoco, an establishment that sells tobacco products and
is located at 21435 West 8 Mile Road, Detroit, Michigan 48219.
Complaint 3.

e During an inspection of the establishment conducted on March 9, 2013, 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 12:04 PM [.]” The inspector also observed that “the
minor’s identification was not verified before the sale. ...” Complaint
q 10.

e¢ On June 27, 2013, CTP issued a Warning Letter to Sunoco explaining that
the inspector’s March 9, 2013 observations constituted violations of
regulations found at 21 C.F.R. § 1140.14(a) and (b)(1). In addition to
describing the violations, 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 violations. The letter also stated that it
was Respondent’s responsibility to comply with the law. Complaint § 10.

¢ On August 27, 2013, Raed Iwais, Respondent’s co-owner and manager,
responded by telephone to the Warning Letter. “Mr. Iwais indicated that he
would amend the establishment’s policy to require employees to verify the
identification of all tobacco purchasers under the age of 27, and that he
would train employees on this policy.” Complaint § 11.

e On November 2, 2013, during a subsequent inspection of Respondent’s
establishment, FDA-commissioned inspectors documented that “a person
younger than 18 years of age was able to purchase a package of Newport
Box 100s cigarettes . . . at approximately 2:30 PM[.]” The inspectors also
noted that “the minor’s identification was not verified before the sale... .”
Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). Under

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

Here, Respondent violated 21 C.F.R. § 1140.14(a) on March 9, 2013, and
November 2, 2013, when its staff sold cigarettes to minors. Respondent also
violated 21 C.F.R. § 1140.14(b)(1) on those dates, when its staff did not verify, by
checking the minors’ photographic identification, that these tobacco purchasers
were 18 years of age or older. Therefore, Respondent’s actions and omissions on
two separate occasions at the same retail outlet constitute violations of law that
warrant a civil money penalty. Accordingly, I find that a civil money penalty of
$500 is permissible under 21 C.F.R. § 17.2.

/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.

Two Farms, Inc.
d/b/a Royal Farms Store 34,

Respondent.

Docket No. C-14-1249
FDA Docket No. FDA-2014-H-0741

Decision No. CR3316

Date: August 4, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, Two Farms, Inc. d/b/a Royal Farms Store 34,
that alleges facts and legal authority sufficient to justify the imposition of a civil
money penalty of $500. Respondent did not answer the Complaint, nor did
Respondent request an extension of time within which to file an answer.
Therefore, I enter a default judgment against Respondent and assess a civil money
penalty of $500.

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

' CTP served the Complaint on Respondent at 3611 Roland Avenue, Baltimore,
Maryland 21211, which is not the address CTP provides for the establishment in
the Complaint. See Proof of Service at 1; Complaint § 3. According to the
Dockets Management. The Complaint alleges that Respondent impermissibly sold
cigarettes to minors and failed to verify that cigarette purchasers were 18 years of
age or older, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21
US.C. § 301 et seq., and its implementing regulations, Cigarettes and Smokeless
Tobacco, 21 C.F.R. pt. 1140 (2014). CTP seeks a civil money penalty of $500.

On June 12, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days, Respondent should
pay the proposed penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that if it failed to take one of
these actions within 30 days, an Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering Respondent to pay the full
amount of the proposed penalty.

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

Specifically, CTP alleges the following facts in its Complaint:

e Respondent owns Royal Farms Store 34, an establishment that sells tobacco
products and is located at 15 Hanover Pike, Reisterstown, Maryland 21136.
Complaint §[ 3.

e During an inspection of Respondent’s establishment on December 7, 2012,
at approximately 1:52 PM ET, an FDA-commissioned inspector observed
that “a person younger than 18 years of age was able to purchase a package
of Newport Box cigarettes . . . [.]” The inspector also observed that “the
minor’s identification was not verified before the sale... .”. Complaint
q 10.

delivery notification, the Complaint was addressed to “Two Farms, Inc. d/b/a
Royal Farms Store 34,” and an individual named “Saron” accepted and signed for
the package. Proof of Service at 1. Additionally, the Civil Remedies Division
issued an Initial Order Establishing Procedures to the parties and mailed it to both
the physical location at which CTP alleges Respondent is located and the address
at which CTP served the Complaint on the Respondent.
e On March 28, 2013, CTP issued a Warning Letter to Respondent regarding
the inspector’s December 7, 2012 observations. The letter explained that

the observati
§ 1140.14(a)

ons constituted violations of regulations found at 21 C.F.R.
and (b)(1), and that the named violations were not necessarily

intended to be an exhaustive list of all violations at the establishment. The
Warning Letter went on to state that if Respondent failed to correct the
violations, regulatory action by the FDA or a civil money penalty action
could occur and that Respondent is responsible for complying with the law.

Complaint §

10.

e Though United Parcel Service records indicate an individual named
“Danielee” received the Warning Letter on March 29, 2013, CTP did not
receive a response from Respondent. Complaint § 11.

e During a subsequent inspection of Respondent’s establishment on
November 14, 2013, at approximately 1:56 PM, FDA-commissioned
inspectors documented that “a person younger than 18 years of age was
able to purchase package of Newport Box 100’s cigarettes... [.]” The

inspectors al

so documented that “the minor’s identification was not verified

before the sale... .” Complaint § 1.

These facts establis!

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 distri

buted or offered for sale in any state in violation of regulations

issued under section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R
§ 1140.1(b). The Secretary issued the regulations at 21 C.F.R. pt. 1140 under

section 906(d) of th
Reg. 13,229 (Mar.

e Act. 21 U.S.C. § 387(a); 21 U.S.C. § 387f(d)(1); 75 Fed.
0, 2010). The regulations prohibit the sale of cigarettes to any

person younger than 18 years of age. 21 C.F.R. § 1140.14(a). The regulations
also require retailers to verify, by means of photo identification containing a

purchaser’s date of
age. 21C.F.R.§ 1

birth, that no cigarette purchasers are younger than 18 years of
40.14(b)(1).

Taking the above alleged facts as true, Respondent violated the prohibition against

selling cigarettes to
on December 7, 20

persons younger than 18 years of age, 21 C.F.R. § 1140.14(a),
2, and November 14, 2013. On those same dates, Respondent

also violated the requirement that retailers verify, by means of photo identification
containing a purchaser’s date of birth, that no cigarette purchasers are younger
than 18 years of age. 21 C.F.R. § 1140.14(b)(1). Therefore, Respondent’s actions
constitute violations of law that merit a civil money penalty.
CTP has requested a fine of $500, which is a permissible fine under the
regulations. 21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of $500
is warranted and so order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge