Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

In the Case of:
Tommy E. Thompson, R.Ph., DATE: May 8, 1997
Petitioner,

Docket No. C-96-404
Decision No. CR473

Vv.

The Inspector General.

DECISION

I conclude that the 10-year exclusion imposed and

directed against Petitioner, Tommy E. Thompson, R.Ph.,
from participating as a provider in Medicare and other
federally financed health care programs is reasonable.

PROCEDURAL HISTORY

By letter dated June 19, 1996, the Inspector General
(I.G.) of the United States Department of Health and
Human Services (DHHS) notified Petitioner that, as a
result of his conviction of a criminal offense related to
the Medicaid program, he was being excluded for 10 years
from participation in the Medicare, Medicaid, Maternal
and Child Health Services Block Grant and Block Grants to
States for Social Services programs.' The I.G. further
advised Petitioner that exclusion is mandated by section
1128(a)(1) of the Social Security Act (Act),? that a 5-
year minimum period of exclusion is required by section
1128(c) (3) (B) of the Act, and that Petitioner's 10-year
period of exclusion took into consideration certain
specified aggravating factors.

1 Unless otherwise indicated, hereafter I refer
to all programs from which Petitioner has been excluded,
other than Medicare, as "Medicaid."

2 Those parts of the Act discussed herein are
codified in 42 U.S.C. § 1320a-7.
2

By letter dated August 20, 1996, Petitioner filed a
request for hearing, asserting that a 10-year period of
exclusion is excessive and requesting that the period be
reduced to a 5-year exclusion.

The I.G. filed her Motion for Decision Based on
Documentary Evidence, with accompanying brief and 4
exhibits. Petitioner filed his Response, also asking
that the decision be based on the documentary evidence.
P. Br. at 1.3 Petitioner agrees with the I.G.'s
Statement of Undisputed Facts. Id. Petitioner does not
object to the admission into evidence of the exhibits
submitted by the I.G., and I admit into evidence I.G.
Exhibits (I.G. Exs.) 1 through 4. Petitioner did not
submit exhibits. No facts of decisional significance are
in dispute, and, consequently, there is no need for an
in-person hearing.

Based on the evidence in the written record, the law, and
the parties' written arguments, I conclude that
Petitioner's 10-year period of exclusion comports with
the remedial purposes of the Act and is reasonable.
Accordingly, I affirm the 10-year exclusion.

ISSUE

The issue is whether the 10-year exclusion which the I.G.
imposed and directed against Petitioner is reasonable.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Petitioner was a licensed pharmacist and the owner
and operator of the Medicine Shoppe, Inc., a pharmacy in
North Little Rock, Arkansas. I.G. Ex. 2 at 1; I.G. Br.
at 2; P. Br. at 1.

3 In this Decision, I refer to the parties’

submissions as follows:

I.G.'s_ Submission Abbreviation
Motion for Decision Based I.G. Br.

on Documentary Evidence

Petitioner's
Submission

Petitioner's Response P. Br.
3

2. The Medicine Shoppe, Inc., was an authorized provider
of prescription drugs under the Arkansas Medicaid
program. I.G. Br. at 2; P. Br. atl.

3. Petitioner entered guilty pleas to Counts XV and xX
of a superseding indictment filed in the United States
District Court for the Eastern District of Arkansas
(District Court). I.G. Ex. 2, 3.

4. The District Court entered judgment against
Petitioner in February 1996 on Counts XV and XX. The
nature of each offense was wire fraud, a felony in
violation of 18 U.S.C. §§ 1343 and 2. I.G. Ex. 3 atl.

5. The District Court sentenced Petitioner to 18 months'
incarceration on each count, to run concurrently, and to
pay restitution to Medicaid in the amount of $325,671.63.
I.G. Ex. 3 at 2, 4.

6. Petitioner was convicted of a criminal offense,
within the meaning of section 1128(i) of the Social
Security Act. Findings 3, 4; P. Br. at 2.

7. Petitioner's conviction is related to the delivery of
an item or service under Medicaid, within the meaning of
section 1128(a)(1) of the Act. I.G. Br. at 3 - 4; P. Br.
at 2.

8. The Secretary of DHHS (Secretary) has delegated to
the I.G. the authority to exclude individuals from
participation in Medicare and to direct their exclusion
from participation in Medicaid. 48 Fed. Reg. 21,662
(1983); 53 Fed. Reg. 12,993 (1988).

9. The I.G. was required to exclude Petitioner from

participating in Medicare and to direct his exclusion
from participating in Medicaid for at least 5 years.

Act, sections 1128(a) (1), 1128(c) (3) (B).

10. The I.G. proved 4 aggravating factors, any of which
may be considered as a basis for lengthening the period

of exclusion beyond the mandatory 5 years. 42 C.F.R. §

1001.102(b) (1), (2), (4), (6).

11. Petitioner acknowledges that none of the mitigating
factors applies. 42 C.F.R. § 1001.102(c)(1) - (3); P.
Br. at 4.

12. The evidence relevant to the aggravating factors
proves Petitioner to be untrustworthy to the extent that
a 10-year exclusion is reasonably necessary to protect
the integrity of federally financed health care programs,
4

and to protect program beneficiaries and recipients.
I.G. Ex. 2, 3.

13. The 10-year exclusion imposed and directed against
Petitioner by the I.G. comports with the remedial
purposes of the Act and, consequently, is reasonable.
Findings 1 - 12.

DISCUSSION

The I.G. excluded Petitioner from participating in
Medicare and directed that he be excluded from
participating in Medicaid, pursuant to section 1128(a) (1)
of the Act. The I.G. proved and Petitioner does not
contest: (1) that Petitioner was convicted of a criminal
offense under federal law, and (2) that the conviction
related to the delivery of an item or service under
Medicaid.

Petitioner acknowledges that an exclusion of at least 5
years is required as a matter of law, and that
aggravating factors specified in the regulations may be
considered to be a basis for lengthening the period of
exclusion. 42 C.F.R. § 1001.102(b)(1), (2), (4), (6).
Petitioner agrees that 4 aggravating factors and no
mitigating factors apply in his case but maintains that
the weight of the aggravating factors does not support a
10-year exclusion. Petitioner requests a decision
adjusting the exclusion from 10 years to 5 years.

A. Aggravating factors

Below, I discuss the weight I have assigned to each of
the 4 aggravating factors, taking the most weighty first.
42 C.F.R. § 1001.102(b) (1), (2), (4), (6).

1. Financial loss to Medicaid

The most weighty aggravating factor in Petitioner's case
is the financial loss to Medicaid [42 C.F.R. §
1001.102(b)(1)], represented by the $325,671.63 in
restitution required of Petitioner. I.G. Ex. 3 at 4.

Petitioner shows that $277,400.12 in restitution had
already been paid when judgment was entered. I.G. Ex. 3
at 4; P. Br. at 3. Petitioner asserts, and for purposes
of this decision I assume his assertion to be true, that
he, in addition, "is currently making [restitution]
payments of $50.00 per month during his period of
incarceration." P. Br. at 3.
5

Nevertheless, the regulation specifying this aggravating
factor includes the following:

(The entire amount of financial loss to such
programs will be considered, including any
amounts resulting from similar acts not
adjudicated, regardless of whether full or
partial restitution has been made to the
programs) ;

42 C.F.R. § 1001.102(b) (1).

The $325,671.63 loss to Medicaid is far greater than the
$1,500.00 threshold that triggers this aggravating
factor. 42 C.F.R. § 1001.102(b) (1). Moreover, even if I
were to take into account the partial restitution that
has been made, the remaining loss to Medicaid of somewhat
less than $50,000.00 is still far greater than the
$1,500.00 threshold. The large loss to Medicaid
demonstrates the magnitude of Petitioner's
untrustworthiness and persuades me that Petitioner's
period of exclusion must be lengthened significantly
beyond the mandatory 5 years.

2. Overpayment to Petitioner

The next most weighty aggravating factor is the
overpayment to Petitioner by Medicaid of $1,500.00 or
more as a result of improper billings. 42 C.F.R. §
1001.102(b) (6). Petitioner "agrees that the amount of
overpayments set forth by the counts to which he pled
guilty meets the criteria of this factor." P. Br. at 4.

The 2 counts to which Petitioner pled guilty specify a
combined total overpayment of $43,433.86 ($10,986.90 in
Count XV and $32,446.96 in Count XX). I.G. Ex. 2 at 12,
15. Petitioner's illegal gain in the amount of
$43,433.86, far beyond the $1,500.00 threshold that
triggers this aggravating factor, underscores his
untrustworthiness. Again, I am persuaded that
Petitioner's period of exclusion must be lengthened
significantly beyond the mandatory 5 years.

3. Incarceration included in sentence

Petitioner agrees that the sentence imposed by the court
included incarceration. P. Br. at 4. The sentence of
incarceration for a term of 18 months on each count, to
run concurrently (I.G. Ex. 3 at 2), is a weighty
aggravating factor and an additional indicator of the
extent of Petitioner's untrustworthiness. 42 C.F.R. §
1001.102(b) (4).
6

4. Acts committed over a period of 1 year or

more

Petitioner "agrees that the acts resulting in conviction,
or similar acts, were committed over a period of 1 year
or more. 42 C.F.R. § 1001.102(b)(2)." P. Br. at 3.
Petitioner asserts, and I agree with Petitioner's
assertion, that the 15-1/2 month period covered by the
superseding indictment "is not excessively beyond the 1
year set forth as an aggravating factor." P. Br. at 3.
The 2 counts to which Petitioner pled guilty occurred
about 1-1/2 months apart, but Petitioner's pattern of
repeated similar acts over the course of more than a year
is a significant indicator of the extent of Petitioner's
untrustworthiness.

B. Mitigating factors

None of the mitigating factors applies. 42 C.F.R. §
1001.102(c)(1) - (3). Finding 11.

Cc. Consistency with other exclusions

Petitioner argues that in comparison with other
exclusions, his is unreasonable. Petitioner states that
his actions "were less egregious than those set forth" in
Rosaly Saba Khalil, M.D., DAB CR353 (1995), and Gary E.
Wolfe, D.O., DAB CR395 (1995). While this may be true,
in each of those cases, a 15-year exclusion, rather than
a 10-year exclusion, was sustained.

Petitioner cites the case of Dr. Abdul Abassi, DAB CR390
(1995), in which an administrative law judge modified a
15-year exclusion down to 8 years. In that case, the
petitioner was convicted of fraud against Medicaid in the
amount of $75,000.00 and was sentenced to incarceration
for 1 year. An important distinguishing factor appears
to be that in Abassi, the record was practically silent
as to the nature of the petitioner's involvement in the
crimes for which he was convicted. In addition, in
Abassi, only 2 aggravating factors were proven. Here,
the I.G. has proven 4 aggravating factors. The cases are
distinguishable for the additional reason that the amount
of the loss to the Medicaid program was only $75,000 in
Abassi, compared to over $300,000 in this case, and the
length of incarceration was only 1 year in Abassi,
compared to 18 months in this case.
7

D. Reasonableness of the 10-year exclusion

Petitioner deliberately and systematically defrauded
Medicaid to obtain illegal payments to the pharmacy which
he owned and operated. I.G. Ex. 2. Petitioner billed
Medicaid for reimbursement for drugs supposedly provided
to Medicaid recipients when no such drugs had been
provided. I.G. Ex. 2. Petitioner caused fraudulent
prescriptions to be created, so that there would be
documentation to deceive auditors. I.G. Ex. 2.

Petitioner asserts that a 10-year exclusion from Medicare
and Medicaid is unreasonable and excessive. I disagree.
The 4 aggravating factors that apply in Petitioner's case
convince me that the 10-year period of exclusion imposed
and directed against Petitioner is necessary to protect
Medicare and Medicaid, and the programs' beneficiaries
and recipients, and to allow the I.G. enough time to be
able to determine whether Petitioner has regained
trustworthiness.

CONCLUSION

The I.G.'s determination to exclude Petitioner for 10
years from participating in Medicare, and to direct that
he be excluded for 10 years from participating in
Medicaid, comports with the remedial purposes of the Act
and is, thus, reasonable. Accordingly, I affirm the 10-
year exclusion.

/s/

Jill Ss. Clifton
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

CASHA Resource Home Health
& Hospice, Inc.,

Date: May 6, 1997

Petitioner,

Docket No. C-96-389
Decision No. CR472

-v-

Health Care Financing
Administration.

DECISION

CASHA Resource Home Health & Hospice,- Inc., of Walnut,
California (Petitioner or Walnut), a provider of home health
agency (HHA) services owned by CASHA Resource Home Health &
Hospice, Inc. (CASHA), requested a hearing to challenge the
determination of the Health Care Financing Administration
(HCFA) to terminate its Medicare participation -agreement.
HCFA determined that Petitioner submitted claims for payment
for services that it did not provide. HCFA alleges that the
services in question were rendered by staff from other
facilities that CASHA owns, in San Diego, California
(Clairemont Mesa) and Vista, California (Vista), after HCFA
terminated their Medicare participation agreement.

On September 19 and 20, 1996, and again on October 3, 1996, I
held a hearing in San Diego, California. During the hearing,
I admitted into evidence Petitioner's exhibits (P. Ex.) 1-8,
10, 12-13, 15-18, 22-25, 27-32 and HCFA's exhibits (HCFA Ex.)
2-19.

I have considered the evidence, the applicable law, and the
parties' arguments. I conclude that HCFA's determination to
terminate Walnut's Medicare participation agreement is
supported by the facts in evidence and the applicable law.!'

— on April 26, 1997, I offered the parties the
opportunity to brief the issue of burden of proof, after the
(continued...)
2
FINDINGS OF FACT AND CONCLUSIONS OF LAW (FFCL)

1. Title XVIII of the Social Security Act (Act) establishes
a federally subsidized health insurance program for the aged
and disabled (Medicare) which is administered by the
Secretary of Health and Human Services (Secretary).

2. Part A of Title XVIII provides reimbursement for
specified health care services, including home health
services provided by home health agencies. Act, sections
1812(a) (3), 1861(m), (0), 1891.

3. The Act defines a home health agency as a public agency
or private organization, or a subdivision of such an agency
or organization which, inter alia, "is primarily engaged in
providing skilled nursing services and other therapeutic
services." Act, section 1861(0).

4. A home health agency may participate in Medicare by
entering into a "provider agreement" with the Secretary.
Act, section 1861(u), 1866; 42 C.F.R. Part 489.

5. A home health agency must meet the conditions of
participation specified in section 1891(a) of the Act and any
other conditions of participation the Secretary may find
necessary in the interest of the health and safety of
individuals furnished services by the home health agency.
Act, section 1861(0) (6).

6. A home health agency must be licensed pursuant to
applicable state or local law, and must be approved by the
state or local agency responsible for licensing home health
agencies. Act, section 1861(0) (4)

7. Regulations implementing the requirements of sections
1861(0) and 1891 are set out in 42 C.F.R. Part 484. The
regulations set forth additional requirements that are
considered necessary to ensure the health and safety of
patients. 42 C.F.R. § 484.1.

8. The regulations define a "parent home health agency" as
"the agency that develops and maintains administrative
control of subunits and/or branch offices." 42 C.F.R.

§ 484.2.

'(.. continued)
decision of the appellate panel in Hillman Rehabilitation
Center, DAB No. 1611 (1997). The parties did not avail
themselves of this opportunity.

3

9. The regulations define a "subunit" as a "semi-autonomous
organization that - (1) Serves patients in a geographic area
different from that. of the parent agency; and (2) Must
independently meet the conditions of participation for HHAs
because it is too far from the parent agency to share
administration, supervision, and services on a daily basis."
42 C.F.R. § 484.2.

10. The regulations define a "branch office" as "a location
or site from which a home health agency provides services
within a portion of the total geographic area served by the
parent agency. The branch office is part of the home health
agency and is located sufficiently close to share
administration, supervision, and services in a manner that
renders it unnecessary for the branch independently to meet
the conditions of participation of a home health agency." 42
C.F.R. § 484.2.

11. The Act provides that "payment for services furnished an
individual may be made only to providers of services which
are eligible therefor under section 1866..." Act, section
1814(a).

12. The Secretary "shall periodically determine the amount
which should be paid under this part to each provider of
services with respect to the services furnished by it, and
the provider of services shall be paid...the amounts so
determined." Act, section 1815(a).

13. The regulations provide that "Medicare pays the provider
for services furnished by a provider." 42 C.F.R. §
424.51(a).

14. The regulations define "provider" as a facility,
including a home health agency, "that has in effect an
agreement to participate in Medicare." 42 C.F.R. § 400.202.

15. The Secretary has the authority to terminate a
provider's agreement to participate in the Medicare program
where the Secretary has determined that the provider fails to
"comply substantially with the provisions of the agreement,
with the provisions of this title, and regulations
thereunder..." Act, section 1866(b) (2).

16. The regulations provide that HCFA may terminate a
provider's agreement to participate in the Medicare program
where HCFA finds that a provider "is not complying with the
provisions of title XVIII and the applicable regulations of
the chapter or with the provisions of the agreement." 42
C.F.R. § 489.53(a) (1).
4

17. Under the regulations, "certification" is a
recommendation made by the state survey agency on the
compliance of providers with the conditions of participation.
42 C.F.R. § 488.1.

18. Section 1726 of the California Health and Safety Code
requires a home health agency to obtain a home health agency
license prior to providing, or arranging for the provision
of, home health care services.

19. CASHA, a corporation located in Irving, Texas, owns and
operates HHAs in California, as well as in other states.
HCFA Ex. 15.

20. CASHA owns an HHA located in San Diego, California
(Clairemont Mesa), which was licensed by the State of
California as a "parent" agency. Petitioner's Closing
Argument Brief (P. Br.) 3; HCFA's Response to Petitioner's
Closing Argument Brief (HCFA R. Br.) 15.

21. Clairemont Mesa was certified as a "parent" by HCFA on
or about February 1994. P. Br. 3; HCFA R. Br. 15.

22. Clairemont Mesa subsequently added a "branch" office in
vista, San Diego County (Vista), which was licensed by the
State and approved by HCFA. P. Br. 3; HCFA R. Br. 15.

23. As a certified parent, Clairemont Mesa had a provider
agreement with the Secretary which allowed it to seek
reimbursement for operational costs and to bill for patient
care provided by itself and any approved branch offices. P.
Br. 3; HCFA R. Br. 15.

24. At all times relevant to this case, CASHA owned and

operated a home health agency located in Walnut, California
(Petitioner or Walnut), which was licensed by the State of
California as a "parent" agency. P. Br. 3; HCFA R. Br. 15.

25. Petitioner was certified by HCFA as a "parent" pursuant
to a provider agreement with the Secretary. P. Br. 3; HCFA
R. Br. 15.

26. Walnut added "branch" offices in Tustin, North Hollywood
and Carson, California, which were licensed by the State and
approved by HCFA. Transcript of Hearing (Tr.) 761-762; P.
Br. 3-4.

27. Clairemont Mesa was surveyed by State licensing
officials, in a survey completed on March 1, 1996. P. Br. 4;
HCFA R. Br. 15; HCFA Ex. 3 at 3.
5

28. The results of the survey indicated that Clairemont Mesa
was out of compliance with five conditions of participation
required by HCFA for certification of a provider. P. Br. 4;
HCFA R. Br. 15; HCFA Ex. 3 at 3.

29. Ina letter dated March 21, 1996, HCFA notified
Clairemont Mesa that its Medicare provider agreement would
terminate on April 13, 1996. HCFA Ex. 3 at 3.

30. Clairemont Mesa did not challenge the results of this
survey. P. Br. 4; HCFA R. Br. 15; Tr. 440, 532.

31. Clairemont Mesa's provider agreement was terminated
effective April 13, 1996, decertifying both Clairemont Mesa
and Vista. FFCL 28-30.

32. Although Clairemont Mesa and Vista were decertified by
HCFA, they both remained licensed by the State and were
capable of servicing patients. P. Br. 4; HCFA R. Br. 15.

33. By letter of April 25, 1996, DW,” the director of
patient care services (DPCS) and administrator of Clairemont
Mesa, notified Clairemont Mesa's and Vista's patients that:

As our company experiences continued growth and
development we at CASHA have found it necessary to re-
structure some of the offices in our region.

What this means to the Vista/San Diego patients is that
there will need to be a change in the paperwork that is
submitted to Medicare for payment of your services. All
billing will now go through our offices in Walnut,
California. In order to be in compliance with state and
federal regulations, all of the patients in Vista and
San Diego will be discharged and immediately re-admitted
under the new Walnut provider number. This will all be
handled by our office and your doctor.

Your nurses and other providers will remain the same.
There will be no break in your services, and nothing
will change regarding your care. You will continue to
receive the same high quality, competent care by the
same staff.

2 I identify witnesses by their initials to protect
their privacy.
6

If you have any questions regarding this information,
please do not hesitate to call the CASHA office number
at 654-3970. Ask to speak to a Nursing Supervisor or
the Director of Patient Care Services. Any of those
people will be able to answer any questions you may
have.

Thank you for your time and attention. We apologize for
any inconvenience this may have caused you, but please
be assured that your needs will continue to be met
through CASHA Resource Home Health Services.

P. Ex. 4.

34. By letter of April 25, 1996, DW notified physicians
treating Clairemont Mesa's and Vista's patients that:

As our company experiences continued growth and
development, we at CASHA Resources Home Health, Inc.
have found it necessary to re-structure some of our
offices.

What this means to the San Diego/Vista offices is that
our "parent" office will be located at Walnut,
California. In order to be in compliance with State and
Federal regulations, we are required to discharge all
patients under our former provider number and re-admit
them under our current number.

Enclosed, please find the Discharge Summary and
Admission Orders with a current Plan of Treatment for
your patient. Please sign and date as indicated and
return in the enclosed stamped, self-addressed envelope.

We apologize for the extra paperwork involved, but will
continue to strive for a level of excellence in
providing care for your patients. If you have any
questions concerning this matter, please do not hesitate
to call me. We appreciate your help and support.

P. Ex. 5.

35. Clairemont Mesa sought new certification in late April
or early May 1996. P. Br. 4; HCFA R. Br. 15.

36. For purposes of a certification survey, a home health
agency is required to have a fully staffed, operational unit,
actively providing home health services to a certain number
of patients. It is required also to provide services to a
certain number of patients newly acquired from the time of
its previous survey. P. Br. 4-5; HCFA R. Br. 15.
7

37. On July 15, 1996, surveyors from the California
Department of Health Services (DHS), acting as agents for
HCFA, arrived at Clairemont Mesa and Vista to conduct a
survey. P. Br. 5; HCFA R. Br. 15; Tr. 76.

38. One State surveyor asked to see records of new patients
and was given the charts of two patients by Clairemont Mesa.
P. Br. 5; HCFA R. Br. 15; Tr. 77.

39. The State surveyor recognized the name of one of the two
patients as a patient from the previous survey of Clairemont
Mesa, completed March 1, 1996, that had resulted in the
termination of Clairemont Mesa's provider agreement. She was
informed that the patient had been previously discharged.

Tr. 77.

40. When the surveyor asked when that patient had been
discharged she was informed that this information was not
available, because the records were not available in that
facility. Tr. 77.

41. The State surveyor was informed that records were taken
on a weekly basis from the Clairemont Mesa office to the
CASHA office in Tustin. Tr. 78-79.

42. The State surveyor was subsequently shown a list of
approximately 45 other patients being served out of the
Clairemont Mesa office. She recognized several patient names
from the survey completed March 1, 1996 which resulted in the
termination of Clairemont Mesa's provider agreement. Tr. 81,
89-90; HCFA Ex. 17; P. Ex. 7.

43. The State surveyor was informed that the patients had
been discharged from the Clairemont Mesa office and
readmitted, or transferred, to CASHA's Walnut office, and
that bills for services provided to these patients were
submitted by the Walnut office. Tr. 91.

44. The State surveyor requested a list of staff working out
of the Clairemont Mesa office; from this list, she recognized
several names from the survey of Clairemont Mesa completed
March 1, 1996. Tr. 93-94; HCFA Ex. 7.

45. The State surveyor did not complete the survey of
Clairemont Mesa, stating that 10 charts as opposed to two
were required for the survey. P. Br. 5; HCFA R. Br. 15; Tr.
98, 118.

46. Based on the findings of the survey visits to Clairemont
Mesa, the State surveyor determined that, at the time of the
survey completed March 1, 1996, Clairemont Mesa was still
providing home health services to patients. Tr. 76-81.
8

47. The State surveyor also visited the Vista office on July
15, and determined that patients had been discharged from
Vista during the period April 21 through the beginning of May
1996, and were readmitted or transferred to Walnut. Tr. 99-
106; HCFA Ex. 3, 8, 9, 17.

48. Upon termination of Clairemont Mesa's provider
agreement, patients served out of the Clairemont Mesa and
Vista offices, for whom Medicare reimbursement had been
claimed under Clairemont Mesa's provider number, were
discharged from those facilities and readmitted to Walnut.
HCFA Ex. 3, 8, 9, 17, 18; Tr. 101-03, 212-17, 440-42, 700-15.

49. The transfer of the patients to Walnut was unrelated to
the demands of their medical care. Tr. 443-46, 450-51; P.
Ex. 4, 5.

50. The Clairemont Mesa administrator and DPCS transported
patient charts to the Tustin branch of Walnut every week to
10 days and spoke several times a week to CASHA's regional
administrator for southern California and the acting
administrator and DPCS for Walnut. Tr. 458-60, 480-81.

51. Responsibilities of the nursing supervisors at the San
Diego facilities remained unchanged following the transfer of
patients to Walnut. Tr. 501-02.

52. Patients continued to be served by staff operating under
the auspices of Clairemont Mesa. Tr. 451-52, 459, 483-85,
502-04, 515-18.

53. The language in the April 13, 1996 letter to Clairemont
Mesa and Vista patients is consistent with evidence
demonstrating that there was no change in the care and
services received by the Clairemont Mesa patients. FFCL 42-
52; P. Ex. 4, 5.

54. After decertification, Clairemont Mesa and Vista
admitted two patients each for treatment, so that when the
State came back to do a certification survey there would be a
sample of patients who had not been billed to Medicare. Tr.
460.

55. The services provided to these patients did not differ
.substantively from the services provided to the patients who
had been transferred to Walnut. Tr. 465-66; FFCL 46-54.

56. The services that patients received after their transfer
to Walnut changed very little and continued to be provided
out of, and supervised by, the decertified offices. FFCL 42-
53.
9

57. CASHA continued to provide home health services to those
patients through its Clairemont Mesa and Vista offices after
termination of the Clairemont Mesa provider agreement, but
claimed Medicare reimbursement for those services using the
provider number of the Walnut facility. Tr. 700-15.

58. Petitioner did not receive permission from HCFA or from
State licensing authorities to expand its service area to
include San Diego, and its claim that it received permission
is not credible. Tr. 554-58, 656-57, 684-88, 693, 737-39,
783-90, 794-98; P. Ex. 16.

59. In seeking permission to expand its service area,
Petitioner did not disclose to licensing authorities in the
Los Angeles County Department of Human Services that
Clairemont Mesa and Vista had been decertified by HCFA. Tr.
656-57.

60. The issue of whether Petitioner could have expanded the
Walnut service area to include San Diego is irrelevant,
because the Medicare services in question were provided by
Clairemont Mesa and Vista, and not by Petitioner. FFCL 42-
57.

61. The process HCFA employed in deciding to terminate
Petitioner is not relevant to my decision in this case.

62. Petitioner claimed Medicare reimbursement for services
that it did not provide, in violation of sections 1814(a) of
the Act, and 42 C.F.R. § 424.51. FFCL 1-61.

Analysis
1. Background

Petitioner is an HHA located in Walnut, California, and owned
by CASHA, a corporation with headquarters in Irving, Texas.
CASHA operates a number of HHAs in California and in several
other states. At all times relevant to this proceeding,
Petitioner was licensed by California and certified by HCFA
as a parent HHA for Medicare purposes, with branch offices in
Tustin, North Hollywood, and Carson, California.

One of the other HHAs that CASHA owns is located on
Clairemont Mesa Boulevard in San Diego, California
(Clairemont Mesa). Clairemont Mesa was certified as a parent
HHA and maintained a branch in Vista, California (Vista). A
survey of Clairemont Mesa by State licensing officials,
completed March 1, 1996, indicated that Clairemont Mesa was
out of compliance with conditions of participation required
by HCFA for certification of a provider, and, as a result,
HCFA terminated Clairemont Mesa's Medicare provider agreement
10

effective April 13, 1996. CASHA did not appeal the
termination of Clairemont Mesa's provider agreement. The
termination of the Clairemont Mesa provider agreement meant
that CASHA could not bill Medicare for HHA services rendered
by its Clairemont Mesa and Vista offices.

Clairemont Mesa applied for new Medicare certification, and a
surveyor from DHS visited Clairemont Mesa and Vista in July
1996. For the purposes of qualifying for Medicare
certification, HHAs are required have been servicing 10
patients (who are not billed to Medicare prior to
certification), and to have their medical records available
for review. Tr. 98.

The State surveyor did not complete the certification survey
during the July visits because only two incomplete medical
records were made available for review. However, the
surveyor recognized one of the patients as one who had
previously been treated by Clairemont Mesa and billed to
Medicare at the time of the survey completed March 1, 1996,
which survey had resulted in the decertification of
Clairemont Mesa. HCFA subsequently determined that CASHA had
discharged patients from Clairemont Mesa and Vista and
admitted them to its Walnut parent office, and that it
continued to bill Medicare for services rendered to these
patients, using Walnut's provider number. HCFA then
terminated Petitioner's Medicare provider agreement on the
grounds that Petitioner, Walnut, was billing Medicare for
services that it did not provide.

Petitioner acknowledged that CASHA discharged the patients
from the San Diego offices after they were decertified and
admitted them to Walnut, and that it continued to bill
Medicare for the services provided to those patients. P. Br.
9, 13. Petitioner asserted, however, that it could properly
bill Medicare for those services because they had been
provided by Walnut, and not by the decertified San Diego
offices. Petitioner argued that, after the decertification,
Walnut expanded its service territory to include the areas
that had been served by Clairemont Mesa and Vista.
Petitioner argued that the Medicare regulations neither
prohibit nor require HCFA approval for expansion of service
territory, and that, in any event, Petitioner informed HCFA
of the expansion and obtained the approval of HCFA's agents
in the California DHS. Petitioner also argued that there was
confusion between HCFA and its State licensing agents about
how large an HHA's service area can be.

As explained below, I conclude that Petitioner improperly
billed HCFA for HHA services that were actually provided by
CASHA's decertified Clairemont Mesa and Vista facilities. I
conclude that Petitioner did not obtain permission from HCFA
11

to "expand" its service area to encompass San Diego. The
issue of expansion is not relevant here because, as I explain
below, the services in question were provided by the
decertified Clairemont Mesa and Vista offices, and not by
Petitioner's Walnut facility.

2. Petitioner could not claim Medicare reimbursement for
HHA services provided by Clairemont Mesa and Vista.

The Medicare regulations provide for three categories of HHA
facilities: parent, subunit, and branch. A branch serves
the same geographic area as its parent, and must be located
close enough to the parent to share administration,
supervision, and services in a manner that renders it
unnecessary for the branch independently to meet the
conditions of participation as a home health agency. Where
an HHA facility is too far from a parent to share
administration, supervision, and services on a daily basis,
it cannot be a branch, and must instead independently meet
the Medicare conditions of participation and be certified as
a subunit. 42 C.F.R. § 484.2; Homelife Nursing, Inc., DAB
CR417, at 9 (1996).

Here, Clairemont Mesa had been certified as a parent HHA,
whose territory included San Diego County, and Vista had been
certified as a branch of Clairemont Mesa. These facilities’
status as parent and branch HHAs for Medicare purposes ceased
when Clairemont Mesa's provider agreement with HCFA was
terminated, effective April 13, 1996. Despite the
termination, CASHA continued to claim Medicare reimbursement
for services provided through Clairemont Mesa and Vista,
using the provider number of its Walnut facility, a parent
HHA located in Los Angeles County, with branches located in
Tustin, which is in Orange County, as well as in North
Hollywood and Carson, California.

The Act provides that payment for services may be made only
to providers of services which meet the conditions specified
for a provider to enter into a provider agreement with HCFA.
Act, section 1814(a). Similarly, the Medicare regulations
provide that "Medicare pays the provider for services
furnished by a provider." 42 C.F.R. § 424.51(a). The
regulations define "provider" as a facility, including a home
health agency, "that has in effect an agreement to
participate in Medicare." 42 C.F.R. § 400.202. Walnut,
despite being owned by the same parent corporation as
Clairemont Mesa and Vista, CASHA, had a different provider
number and agreement than Clairemont Mesa and was considered
a different HHA for Medicare purposes. Clairemont Mesa did
not have in effect a provider agreement with HCFA after April
13, 1996, and could not claim Medicare reimbursement.
Additionally, Clairemont Mesa and Vista were never certified
12

by HCFA as branches or subunits of Walnut, the only
subcategories of HHA recognized by the Medicare regulations.
They were also not licensed by California as branches of
Walnut, which would have been required prior to being
certified by HCFA. Act, section 1861(0)(4). By claiming
reimbursement for services that were provided by the
Clairemont Mesa and Vista offices, Petitioner Walnut violated
the requirement that Medicare pays only for HHA services
furnished by a provider. 42 C.F.R. § 424.51(a).

Petitioner argued that the services in question were actually
provided by Walnut through an "expansion" of its service area
to encompass San Diego, and that Clairemont Mesa and Vista
participated in providing these services as part of the
"Walnut operation." Petitioner's Responsive Brief 4.
Petitioner argued that Clairemont Mesa and Vista were not
branches of Walnut requiring certification, and noted that it
did not claim reimbursement for Clairemont Mesa's and Vista's
overhead expenses, as it could have if they had been
certified as branches. Under this theory, Clairemont Mesa
and Vista were acting as uncertified, undefined satellite
offices of Walnut, a category of facility not recognized by
the Medicare regulations. Thus, Petitioner argued that
Clairemont Mesa and Vista could have functioned as "charting
stations" for Walnut, that is, locations where nurses make
entries on patients' charts, which would then be stored at a
different location, such as the Tustin branch of Walnut. Tr.
499-501. Charting stations would be used because it would
not be practical for the nurses to drive to the actual branch
or parent office three times a week to do their charting.’
Tr. 519. Similarly, one of Petitioner's witnesses, DW,
testified that she and other CASHA San Diego staff referred
to Clairemont Mesa and Vista as "children of Walnut" because
they did not know the status of those facilities, as they
were no longer parent and branch.* Tr. 522-23. Petitioner

3 Petitioner disputed the testimony of the State
surveyor that DW, the Clairemont Mesa administrator and DPCS,
had referred to the San Diego facility as a charting station
during a survey visit. Tr. 79. However, DW testified that
she was familiar with the term, and Petitioner argued that
there is no regulatory prohibition against Clairemont Mesa
acting as a charting station. Tr. 499. Accordingly, whether
or not DW actually referred to Clairemont Mesa as a charting
station during the State surveyor's visit has no bearing on
this proceeding.

* Petitioner misused this characterization when
arguing that Walnut supervised the Clairemont Mesa and Vista
offices by having the on-site supervisor of those facilities

(continued...)
13

noted that other HHAs operate facilities which are "less than
a full blown branch office" for which overhead expenses are
not claimed, and asserted that this is a pervasive practice
in the home health industry which HCFA has failed to address.
Petitioner's Reply Brief (P. R. Br.) 4-5.

Petitioner's argument is disingenuous, as it ignores the fact
that the San Diego offices, rather than being charting
stations, satellite offices, or proposed branches of Walnut,
were a decertified parent and branch which had served a
different geographic area than that served by Walnut and its
branches. The San Diego offices had been surveyed by the
California DHS, found deficient in the provision of HHA
services, and terminated from the Medicare program -- a
determination which CASHA did not contest. CASHA then
attempted to circumvent the termination, by deeming
Clairemont Mesa and Vista to be part of the Walnut operation
and continuing to claim Medicare reimbursement for the
services they provided.

Additionally, the Medicare regulations, which permit
reimbursement only for services rendered by a provider,

do not recognize categories of HHA providers other than
parent, branch, and subunit. State law also does not
recognize categories such as satellite offices or charting
stations or anything "less than a full blown branch office."
Any office which conducts home health business must be
licensed by the State as an HHA, under the State scheme that
recognizes only parents and branches. Tr. 738-39, 745.
Thus, Clairemont Mesa and Vista could not have been licensed
and certified as non-branch offices or expansions of Walnut
and Tustin.

I reject Petitioner's argument that it was permissible for
Clairemont Mesa and Vista to provide services on behalf of
Walnut without certification because CASHA did not seek
Medicare reimbursement for their overhead expenses. The
difference between a certified HHA facility and an
uncertified charting station or other office "less than a

4(...continued)
report to Walnut through the CASHA management structure.
Petitioner argued that Walnut branch offices, such as Carson
_and North Hollywood, similarly have supervisors who remain on
site at the branch offices, "even though they are ‘children
of Walnut'." P. Br. 14. However, CASHA staff referred to
Clairemont Mesa and Vista as "children of Walnut" because
they were unsure of the status of those facilities, which
were not branches. By contrast, Carson and North Hollywood
were licensed by the State and certified by HCFA as branches
of the Walnut parent.
14

full blown branch office" is not merely the ability to bill
Medicare for overhead expenses. The Medicare regulations at
42 C.F.R. Part 484 implement the requirements of the Act and
"also sets forth the additional requirements considered
necessary to ensure the health and safety of patients." 42
C.F.R. § 484.1. Thus, the regulations contemplate that the
purpose of requiring certification of HHA facilities is to
ensure the health and safety of patients served by those
facilities. See Homelife, DAB CR417, at 9. The
certification process would be rendered meaningless if an
owner of multiple HHAs could continue receiving reimbursement
for services provided through a decertified HHA, by deeming
it an extension or satellite office of a different HHA
serving a different area. I note that the effect of the
decertification of Clairemont Mesa and Vista was not just to
bar CASHA from claiming reimbursement for overhead expenses
for their operation. As the administrator and DPCS of
Clairemont Mesa testified, the termination meant that CASHA
could not bill Medicare for HHA services provided by those
offices. Tr. 438-39. This prohibition applies to services
rendered to Medicare patients, as well as overhead operating
expenses. Accordingly, Petitioner violated the provisions of
the Act and regulations by claiming reimbursement for
Medicare services provided by Clairemont Mesa and Vista after
they had been decertified.

Petitioner argued that the Medicare services were actually
provided by, and under the supervision of, its Walnut parent
office. As explained below, however, the evidence clearly
demonstrates that the services were provided by the
decertified Clairemont Mesa and Vista offices. The services
that CASHA provided to Medicare patients through Clairemont
Mesa and Vista after decertification were essentially the
same services that they provided prior to decertification,
and were the same services that they provided to non-Medicare
patients as part of their effort to qualify for new
certification.*

5 Even assuming arguendo that such services were
provided by the Walnut parent office, the outcome would be
the same with regard to ineligibility for Medicare payment
for such services. Such services would be ineligible for
Medicare payment because they were provided to patients
outside the service area approved by the State and by HCFA
for the Walnut parent office. See infra pp. 24-25.
15

3. CASHA's Clairemont Mesa and Vista offices provided
services to Medicare patients after they were
terminated.

Petitioner argued that the Walnut parent office and its
Tustin branch served the patients who had been discharged
from Clairemont Mesa and Vista after those offices were
decertified in April 1996. Petitioner asserted that after
the decertification, a multitude of staffing, supervisory,
and logistical changes took place, which legitimately brought
the San Diego patients under the purview of the Walnut
operation. Petitioner argued that the patients were
transferred to Walnut pursuant to physicians' orders and that
new plans of treatment were developed for them. Petitioner
argued that patient care in San Diego was rendered under the
direction of Walnut and overseen by DW, who, Petitioner
asserted, also became a supervisor of Walnut. Petitioner
stated that DW reported directly to the interim DPCS of
Walnut, TN, which DW would not have done if the San Diego
offices were not being supervised by Walnut.

However, the evidence as a whole demonstrates that the
services in question were rendered by Clairemont Mesa and
Vista, whose operations continued substantially unchanged
after the termination of Clairemont Mesa's provider
agreement. The record establishes that once the patients
were transferred to Walnut, the only changes in their .
treatment were that their charts were transported every week
to 10 days to the Tustin branch of Walnut, where an
additional level of quality assurance review was performed.
Other changes made at Clairemont Mesa and Vista were geared
towards enabling those offices to qualify for new Medicare
certification and were not related to having services to
patients provided under the supervision of the Walnut office.
Further, the evidence shows that at the same time that
Clairemont Mesa and Vista were serving patients allegedly
under the supervision of Walnut, they were also serving a
sample of non-Medicare patients, admittedly not under the
supervision of Walnut, in order to again qualify for Medicare
certification. Other than the differences in record-keeping
noted above, these patients received the same treatment as
those supposedly being served by Walnut.

Much of the evidence demonstrating that Clairemont Mesa and
Vista continued serving Medicare patients after
decertification was provided by DW, the Clairemont Mesa
administrator and DPCS.® DW testified that it was her

6° DW testified that each facility has an
administrator and DPCS, who answers to the CASHA regional
(continued...)
16

understanding that care provided to patients did not have to
change as a result of being billed through Walnut instead of
San Diego. Tr. 498. Her title remained the same throughout
the decertification for Clairemont Mesa, the "expansion" of
the Walnut service area, and the decision to seek new
certification for Clairemont Mesa. Tr. 449-50. Her duties
also remained essentially the same after the decertification.
She still worked out of the Clairemont Mesa office, where she
reported daily, and still visited the Vista office once a
week, where there was a supervisor who reported to her. The
only apparent change in her responsibilities was that she
would take the charts of the Medicare patients served through
Clairemont Mesa and Vista to the Tustin branch of Walnut
every week to 10 days, and that she spoke several times a
week to TN, CASHA's regional administrator for southern
California and the acting administrator and DPCS for Walnut,
with whom she reported previously having limited contact.’
Tr. 458-60, 480-81. However, given that TN was DW's direct
supervisor, and that TN was responsible for CASHA's
operations in southern California, it is not surprising that
they would have more frequent contact immediately after the
decertification of the offices which DW administered.

DW's testimony demonstrates that patients continued to be
served by staff operating under the auspices of Clairemont
Mesa. DW testified that, although some of the nurses
employed by the San Diego facilities were placed on probation
or terminated after the decertification, the San Diego
patients continued to be seen by the same nurses as before
termination, at least to the extent that DW could arrange it.
Tr. 451-52, 515. After the termination, the nurses continued
to come to the Clairemont Mesa and Vista offices three times
a week to get assignments and make the appropriate entries on
the patients' charts, which DW transported to Tustin every

6(...continued)
director or administrator. DW was DPCS over both Clairemont
Mesa and Vista. Below the DPCS are nursing supervisors; the
number of nursing supervisors per facility is determined
based on how many visits are made. Clairemont Mesa had two
nursing supervisors, Vista one. Facilities also have quality
assurance nurses who answer to the regional quality assurance
nurse, who answers to the corporate quality assurance nurse.
Tr. 485-87.

7 While DW reported having daily phone contact with
TN during the period that patients were being discharged from
San Diego and admitted to Walnut, to inform TN of "where we
were" in the process, there is no indication that this
frequency of contact continued once the transfer process was
complete. Tr. 451; P. Br. 15.
17

week to 10 days. Tr. 459, 483-84. Additionally, DW reported
that case conferences and staff meetings continued to be held
in the San Diego offices, and that training for new staff
hired to serve the San Diego patients was held in the
Clairemont Mesa and Vista offices.* Tr. 502-04. DW also
testified that after the San Diego decertification, TN began
visiting Clairemont Mesa more often than her previous visits
for monthly quality assurance meetings, for a maximum of
three times a month. However, DW also noted that she could
recall only one month during which TN visited the San Diego
office more than once. Tr. 488-90. Once the charts had been
transferred to Tustin, she could not recall other staff from
Tustin ever visiting San Diego. Tr. 521. Thus, little
changed in the way CASHA provided services to patients
through Clairemont Mesa and Vista. DW accordingly agreed
that, aside from her transporting records from San Diego to
Tustin and her more frequent contact with TN, most everything
stayed the same in terms of the day-to-day functioning of
Clairemont Mesa and Vista after their patients were
transferred to Walnut. Tr. 517-18.

DW further described how the responsibilities of the nursing
supervisors at the San Diego facilities remained unchanged.
Nursing supervisors oversee the field staff, conduct in-home
supervisory visits, and perform a variety of other duties
including reviewing patient notes and doctors’ orders,
answering questions from physicians and other providers,
tracking infections, and maintaining logs of services. DW
testified that, following transfer of the Medicare patients
to Walnut, the nursing supervisors continued to perform these
functions out of the Clairemont Mesa and Vista offices. She
also testified that no nursing supervisor from Walnut made
supervisory in-home visits to San Diego patients. The only
instances of Walnut staff ever visiting San Diego patients
that she could recall were "a couple" of home visits made by
TN. Tr. 501-02. Furthermore, GS, the State surveyor for the
California DHS, testified that during a visit to Clairemont
Mesa on July 15, 1996, she was provided a list of staff and
recognized the names of several nurses who had been servicing
patients out of Clairemont Mesa at the time of the previous

8 Petitioner asserted that some of the nurses being
trained would be sent to Walnut for training. However, with
regard to training of staff at other sites, DW testified only
that staff would be trained in an existing office with the
existing personnel, and gave the example that a quality
assurance nurse may go spend a week in Walnut and work with
that quality assurance nurse or the corporate or the regional
quality assurance nurse. Tr. 503. Specific instances of
training for San Diego staff being conducted at Walnut were
not provided.
18

survey, completed March 1, 1996 (when Clairemont Mesa was
still operating under a valid provider agreement). Tr. 93-
94; HCFA Ex. 7. She also reported that, to her knowledge,
none of the nurses on that list had worked out of the Walnut
office. Tr. 97-98.

A letter from DW, dated April 13, 1996, which was sent to
patients informing them of their transfer to Walnut, is
further evidence that patients continued to be served by the
terminated San Diego offices. The letter states that all of
the Clairemont Mesa and Vista patients would be discharged
and immediately readmitted under the new Walnut provider
number. The patients were informed that the transfer was
effected to comply with State and federal regulations, and
were assured that their nurses and other providers would
remain the same, and that nothing would change regarding
their care. P. Ex. 4. Petitioner argued that the letter was
intended to reassure patients, who can become easily confused
and distraught when they receive correspondence regarding
their health care. While the letter alone may not be
dispositive on the issue of which HHA was providing services
to Medicare patients, its language is, nonetheless, fully
consistent with the other evidence in this record, which
demonstrates that, as stated in the letter, there was no
change regarding the care and services received by the
Clairemont Mesa patients.

DW also testified that, after decertification, Clairemont
Mesa and Vista admitted two patients each for treatment, so
that when the State came back to do a certification survey
there would be a sample of patients who had not been billed
to Medicare. Tr. 460. Petitioner argued that, with respect
to these patients, the San Diego offices were operating for
the limited purpose of seeking certification and did not
share supervision with Walnut, which was responsible for
overseeing service to the patients in the San Diego
territory. P. R. Br. 2. Petitioner did not show how the
services provided to these patients differed from services
provided to the Medicare patients that were transferred to
Walnut such that they could be said to have been provided by
two different HHAs. The treatment given to Medicare
patients, who were supposedly being served under the aegis of
the Walnut facility, was no different than the treatment
provided to the patients being served admittedly as
‘Clairemont Mesa patients, for the purpose of enabling that
facility to qualify for Medicare certification. It appears
that the only difference in the treatment these four patients
received was that their records were maintained in San Diego,
whereas records of the Medicare patients were periodically
transported to the Tustin facility, where the nursing
supervisor conducted an additional, limited level of quality
assurance review. Tr. 465-66. That the services Clairemont
19

Mesa and Vista were providing to patients in order to qualify
for Medicare certification did not differ substantially from
the services provided to the patients transferred to Walnut
is further evidence that the services for which reimbursement
was claimed were not provided by Walnut.

The evidence also shows that the transfer of the patients to
Walnut was a paper transfer unrelated to the demands of their
medical care. Another letter from DW, dated April 25, 1996,
to physicians treating Clairemont Mesa and Vista patients,
states that the Walnut office would become the parent of the
Clairemont Mesa and Vista offices as part of an office
restructuring necessitated by CASHA's continued growth and
development, and that CASHA was thus required to discharge
and re-admit all patients under the Walnut provider number.
As with the letter to patients, this letter failed to state
the real reason for the discharge/admission process: the
decertification of the San Diego facilities. Other evidence
shows that the transfer of the patients to Walnut was
unrelated to the particular care the patients may have
required. As described by DW, the transfer process was
conducted for all of the patients, and was initiated by CASHA
management and not by their physicians. The process began
when DW was informed by TN that the patients were all to be
discharged and readmitted under the Walnut provider number.
It applied to all of the San Diego Medicare patients. Tr.
443-44. The patients were discharged as part of their
regularly scheduled visits, and no visits were made
specifically for the purpose of admitting the patients to
Walnut. The plans of treatment that Petitioner referred to
were prepared by the nursing staff based on the visits and
then sent to the physician for signature. Tr. 445-46, 450-
51. While CASHA may have obtained the physicians' signatures
for the patients' discharges, the discharges were unrelated
to the care they were receiving, and were not initiated by
the physicians as part of the patients' medical care, as
implied by Petitioner's claim that the transfers took place
"per physician's orders." P. Br. 13. The services it
provided to those patients after their transfer to Walnut
changed very little, and continued to be provided out of, and
supervised by, the decertified offices.

Petitioner made much of HCFA's assertion, based on the report
of the State surveyor, that the nursing staff at the San
Diego offices remained "the same" after decertification.

HCFA Opening Post-Hearing Memorandum 3; HCFA Ex. 2.
Petitioner attacked HCFA's termination action on the grounds
that the staff had, in fact, changed at those facilities.
Petitioner noted that some nurses were terminated, and that
new quality assurance nurses were hired, after the survey of
Clairemont Mesa that was completed March 1, 1996.
20

Petitioner makes too much of HCFA's characterization. The
staff changes Petitioner cited do not demonstrate that
Medicare services were provided by Walnut. Rather, these
changes were fully consistent with both normal turnover and
with an attempt to reestablish Medicare certification for
Clairemont Mesa and Vista. DW testified that after the
survey which led to the termination, she conducted a general
review of "where they were as an agency," which included
reviewing the survey and the deficiencies cited, looking at
all the personnel files and compliance reports for nursing,
and making a plan of action noting what needed to be
accomplished. She placed several nurses on probation, and
terminated others. Tr. 451-52, 481-82. The San Diego
offices also discontinued contracts with some service
providers and created new contracts with others (such as
intravenous, pharmacy, and rehabilitation services). Tr.
505-06. DW testified that the purpose of staffing changes at
Clairemont Mesa and Vista was so that those facilities could
again qualify for certification. Tr. 482-83.

Petitioner argued that the evidence concerning the nursing
staff did not demonstrate that Walnut was not the provider of
services to Medicare patients, as the "provider" of services
is not defined by the nursing staff. However, the staffing
changes do not support Petitioner's claim that the San Diego
patients were brought under the purview of the Walnut
operation. Rather, they are consistent with and support my
finding that, based on the evidence as a whole, Clairemont
Mesa and Vista provided Medicare services after
decertification.

4. Petitioner did not expand its Walnut service area to
include San Diego and the Clairemont Mesa and Vista
facilities.

Petitioner argued that it provided the Medicare services at
issue here because it had expanded the Walnut office's
service territory to include San Diego. Petitioner argued
that it received approval from HCFA's licensing agent in the
Los Angeles County DHS to expand the Walnut service area.

Tr. 13, 25. Conversely, Petitioner argued that it did not
need approval to expand its service area, as such expansion
is not prohibited by the Medicare regulations, and noted that
HCFA has not cited it for unauthorized expansion of the
Walnut service area.

Petitioner's claim that it was granted permission to expand
the Walnut service area to encompass San Diego was based on
the testimony of CW, the chief executive officer of CASHA.
She stated that, after Clairemont Mesa and San Diego were
decertified, a decision was made within CASHA to extend
21

Walnut's service area through its Tustin branch.® Tr. 539-
40, 548-49. In April 1996, she called AB, a health facility
evaluator with the Los Angeles County DHS, which is the
entity responsible for licensing HHAs on behalf of the State
in the Los Angeles area, and which makes certification
recommendations to HCFA. Tr. 548, 554, 725-26, 733, 746,
754-55. AB acts as an agent of HCFA in its contact with
providers, and CW stated that CASHA has always contacted AB
for licensing and certification matters in Los Angeles
County. Tr. 243-44, 548-49. CW testified that she spoke
with AB's secretary, whom she identified as Ann, and told her
that she wished to speak to AB about expanding the service
area of the Tustin branch into the San Diego area. She
stated that she attempted to call AB three more times, and
that, during the third call, the secretary informed her that
CASHA could serve patients within a four-hour driving-time
radius, and that she should put the request for expansion in
writing. She subsequently sent a letter to AB, dated June
18, 1996, which stated that the Tustin office was requesting
extension of service areas to San Diego County, and that
CASHA would assume approval if no answer was received within
10 working days. Tr. 554-58; P. Ex. 16. She received no
response from AB to the letter. Tr. 558. She stated that,
until receiving the notice of termination of Walnut, CASHA

° The testimony of CW reflects a concerted effort by
corporate officials of CASHA to develop a process which would
allow it to continue to bill Medicare for services provided
to patients of CASHA's Clairemont Mesa and Vista offices
after their provider agreement had been terminated by HCFA.
The decision to expand the service area of Petitioner into
San Diego was in direct response to the termination of the
provider agreement of the Clairemont Mesa office. Looking
for a means to continue billing Medicare, the corporate
office of CASHA, after reviewing the regulatory provisions
covering HHAs, chose to rely on the theory of "expansion of
service area." Tr. 539-40, 548-49, 635. Reliance on
"expansion of service area," and the other elaborate steps
taken to create a legal facade to continue to bill Medicare,
despite having its provider agreement terminated,
demonstrates to me that the corporate officials of CASHA were
fully culpable for the actions of Petitioner. Unfortunately,
HCFA made no effort to investigate the circumstances of the
continued billing, other than checking its computer billing
records against the existing provider numbers for the various
CASHA facilities and concluding to terminate Petitioner. No
action was taken against the corporate entity or corporate
officials who developed a specious legal theory as a means to
evade an unappealed termination of the Clairemont Mesa and
vista facilities.
22

received nothing from AB objecting to the proposed expansion
of the Tustin service area into San Diego. Tr. 592.

However, AB and her secretary, Ann W., both testified that
they did not grant permission to CW for CASHA to expand the
service area of the Tustin branch of Walnut to include San
Diego. Ann W., a senior typist clerk who, among her
responsibilities, processes certification packages and
answers phones for AB, and who was working during April 1996,
remembered speaking by phone to CASHA representatives, but
did not recall speaking to CW. Tr. 684-86. She stated that
her duties have not included relaying messages to providers
from AB, and said that she would never routinely, as part of
her job duties, tell an HHA that they could expand into
another area, or that they could open a branch or a subunit.
Tr. 688, 693.

AB recalled calling CW on April 9, in response to a telephone
message from CW regarding whether CASHA could close the San
Diego office and make it a branch of the Tustin office. She
stated that CW was not in, so she gave TN a message for CW
that she could not expand into the San Diego area, and that
San Diego was too far from Walnut to be licensed as a branch
office. Tr. 737-39, 783-84; HCFA Ex. 30. She also recalled
a conversation with CW prior to April 9, on the subject of
whether the San Diego office, if it closed, could become a
branch of Los Angeles (Walnut) or of Tustin, and had told her
that it could not, because San Diego was too far away, and
also because Tustin was a branch, and, thus, could not serve
as a parent of San Diego. Tr. 789-90. She later spoke to CW
by telephone on April 19, and repeated the message she had
left with TN on April 9, that CASHA could not expand Tustin
to include San Diego or make San Diego a part of Tustin. Tr.
739, 794-98, HCFA Ex. 30. She did not recall seeing CW's
June 18, 1996 letter until being sent a copy "after the fact"
by a HCFA health insurance specialist in HCFA's San Francisco
office. Tr. 811.

Petitioner criticized AB's testimony because she was
uncertain regarding the sequence of phone calls and messages
exchanged with CASHA during April 1996, and could not, for
example, recall whether she had spoken to TN or left a
message on her voice mail. Tr. 783-84. However, given that
AB has responsibility for approximately 450 HHA facilities in
Los Angeles County, it is not surprising, and does not
diminish her credibility, that she was not able to recall the
precise sequence of events surrounding her communications
with CASHA over this matter. Tr. 726-27.

Accordingly, based on the above testimony, I find that CW's
claim that CASHA received permission to expand the Walnut
service area to include San Diego is not credible. It is not
23

credible, if she believed that she had received permission
for expansion by telephone in April, that CW would have felt
it necessary in June to send a letter to AB requesting
permission for the expansion and stating that she would
assume approval had been granted if there was no response in
10 days. P. Ex. 16. Even if I were to accept CW's testimony
as stated, it is clear that in her contact with the Los
Angeles DHS she misrepresented the position of CASHA, as she
testified that she did not mention in her phone conversation
with AB's secretary that HCFA had decertified Clairemont Mesa
and Vista. She was also unable, when asked, to provide any
reason why she had withheld such critical information from
the Los Angeles licensing office. Tr. 656-57. Accordingly,
I conclude that Petitioner did not have permission to expand
its service area to encompass the terminated San Diego
facilities.

Petitioner also argued that it did not need permission to
expand the Walnut service territory, as there are no
regulations governing expansion or limiting the size of the
area that may be served by an HHA. Petitioner argued that,
in other states, parent HHAs serve territories that are
larger than the territory that would have been served through
the expansion of Walnut's territory to include San Diego.
Petitioner also asserted that there was considerable
confusion concerning the driving-time "benchmarks" that are
used to determine how far a branch office may be from its
parent, or how large an area an HHA facility may serve.
Petitioner noted that one of HCFA's witnesses, a HCFA health
insurance specialist in Region IX, referred to a policy of
allowing a maximum of one hour driving distance between
parent and branch offices, which was not communicated to
providers. Tr. 275-76, 282. He also referred to a State
policy of allowing HHAs to serve patients within a two-hour
radius from an HHA. Tr. 289-90

Another HCFA witness, DL, a district administrator for San
Diego with the California DHS, testified that the State used
a two-hour "rule of thumb" for licensing, and that HCFA had
communicated its one-hour benchmark sometime in early 1996.
Tr. 352-53, 391, 396. While she reported that under HCFA
policy a branch has to be within a one hour driving time of a
parent, she did not know whether an HHA would be permitted to
serve patients located more than one hour driving time away.
Tr. 398-403. AB testified to telling CW that the State had a
two-hour parent-to-branch driving time rule, that a proposed
four-hour rule had not been approved, and that the federal
policy was one hour. Tr. 797-801. AB also stated that her
office no longer issues State licenses for branches located
in different counties than a parent. Tr. 749-50, 798.
24

That HCFA's policy relating to the geographical areas of
parents and branches may have been confusing and in a state
of flux has no bearing on my decision. HCFA will grant
certification only to facilities that are licensed under
state law. Applicants for licenses in the State of
California are required to list the geographic area they
propose to serve, and also to file a request to change the
geographic area for which the license was granted. Tr. 733-
35. The evidence establishes that Petitioner did not obtain
permission for an expansion of the area served by the Walnut
parent and Tustin branch. AB testified that such permission
would not have been granted in any event, because the San
Diego offices were too distant from Walnut. Tr. 737-39, 783-
84, 789-90. Further, Petitioner here was not seeking to
extend services to previously unserved areas; rather,
Petitioner's alleged expansion was into an area served by
CASHA-owned facilities that had been terminated from Medicare
and prohibited from claiming Medicare reimbursement for HHA
services. Since CASHA had been barred from providing
Medicare services through its facilities in San Diego,
information which it withheld from State licensing
authorities in Los Angeles, I find that Petitioner could not
reasonably assume that it could use the terminated facilities
to expand its Walnut service area, through the Tustin branch,
into the same area that had been served by the terminated
facilities. Thus, confusion over federal policy regarding
service area limitations was irrelevant.

As discussed in the section above, I find that CASHA did not
provide the Medicare services in question through Walnut and
Tustin, but, instead, through its terminated Clairemont Mesa
and Vista offices, which continued their operations
essentially unchanged. Since the services billed to Medicare
were not provided by Walnut and Tustin, it is irrelevant
whether or not those offices could expand their service area
to encompass San Diego.

Petitioner's argument that it could expand the Walnut service
area because there is no regulation limiting the size of an
HHA's service area is not persuasive. The Medicare
regulations defining the types of HHA facilities clearly
indicate that an HHA must, within its service area, be able
to provide administration, supervision, and services on a
daily basis. This is apparent from the regulations which
provide for only three classes of HHA facility: parent,
subunit, and branch. A branch provides services within a
portion of the total geographic area served by the parent
agency, and is located sufficiently close to share
administration, supervision, and services in a manner that
renders it unnecessary for the branch independently to meet
the conditions of participation as an HHA. A subunit,
conversely, serves patients in a geographic area different
25

from that of the parent agency. It must independently meet
the conditions of participation for HHAs, because it is too
far from the parent agency to share administration,
supervision, and services on a daily basis. If an HHA
facility is too far from a parent HHA to share
administration, supervision and services on a daily basis, it
must be licensed as a subunit, which serves parents ina
geographic area different from that served by the parent.

Thus, the concept of geographic service area is clearly
related to daily supervision. As discussed above, the
actions taken by Walnut and Tustin here with respect to San
Diego consisted of receiving patient records every week to 10
days, and performing additional quality assurance reviews.

TN also visited Clairemont Mesa at least once a month, and
spoke to DW more frequently (actions which, given her title
of CASHA's regional administrator for Southern California,
were more likely related to Clairemont Mesa's and Vista's
efforts to qualify for Medicare certification). These 1
actions do not rise to the level of daily supervision of
either the San Diego facilities or their patients sufficient
to bring San Diego, or its patients, under the purview of the
Walnut parent. I therefore conclude that uncertainties in
federal policy regarding HHA service areas did not provide a
basis for Petitioner to reasonably conclude that it could
serve the San Diego patients through its Walnut parent
office.

5. Petitioner's arguments attacking HCFA's decisionmaking
process are unavailing.

Petitioner also argued that HCFA lacked legal authority to
terminate its provider agreement because of the way it
conducted its review. Petitioner asserted that HCFA's health
insurance specialist recommended termination based on
inaccurate information provided by the State surveyor, took
little action to verify the surveyor's findings, and did not
contact CASHA to discuss those findings. Petitioner also
asserted that HCFA did not give notice to CASHA that it had
rejected its expansion of territory into San Diego or give
CASHA an opportunity to cease billings to which HCFA
objected. Petitioner also accused HCFA of bad faith for
investigating other CASHA office configurations after CASHA
filed this hearing request.

These arguments are without merit. As I stated in Homelife,
the hearing challenging the termination is, by law, de novo.
Act, section 205(b). In deciding Petitioner's appeal of
HCFA's action terminating its provider agreement, I must make
an independent evaluation of whether the applicable
regulatory provisions and the record before me support HCFA's
determination that Petitioner was billing Medicare for
26

services it did not provide. Since the parties have had the
opportunity to fully argue and present all relevant evidence
supporting their positions, the prior processes that led to
HCFA's action are not relevant and are not at issue before
me. Those processes have nothing to do with whether
Petitioner was, in fact, claiming Medicare reimbursement for
services actually rendered by the decertified San Diego
offices. I must decide this case on its merits, not in terms
of the procedures HCFA followed in making its determination.
Accordingly, Petitioner's arguments do not provide a basis
for reversing the termination of the Walnut provider
agreement.

Petitioner argued that the Homelife holding was not
applicable because the regulatory standards I applied there -
- the definition of branch office -- were clear, whereas here
there are no clear regulatory definitions to guide me. I do
not concur with Petitioner's attempt to distinguish Homelife .
As in Homelife, I am here required to render a de novo
decision on whether the record supports HCFA's decision. The
process HCFA went through to reach that decision is not
relevant. As I noted above, the lack of regulatory guidance
Petitioner alleges with respect to service areas does not
support its position, because the evidence here demonstrates
that the Medicare services for which Petitioner claimed
reimbursement were, in fact, provided by Clairemont Mesa and
Vista. In any event, I also find, based on my de novo review
of the record, that Petitioner did not and could not have
received permission to "expand" the Walnut area to include
Clairemont Mesa and Vista. Accordingly, Petitioner's
criticisms of HCFA's decisionmaking process, as well as its
claim that it has been subject to HCFA scrutiny since filing
this hearing request, have no bearing on my decision.

Conclusion

I conclude that Petitioner claimed Medicare reimbursement for
services that it did not provide, in violation of sections
1814(a) of the Act, and 42 C.F.R. § 424.51(a). Therefore, I
sustain HCFA's decision to terminate Petitioner's Medicare
provider participation agreement.

/s/

Edward D. Steinman
Administrative Law Judge