Cleveland Back and Pain Management Center, Inc., DAB CR5257 (2019)

DECISION

I find that a contractor acting on behalf of the Centers for Medicare & Medicaid Services (CMS) was without basis to revoke the Medicare billing privileges of Petitioner, Cleveland Back and Pain Management Center, Inc.

I. Background

CMS moved for summary judgment, asserting that there are no disputed issues of material fact. Alternatively, it moved for a decision based on the parties' pre-hearing exchanges. It did not demand to cross-examine either of Petitioner's witnesses. Petitioner opposed CMS's motion for summary judgment.

CMS filed exhibits that it identified as CMS Ex. 1-CMS Ex. 10. Petitioner filed exhibits that it identified as P. Ex. 1-P. Ex. 19. Petitioner's proposed exhibits include seven exhibits that Petitioner did not file with its request for reconsideration of the contractor's initial determination in this case. Petitioner identifies these exhibits as P. Exs. 2-4, 15-16, 18-19.

A party must establish good cause if it wishes to offer exhibits that it did not submit in conjunction with its reconsideration request. 42 C.F.R. § 498.56(e). I find that Petitioner has established good cause for offering the seven exhibits in question.

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As I discuss in more detail below, this case involves two questions: was Petitioner owned by Dr. John Nickels on January 31, 2018, the date of Dr. Nickels' conviction of felonious health care fraud and conspiracy to launder money; and alternatively, was Dr. Nickels a manager of Petitioner on January 31, 2018? The exhibits offered by Petitioner, including P. Exs. 2-4, 15-16, 18-19, directly relate to these issues.

The initial determination in this case hinged the revocation of Petitioner's Medicare billing privileges solely on the issue of ownership. The exhibits offered by Petitioner in its reconsideration request only addressed that issue. It was in the reconsideration determination that Dr. Nickels' possible management role arose as an alternative basis for revocation. Petitioner did not offer exhibits addressing the issue of Dr. Nickels' management role at reconsideration because it was unaware that his possible role would be an issue. Furthermore, the reconsideration determination relied heavily on documents that Petitioner filed with CMS suggesting that Dr. Nickels retained an ownership or management status with Petitioner on or after January 31, 2018. Petitioner argues persuasively that it would have offered more evidence with its reconsideration request had it known that the contractor's representative would place so much emphasis on these documents.

I receive CMS Exs. 1-10 and P. Exs. 1-19 into evidence.

I do not grant summary judgment in this case because there plainly are disputed issues of material fact relating to the questions of Dr. Nickels' ownership and/or management of Petitioner. However, I find that no purpose would be served by an in-person hearing. As I note above, CMS did not propose to cross-examine either of Petitioner's witnesses and, in fact, asked that the case be decided based on the parties' written submissions. CMS offered no witnesses of its own and, therefore, there are no witnesses for Petitioner to cross-examine. Consequently, the case is ripe for decision based on the parties' pre-hearing exchanges.

II. Issues, Findings of Fact, and Conclusions of Law

A. Issues

The issues in this case are whether on January 31, 2018, a convicted felon owned Petitioner and, alternatively, whether that individual retained management responsibility for Petitioner on that date.

B. Findings of Fact and Conclusions of Law

The contractor revoked Petitioner's Medicare billing privileges on the authority conferred by 42 C.F.R. § 424.535(a)(3)(i). The regulation authorizes CMS to revoke the Medicare

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participation of a supplier whose owner or manager was convicted of a felony that CMS determines to be detrimental to the best interests of the Medicare program or its beneficiaries.

The parties do not dispute that CMS has the authority to revoke Petitioner's billing privileges if Dr. Nickels either owned or managed Petitioner as of January 31, 2018. The dispute lies in whether Dr. Nickels either owned or managed Petitioner as of that date. CMS asserts that the record presumptively establishes that Dr. Nickels remained as Petitioner's owner and manager as of January 31. Petitioner contends that ownership of Petitioner changed hands prior to January 31, 2018, and that Dr. Nickels, although still working for Petitioner's new owner as a consultant and non-managing employee, had no management authority as of that date.

In support of its position CMS asserts that Petitioner admitted that Dr. Nickels was its owner and manager on December 4, 2017, when it filed a change of address form with CMS that bears his signature as Petitioner's authorized representative. CMS Ex. 4 at 33. As further support, CMS contends that Petitioner did not file documents reporting a change in Petitioner's ownership at any date prior to January 31, 2018. It notes that CMS regulations require a supplier such as Petitioner to report a change of ownership within 30 days. See 42 C.F.R. § 424.516(d). It contends that Petitioner's failure to report a change in ownership also presumptively establishes that Petitioner continued to be owned by Dr. Nickels as of the date of his conviction.

I agree that the form filed by Petitioner in December 2017 and its failure to report a change in ownership are evidence supporting CMS's contention that Petitioner remained under Dr. Nickels' ownership and management as of the date of his conviction. These facts establish a presumption upon which CMS may rely.

But, that presumption is not irrebuttable.1 To be sure, the presumption created by Petitioner's own filing and failure to report imposes a substantial burden on Petitioner to prove that, in fact, it had been divested of Dr. Nickels' ownership and management as of January 31, 2018. But, Petitioner may overcome the presumption by the preponderance of the evidence. I find that the evidence offered by Petitioner convincingly establishes that as of January 31, 2018, Dr. Nickels no longer owned or managed it.

Petitioner persuasively asserts that on or about June 30, 2017, Dr. Nickels transferred 100 percent of ownership of Petitioner to Dr. Steven V. Kozmary and to his medical

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practice, Dr. Steven V. Kozmary, M.D., LLC (Kozmary LLC). On June 30, 2017, Dr. Kozmary and Dr. Nickels entered into an agreement for the sale of Dr. Nickels' 100 shares of stock in Petitioner, constituting all of Petitioner's outstanding shares. P. Ex. 11; see also P. Ex. 10. That agreement, on its face, transferred the entire ownership of Petitioner from Dr. Nickels to Dr. Kozmary. P. Ex. 11 at 1.

Dr. Kozmary agreed to pay Dr. Nickels $1.1 million for his stock. P. Ex. 11 at 3. He agreed to pay half of that amount, $550,000, "at closing," with an additional deferred payment of $550,000 being due a year later. Id. Kozmary LLC also agreed to pay an additional $400,000 to Dr. Nickels as compensation for Petitioner's accounts receivable. P. Ex. 10 at 2; P. Ex. 12. The asset purchase agreement recited that Kozmary LLC would make an initial payment of $200,000 to Dr. Nickels on the second anniversary of the closing date and would pay the balance (an additional $200,000) to Dr. Nickels only after Petitioner received a total of $400,000 in reimbursement for accounts receivable. P. Ex. 10.

The term "at closing" in the stock transfer agreement is significant: it means that the stock would be transferred when Kozmary LLC made the initial payment and that Dr. Nickels' ownership of that stock would end immediately when Kozmary LLC made that payment. The remaining $550,000 was an indebtedness assumed by Kozmary LLC, but it did not confer continuing ownership rights of the stock on Dr. Nickels.

On July 3, 2017, Kozmary LLC wired $550,000 to Dr. Nickels. P. Ex. 3 at 1. That completed the sale of Petitioner from Dr. Nickels to Kozmary LLC. As of that date, Kozmary LLC owned Petitioner, even if it remained indebted to Dr. Nickels for additional consideration for the sale of Petitioner's stock and for compensation for Petitioner's accounts receivable. P. Ex. 16 at 2.

The aforesaid evidence plainly rebuts the presumption that Dr. Nickels owned Petitioner as of January 31, 2018, the date of his conviction. Moreover, the presumption is rebutted as well by the testimony of Kristin Lee, Petitioner's office manager. P. Ex. 15. Ms. Lee testified that Dr. Nickels informed her on June 30, 2017, that he had completed Petitioner's sale and that Kozmary LLC had become Petitioner's sole owner. Id. at 2. She testified additionally that in the first week of July 2017 Dr. Kozmary visited Petitioner's premises and made it clear that he was Petitioner's sole owner as of that date. Id. She testified additionally that Dr. Nickels made no decisions on behalf of Petitioner after June 30, 2017. Id.

Ms. Lee's testimony is consistent with that of Dr. Kozmary. Furthermore, it is entirely consistent with the contracts executed by Kozmary LLC and its payment of $550,000 to Dr. Nickels. I find her testimony to be credible for these reasons. Thus, the evidence compellingly proves that Kozmary LLC became Petitioner's sole owner at the end of June or beginning of July 2017, seven months prior to Dr. Nickels' conviction. CMS

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may not revoke Petitioner's Medicare participation on the ground that a convicted felon owned it as of the date of his conviction.

Remaining, however, is the question of whether Dr. Nickels continued to assert management responsibility after the beginning of July 2017. To answer this question CMS again relies on the change of location form that Petitioner filed with CMS in December 2017 over Dr. Nickels' signature. As I have discussed, that presumptively establishes that Dr. Nickels remained in some management capacity as of that date. It is Petitioner's burden to rebut that presumption.

I find that Petitioner did so. Both Dr. Kozmary and Ms. Lee testified that Dr. Nickels had no management authority after the completion of the sale of Petitioner's stock to Kozmary LLC at the beginning of July 2017. P. Ex. 15 at 2-4; P. Ex. 16 at 2‑3. Documentary evidence persuasively supports their assertions. On June 30, 2017, Dr. Nickels entered into a physician services agreement with Kozmary LLC. P. Ex. 4. The agreement is an employment contract between Kozmary LLC and Dr. Nickels. It does not suggest that Dr. Nickels remained employed by Petitioner. Indeed, the agreement recites explicitly that Dr. Nickels terminated his employment with Petitioner. Id. at 1.

Dr. Nickels agreed to provide what the physician services agreement describes as "Specialty Services" to Kozmary LLC. The agreement defines "Specialty Services" to consist of the following: (i) professional services; (ii) medical services; (iii) services that are ancillary to the professional or medical services; or (iv) other Specialty-related services that could result in a technical fee for a healthcare provider. P. Ex. 4 at 2.

These services clearly describe professional medical services. They do not describe management services. Nothing in the agreement between Kozmary LLC and Dr. Nickels suggests that he would continue to manage Petitioner in any capacity. To the contrary, the agreement makes it plain that he would not.

Additional language in the agreement supports this conclusion. Article IV of the agreement defines Dr. Nickels' duties and responsibilities. At section 4.1 it explains that Dr. Nickels would practice medicine in his specialty on behalf of Kozmary LLC. It is silent as to any other duties or responsibilities. P. Ex. 4 at 3. There is no additional language anywhere in the agreement that suggests that Dr. Nickels would provide services beyond professional medical services.

The agreement also makes it clear that Dr. Nickels would provide services under the direct authority of Kozmary LLC. Nothing in the agreement allows Dr. Nickels to operate independently of Kozmary LLC. P. Ex. 4 at 3.

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Pursuant to that agreement Dr. Nickels continued to provide some services at Petitioner. As of October 2017, Dr. Nickels worked at Petitioner's facility only one day per week. P. Ex. 15 at 4; P. Ex. 16 at 2. His services consisted only of providing technical advice to mid-level providers concerning administration of treatments for pain. P. Ex. 15 at 3.

How, then, to account for Petitioner's December 2017 filing with CMS of a change of location document bearing Dr. Nickels' signature? I find persuasive Ms. Lee's explanation that this filing constituted an error on her part. Ms. Lee testified persuasively that she did not understand the importance of putting Dr. Kozmary's signature on the form. She stamped Dr. Nickels' signature on the form because Dr. Kozmary was not present to sign the form. She testified persuasively as well that she was unaware of the need to file a change of ownership form. P. Ex. 15 at 2.

As I have discussed, this case hinges on whether Dr. Nickels either continued to own Petitioner or supervised its operations as of the date of his conviction. It is not about Petitioner's filing of incorrect forms or about its failure to file a required document. There may be penalties elsewhere in the regulations that address such failures, but here, the operative issues are actual ownership and management. The evidence in this case is overwhelming. Dr. Nickels neither owned nor managed Petitioner on January 31, 2018, the date of his conviction.

CMS asserts that there are ambiguities and unclear aspects to the evidence filed by Petitioner that render that evidence less than persuasive. It contends that Petitioner's evidence is inconclusive and is therefore insufficient to overcome the presumption that it continued to be owned and managed by Dr. Nickels on January 31, 2018.

I have explained why I find Petitioner's evidence to be persuasive. CMS's arguments notwithstanding, I find no meaningful ambiguity or inconsistency in any of that evidence.

CMS argues that the date that Kozmary LLC allegedly acquired ownership of Petitioner is unclear. It is true that Petitioner asserts that the transaction closed on or about June 30, 2017, but the evidence offered by Petitioner makes it absolutely clear that Dr. Kozmary transferred $550,000 – the initial payment agreed to for the exchange of stock shares – on July 3, 2017.

CMS argues also that there is a discrepancy between what Kozmary LLC paid Dr. Nickels – $550,000 – and the total agreed upon purchase price that suggests that the transaction never closed. I disagree. As I explain above, the transfer of stock from Dr. Nickels to Kozmary LLC occurred when the sum of $550,000 was paid to Dr. Nickels. Additional money due to Dr. Nickels – an additional $550,000 for purchase of his stock and $400,000 for sale of accounts receivable – constitutes indebtedness owed by Kozmary LLC to Dr. Nickels after Dr. Nickels transferred his stock. But, that

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indebtedness did not affect the transfer of ownership. That plainly took place when Dr. Nickels received the $550,000 initial payment.

CMS also notes that in consenting to the sale Petitioner's board of directors referred to a sale of 750 shares of stock by Dr. Nickels to Dr. Kozmary. CMS Brief at 9, 16. That is a discrepancy, but I find the language of the contract between Dr. Nickels and Dr. Kozmary to be controlling as to this question. The contract clearly recites that the 100 shares that it refers to are the entirety of Petitioner's issued and outstanding stock. P. Ex. 11. Whatever the actual number of shares, it is plain that the sale was of all of Petitioner's stock.

CMS asserts that in a document filed on Petitioner's behalf in its request for reconsideration of the contractor's initial determination, Ms. Lee described Dr. Nickels, alternatively, as either Petitioner's medical director or acting medical director. However, Ms. Lee did not describe Dr. Nickels' post-sale duties at that time. In her declaration, Ms. Lee makes it plain that Dr. Nickels' duties after June 2017 consisted of answering clinical questions. She avers that at all times after June 30, 2017, Dr. Kozmary supervised Dr. Nickels and that Dr. Nickels had no operational, administrative, supervisory or management authority at Petitioner. P. Ex. 15 at 3-4. I find this statement to be persuasive, especially in light of the fact that Ms. Lee describes Dr. Nickels' duties in a way that is entirely consistent with the duties set forth in the services agreement between Dr. Nickels and Kozmary LLC. P. Ex. 4 at 2.

CMS notes, additionally, that Dr. Nickels was the sole professional listed as a contact person on Petitioner's website through August 29, 2018. However, that fact does not imply that Dr. Nickels' responsibilities included management. His services agreement with Kozmary LLC provided that he would be available to answer technical questions. Listing him as a contact person is consistent with that.

• 1. This is not a case about whether Petitioner filed the proper forms with CMS. As is made plain by 42 C.F.R. § 424.535(a)(3)(i), the outcome rests on whether Dr. Nickels owned or managed Petitioner as of the date of his conviction and not on whether Petitioner filed documents with CMS that incorrectly stated that he did, or whether Petitioner failed to report a change in ownership.