Health 4 U Medical, PLLC, DAB CR5324 (2019)

DECISION

National Government Services (NGS), an administrative contractor for the Centers for Medicare & Medicaid Services (CMS), revoked the Medicare enrollment and billing privileges of Health 4 U Medical, PLLC, pursuant to 42 C.F.R. § 424.535(a)(3).  NGS premised its revocation action on the felony conviction of one of Petitioner’s owners, Jose Sanchez-Pena, M.D.  Petitioner requested a hearing before an administrative law judge (ALJ) to dispute the revocation.  Because Petitioner’s felony conviction is a financial crime that is detrimental to the best interest of the Medicare program and its beneficiaries, I affirm CMS’s revocation action.  For the reasons discussed herein, however, I modify the effective date to November 26, 2013.

I. Background and Procedural History

Petitioner is a medical practice formed in 2012 by several doctors.  P. Br. at 3.  On January 24, 2014, Petitioner submitted a CMS-855B change of enrollment application form to NGS that indicated a change in ownership interest or managing control.  CMS

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Ex. 5 at 8.  Specifically, Petitioner notified NGS that Jose R. Sanchez-Pena, M.D. became a “5 Percent or Greater Direct/Indirect Owner” and a “Partner” on November 26, 2013.  Id. at 28.  Petitioner included its Articles of Organization as an attachment which reflected Dr. Sanchez-Pena’s status as a “current member” and “current manager” as of November 26, 2013.  Id. at 41.

Petitioner advised NGS that Dr. Sanchez-Pena had an adverse legal action imposed against him.  Id. at 29.  Petitioner attached a statement of charges levied by New York’s medical board indicating that on or about January 14, 2010, Dr. Sanchez-Pena had pleaded guilty in the U.S. District Court of New Jersey to willful failure to collect or pay over a tax to the Internal Revenue Service in violation of 26 U.S.C. § 7202.  Id. at 53.  On April 10, 2014, NGS approved Petitioner’s CMS‑855B form.  CMS Ex. 6.

On March 8, 2016, NGS issued a notice letter revoking Petitioner’s Medicare privileges retroactively from October 14, 2010, pursuant to 42 C.F.R. § 424.535(a)(3).  CMS Ex. 3.  NGS explained that it revoked Petitioner’s billing privileges because of the felony conviction of Dr. Sanchez‑Pena, a “5% or more owner and partner,” for “Willful Failure to Collect or Pay Over Tax.”  Id. at 1.  NGS also imposed a three‑year enrollment bar, effective 30 days after the postmark of the notice letter.  Id. at 2.

Petitioner requested reconsideration of NGS’s revocation determination, arguing it had no obligation to disclose Dr. Sanchez‑Pena’s conviction because he was only a 1% owner of Petitioner.  CMS Ex. 2 at 3.  On July 29, 2016, NGS issued a reconsidered determination upholding the revocation determination, finding Dr. Sanchez‑Pena was a 5% or more owner and partner of Petitioner, and that Petitioner had improperly continued to bill Medicare after his felony conviction.  Id.

Petitioner, through counsel, timely requested an administrative law judge (ALJ) hearing.  ALJ Scott Anderson was designated to hear and decide this case.  On October 24, 2016, Judge Anderson issued an Acknowledgment and Pre-hearing Order (Pre-hearing Order) setting forth a briefing schedule.  CMS requested multiple extensions to file its pre‑hearing exchanges, citing a possible settlement between the parties, which ultimately did not occur.  CMS submitted a brief (CMS Br.) and Exs. 1‑6 on December 23, 2016.  There being no objection from Petitioner, I admit CMS Exs. 1-6 into the record.

Petitioner filed its brief (P. Br.) and a proposed witness list on February 15, 2017.  On February 17, 2017, CMS submitted objections (CMS Objections) to Petitioner’s exchange and Petitioner thereafter filed a response (P. Resp.).  This case was transferred from Judge Anderson to me on August 25, 2017.

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II. CMS’s Objections to Admission of Petitioner’s Exchange and Witnesses

CMS has objected to the timeliness of Petitioner’s exchange, which was filed one day past the February 14, 2017 deadline without explanation.  CMS Objections at 1.  Petitioner’s counsel explained he attempted to file his submissions on February 14, 2017, believed erroneously he had succeeded, and corrected his error the next day when he discovered he had not done so.  P. Resp. at 1.  I find good cause to accept Petitioner’s untimely filing and overrule CMS’s objection.  Petitioner’s pre-hearing exchange is admitted into the record.

CMS further objects to Petitioner’s three proposed witnesses, arguing they provide no relevant testimony in this case because Petitioner offers these witnesses on the issue of whether Dr. Sanchez‑Pena had a 5% or more ownership interest in Petitioner.  CMS Objections at 2.  CMS contends Dr. Sanchez-Pena’s ownership stake is ultimately irrelevant as CMS relies on his partnership interest to satisfy the “owner” nexus required by the regulations at the time of revocation.1  Id.  Petitioner responds that Dr. Sanchez‑Pena had no partnership role, since Petitioner was organized as a professional limited liability company (making him a member).  P. Resp. at 2.

CMS concedes that I should revise the retroactive date of revocation from October 14, 2010 to November 26, 2013 to reflect the earliest date Petitioner indicated an ownership interest by Dr. Sanchez-Pena.  CMS Objection at 2 n.1, citing CMS Ex. 5 at 28.  This substantial change in CMS’s position means Petitioner no longer needs to contest Dr. Sanchez-Pena’s ownership interest prior to November 26, 2013.  And there is no question as to his ownership interest after that date, since Petitioner’s own submissions to CMS characterize him as a partner and “5 Percent or Greater Direct/Indirect Owner.”  CMS Ex. 5 at 28.  Consequently, I find the testimony of these three witnesses is indeed irrelevant, and therefore sustain CMS’s objection.2

III. Decision on the Record

The Pre-hearing Order in this case required the parties to submit written direct testimony for each proposed witness and advised an in‑person hearing would only be necessary if the opposing party requested an opportunity to cross‑examine a witness.  Pre‑hearing

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Order ¶¶ 8, 10; Civ. Remedies Div. P. 16(b), 19(b); Pacific Regency Arvin, DAB No. 1823 at 8 (2002).

Here, Petitioner did not submit any direct written testimony for its witnesses and did not ask to cross‑examine the witnesses identified by CMS.  Consequently, I will not hold an in‑person hearing in this matter, and I issue this decision based on the written record.3  Civ. Remedies Div. P. 19(b).

III. Issue

Whether CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. § 424.535(a)(3).

IV. Jurisdiction

I have jurisdiction to decide this case.  42 C.F.R. §§ 493.3(b)(17), 498.5(l)(2).

V. Findings of Fact, Conclusions of Law, and Analysis4

A. Applicable Law

The Social Security Act authorizes the Secretary of Health and Human Services (Secretary) to create regulations governing the enrollment of suppliers in the Medicare program, and to discontinue the enrollment of a physician or other supplier who “has been convicted of a felony under Federal or State law for an offense which the Secretary determines is detrimental to the best interests of the [Medicare] program or program beneficiaries.”  42 U.S.C. §§ 1395u(h)(8), 1395cc(j).  By regulation, CMS may revoke a currently enrolled provider or supplier’s Medicare billing privileges if:

The provider, supplier, or any owner or managing employee of the provider or supplier was, within the preceding 10 years convicted . . . of a Federal or State felony offense that CMS determines is detrimental to the best interests of the Medicare program and its beneficiaries.

42 C.F.R. § 424.535(a)(3)(i).

Section 424.502 defines an “owner” as “any individual or entity that has any partnership interest in, or that has 5 percent or more direct or indirect ownership of the provider or supplier.”  The regulations specify several criminal offenses that the Secretary deems to be per se detrimental to the Medicare program and its beneficiaries, including “[f]inancial

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crimes, such as extortion, embezzlement, income tax evasion, insurance fraud and other similar crimes for which the individual was convicted . . . ” as being offenses that form a basis for CMS to revoke a provider’s or supplier’s enrollment.  42 C.F.R. § 424.535(a)(3)(ii).

B. CMS had a valid basis to revoke Petitioner’s billing privileges as of November 26, 2013.

1. Dr. Sanchez-Pena is an owner of Petitioner as that term is defined at 42 C.F.R § 424.502.

Petitioner contests CMS’s conclusion that Dr. Sanchez-Pena was an owner within the meaning of the regulations when it revoked Petitioner’s enrollment.  P. Br. at 4.  42 C.F.R. § 424.502 defines an “owner” as “any individual or entity that has any partnership interest in, or that has 5 percent or more direct or indirect ownership of the provider or supplier.”  Petitioner concedes that Dr. Sanchez‑Pena acquired a 25% ownership interest in Petitioner on November 26, 2013, but contends that by February 2015, Dr. Sanchez-Pena sold 24% of his interest and “had little to no involvement with any activities of Petitioner.”  P. Br. at 3.  Petitioner also attempts to rely on its status as a professional legal liability company (LLC), under which Dr. Sanchez-Pena was a member, not a partner, to evade the conclusion he had a “partnership interest.”  Id. at 4.5

Petitioner appears to argue that once Dr. Sanchez-Pena’s ownership interest dropped below 5% in February 2015, CMS no longer had the ability to revoke its enrollment.  But Petitioner cites no regulatory or other authority for such a proposition.  Instead, once CMS has a basis to revoke a supplier, it may exercise the discretion to do so at any time permitted by the regulations (in this case, within 10 years of Dr. Sanchez-Pena’s felony conviction, which occurred in 2010, and when he secured an ownership interest of 5% or more, which occurred in November 2013).  Horace Bledsoe, M.D. & Bledsoe Family Medicine, DAB No. 2753 at 10-11 (2016), citing John Hartman, D.O., DAB No. 2564 at 6 (2014).

In any case, Petitioner’s tax returns clearly demonstrate he still held a partnership interest in Petitioner by the end of 2015, and Petitioner has proffered no evidence to indicate Dr.

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Sanchez-Pena’s partnership interest has been modified or terminated since that time.  I therefore conclude Dr. Sanchez-Pena’s ownership and partnership interests made him an owner of Petitioner, as that term is defined at 42 C.F.R. § 424.502.

2. Dr. Sanchez‑Pena was convicted of a felony offense within the ten years preceding Petitioner’s revocation.

On October 14, 2010, the U.S. District Court for the District of New Jersey (District Court) entered judgment against Dr. Sanchez­‑Pena and convicted him for violation of 26 U.S.C. § 7202, Failure to Truthfully Account for and Pay Over Federal Income Taxes.  CMS Ex. 4 at 1.  The District Court sentenced Dr. Sanchez‑Pena to five years’ probation and imposed a $20,000 fine.  Id. at 2, 6.  NGS issued its notice of revocation on March 8, 2016.  CMS Ex. 3.  I therefore conclude Dr. Sanchez-Pena was convicted of a felony offense within the ten years preceding Petitioner’s revocation.

3. CMS had a legitimate basis to conclude Dr. Sanchez-Pena’s offense of conviction was detrimental to the best interests of the Medicare program and its beneficiaries.

Petitioner contests CMS’s determination that Dr. Sanchez-Pena’s offense of conviction was detrimental to the best interests of the Medicare program and its beneficiaries.  P. Br. at 7-11.  The level of deference I show to CMS’s determination depends on the offense in question.  Felony offenses specifically enumerated6 in the regulations enjoy the greatest level of deference, because the Secretary has determined these offenses to be per se detrimental, and my authority does not extend to disregarding validly promulgated regulations.  Letantia Bussell, M.D., DAB No. 2196 at 13 n.13 (2008) (“[o]nce the Secretary . . . has exercised that authority by regulation as to a class of felonies, an ALJ cannot revisit that determination . . . .”).

I accord less deference where CMS relies on felony offenses which do not appear in the regulations, but are similar to them in terms of offense elements.7  The regulations prescribe no method or criteria for judging whether an offense is similar to one of the financial crimes named in section 424.535(a)(3)(i)(B).  Abdul Razzaque Ahmed, M.D., DAB No. 2261 at 11 (2009), aff’d, Ahmed v. Sebelius, 710 F.Supp. 2d 167 (D. Mass. 2010) (“Absent explicit regulatory guidance to the contrary . . . it is reasonable to

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conclude that a supplier’s offense of conviction is similar to a financial crime when the facts and circumstances that are admitted to be the basis for the conviction would appear to satisfy one or more elements of a named financial crime.”).

Here, CMS argues that Dr. Sanchez‑Pena’s felony conviction is “clearly synonymous with ‘income tax evasion,’” and therefore per se detrimental to the interests of the Medicare program.  CMS. Br. at 8.  Perhaps recognizing the inherent weakness of claiming that two felony offenses housed in neighboring statutory provisions describing different conduct are the same, CMS alternatively contends that Dr. Sanchez-Pena’s offense of conviction is a “similar crime” to tax evasion and therefore detrimental to the interest of the Medicare program.  Id.

Petitioner argues that Dr. Sanchez‑Pena’s conviction is neither synonymous with nor similar to tax evasion, since the latter offense requires a willful attempt to evade or defeat an imposed tax, while his failure to properly pay quarterly taxes stemmed from an effort to maintain payroll for his employees.  P. Br. at 7-8, citing 26 U.S.C. § 7201.  Petitioner also points out that the maximum penalty for tax evasion under 26 U.S.C. § 7201 is $100,000, while the maximum penalty for his offense of conviction under 26 U.S.C. § 7202 is only $10,000, suggesting the disparity demonstrates a lack of similarity between the two offenses. Id. at 8.

Looking at the two offenses in question, I cannot agree with Petitioner’s notion they are dissimilar.  26 U.S.C. § 7201 criminalizes any willful attempt “to evade or defeat any tax imposed by this title,” while 26 U.S.C. § 7202 criminalizes the willful failure “to collect or truthfully account for and pay over” a tax, where an individual is required to collect, account for, and pay such a tax.  Contrary to Petitioner’s belief, there is no significant difference in the level of intent required for either crime; one punishes willful conduct while the other punishes willful omission of conduct.  Both offenses relate to the obligation to pay taxes, and only materially differ as to the role of the offender – 26 U.S.C. § 7201 punishes the entity that owes a tax that avoids paying it, while 26  U.S.C. § 7202 punishes an entity obliged to collect a tax and to pay it that fails to do so.  Both forms of conduct are deemed to merit criminal sanction, and both demonstrate a lack of integrity CMS could reasonably consider to be detrimental to the Medicare program and its beneficiaries.

Finally, Petitioner’s reliance on the variance in statutory penalties is without merit.  A difference in severity of punishment does not demonstrate dissimilarity in the nature of the offenses.  I have no difficulty concluding these offenses are similar.  Accordingly, I conclude CMS had a valid basis to determine Petitioner’s offense of conviction to be a financial crime detrimental to the Medicare program and its beneficiaries that necessitated revocation of Petitioner’s billing privileges pursuant to 42 C.F.R. § 424.535(a)(3).

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4. The effective date of Petitioner’s revocation is November 26, 2013, when Dr. Sanchez‑Pena acquired an ownership interest in Petitioner and it became operational.  42 C.F.R. § 424.535(g).

CMS regulations state that when a revocation is based on a felony conviction, the revocation of the supplier’s billing privileges is effective as of the date of the felony conviction.  42 C.F.R. § 424.535(g).  If the date of the conviction precedes the date of the first enrollment in the Medicare program, the effective date of revocation shall be the date the supplier or provider became operational.  Id.

Dr. Sanchez‑Pena’s date of conviction, October 14, 2010, precedes the date of Petitioner’s submission of a CMS-855B form updating its Medicare enrollment status.  CMS Exs. 4 and 5.  That form asserts Dr. Sanchez‑Pena had an ownership interest in Petitioner as of November 26, 2013.  CMS Ex. 5 at 28.  CMS concedes November 26, 2013 is the appropriate effective date.  CMS Objections at 2 n.1.  I therefore find the effective date of Petitioner’s revocation to be November 26, 2013.

5. CMS’s redetermination decision meets statutory requirements.

Petitioner argues that CMS failed to provide a rationale in the reconsidered determination that adequately explained its decision to revoke Petitioner’s Medicare enrollment and billing privileges.  P. Br. at 6.  Petitioner also cites to 42 C.F.R. § 498.25, regulations at 42 C.F.R. Part 405, and the Medicare Claims Processing Manual (MCPM) to argue that CMS did not properly review the redetermination request.  P. Req. for Hearing at 3-4.  Petitioner further argues in its brief that the reconsidered determination notice “does not address the issue of NGS approving Petitioner to bill Medicare knowing of Pena’s felony conviction, and then subsequently revoking Petitioner’s privileges from 2010 to the present” and that it is “evident that an evaluation of the documentation/supporting information is lacking” due to the use of “boilerplate language.”  P. Br. at 5.

CMS correctly argues that the regulations at 42 C.F.R. § 405 and the policies in the MCPM do not apply to the proceedings here.  CMS Br. at 6.  These provisions apply to the appeals process for Medicare claims and payment appeals, not enrollment determinations such as the one here.  The regulations instead oblige CMS to provide notice as follows:

1. CMS mails notice of a reconsidered determination to the affected party.

2. The notice gives the reasons for the determination.

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3. If the determination is adverse, the notice specifies the conditions or requirements of law or regulations that the affected party fails to meet, and informs the party of its right to a hearing.

42 C.F.R. § 498.25.

In reviewing the reconsidered determination, I find that CMS met these requirements.  Petitioner does not dispute that CMS mailed the notice.  The notice provides a reason for the determination and the conditions or requirements of law or regulations that Petitioner failed to meet, stating Petitioner’s Medicare enrollment was revoked pursuant to 42 C.F.R. § 424.535(a)(3) because Dr. Sanchez‑Pena, as a 5% of more owner and partner of Petitioner, was convicted of a felony offense for “Willful Failure to Collect or Pay Over Tax, in violation of 26 U.S.C. § 7202, in the United States District Court, District of New Jersey.”  CMS Ex. 1 at 1.  The notice also advised Petitioner of the means to request a hearing if it was dissatisfied with the reconsidered determination.  Id. at 2.

Petitioner also objects to the timing of CMS’s revocation action, which took place well after Dr. Sanchez-Pena’s conviction and suspension.  While I am sympathetic to Petitioner’s position, CMS is not obliged to revoke Petitioner’s billing privileges within a certain timeframe or with any alacrity, as Petitioner suggests.  See Bledsoe, DAB No. 2753 at 9(“It is important to note that the Medicare statute and regulations do not require CMS to take action within a specified time frame after discovering information about a Medicare enrollee’s conviction.  CMS may revoke at any time based on a conviction if the regulatory elements in section 424.535(a)(3) are satisfied.”).  Where CMS revokes based on the felony conviction of a supplier or provider’s owner, it need only act within 10 years.  42 C.F.R. § 424.535(a)(3)(i).  It did so here, rendering Petitioner’s claim as to the timing of the revocation without merit.8

6. I do not have the authority under the regulations to review CMS’s imposition of an overpayment assessment.

Petitioner argues that I should determine whether CMS’s imposition of an overpayment resulting from the revocation is appropriate, claiming the proceedings to challenge an overpayment and the revocation before me are “nearly impossible to separate.”  P. Br. at 7.  Petitioner’s claim fails because my review is limited to the validity of initial determinations, in this case the determination to deny or revoke a supplier’s Medicare

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enrollment in accordance with 42 C.F.R. § 424.535.  42 C.F.R. § 498.3(b)(17); Bussell, DAB No. 2196 at 12-13 (ALJ review of revocation of enrollment for felony offenses is “limited to whether CMS has established a legal basis for its actions.”).

Although the overpayment resulted from the revocation action, overpayment determinations are not subject to my review.  I have no authority to consider the collateral payment-related consequences of CMS’s decision to revoke Petitioner’s billing privileges.  Lorrie Laurel, PT,DAB No. 2524 at 7-8 (2013) (“Having no authority to review CMS’s exercise of discretion, it follows that we have no authority to consider factors, such as retroactive payment consequences, that CMS might decide to take into consideration when exercising its discretion.”).  Instead, the regulations set forth a separate process by which a party subject to an overpayment can seek review of that determination.  See 42 C.F.R. §§ 405.370 – 405.379.

VI. Conclusion

For the foregoing reasons, I affirm CMS’s revocation of Petitioner’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. § 424.535(a)(3), but modify the effective date to November 26, 2013.

• 1. An “owner” is defined to mean “an individual or entity that has any partnership interest in, or that has 5 percent or more direct or indirect ownership of the provider or supplier. . .”  42 C.F.R. § 424.502.  CMS concedes that the evidence of record does not establish this nexus until November 26, 2013, and thus acknowledges I should revise the effective date of revocation on that basis.  CMS Objection at 2, n.1, citing CMS Ex. 5 at 28.
• 2. Petitioner submitted no direct written testimony for any of these witnesses, despite the explicit requirement to do so found in Judge Anderson’s Pre-hearing Order.  Pre‑hearing Order ¶¶ 8, 10.  Thus, I have no testimony from any of Petitioner’s witnesses to consider even if I considered it necessary to do so.
• 3. The parties’ motions for summary judgment are accordingly denied as moot.
• 4. My findings of fact and conclusions of law are set forth in italics and bold font.
• 5. I reject Petitioner’s formalistic view that the broad scope of this language intended to reach only entities organized as partnerships, but not those organized as limited liability companies.  The Secretary’s regulations clearly intended to revoke the billing privileges of any entity controlled by a felon whose offense suggests his or her association with that entity was detrimental to the Medicare program.  The prohibition against partnership interests broadens the reach of the regulation to those with influence over an entity who are not owners.  This clearly would include members of an LLC, who enjoy voting rights and other privileges, much as partners do.  I note the Internal Revenue Service appears to treat partners and members interchangeably as well; on its 2015 tax return, Petitioner checked a box indicating Dr. Sanchez‑Pena was a “Limited partner or other LLC member.”  CMS Ex. 2 at 23.
• 6. Section 424.535(a)(3)(ii) sets forth four categories of felony offenses that can serve as a basis for revocation:  felony crimes against persons; any felony that placed the Medicare program or its beneficiaries at immediate risk; any felonies that would result in mandatory exclusion under section 1128(a) of the Social Security Act; and applicable here, financial crimes.
• 7. The use of the words “include” or “including” in 42 C.F.R. § 424.535(a)(3)(ii) signifies that the list of proscribed financial crimes is not intended to be exhaustive but illustrative.  42 C.F.R. § 424.535(a)(3)(ii)(B); see Fady Fayad, M.D., DAB No. 2266 at 8 (2009).
• 8. Petitioner also argued at reconsideration that CMS acted unreasonably in revoking its billing privileges because Petitioner had already disclosed Dr. Sanchez-Pena’s felony conviction in 2014.  CMS Ex. 2 at 4-5.  Petitioner has not presented this argument to me, suggesting it recognized its lack of merit.  In any event, CMS correctly observed that the Board has consistently found attacks related to CMS’s discretion are essentially equitable arguments that I may not entertain.  CMS Br. at 11, citing Bledsoe, DAB No. 2753 at 10-11.