ESEC, LLC d/b/a ESEC Surgery Center, DAB CR5292 (2019)

DECISION

ESEC, LLC d/b/a ESEC Surgery Center (Petitioner or ESEC), an ambulatory surgical center (ASC), challenges the determination of the Centers for Medicare & Medicaid Services (CMS) to terminate Petitioner’s ASC agreement effective August 18, 2018, for Petitioner’s alleged noncompliance with Medicare conditions for coverage of ASC services. As explained more fully below, CMS has submitted evidence sufficient to establish a prima facie case that Petitioner did not comply with a Medicare condition for coverage, and Petitioner has not rebutted CMS’s prima facie case by demonstrating that it complied with all Medicare conditions for coverage. I therefore find that Petitioner did not comply with a Medicare condition for coverage. Consequently, I conclude that CMS had a basis to terminate Petitioner’s ASC agreement effective August 18, 2018.

I. Background and Procedural History

ESEC is an ASC located in Oklahoma City, Oklahoma, that participated in Medicare. See, e.g., CMS Exhibit (Ex.) 1. From July 28 through 30, 2015, surveyors for the Oklahoma State Department of Health (state agency) conducted two parallel surveys of ESEC’s facility: a life safety code (LSC) survey from July 28 through 29 and a health survey from July 28 through 30. CMS Ex. 3 at 1, 17; CMS Ex. 18 at 1-2. The state agency found that ESEC was not in compliance with various LSC standards and multiple Medicare conditions for coverage. CMS Ex. 3. On November 6-7 and 20, 2017, the state

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agency conducted two related revisit surveys of ESEC. CMS Ex. 2. The state agency found that ESEC had not corrected two of the LSC deficiencies identified during the July 2015 LSC survey and the condition-level deficiency arising from those LSC deficiencies. Id. at 1-2, 4. On June 6, 2018, the state agency conducted a final revisit survey of ESEC, finding that ESEC remained out of compliance with the same two LSC standards and the related condition for coverage. CMS Ex. 1 at 1, 3-4, 12, 17.

Based on the state agency’s findings during the surveys, CMS determined that ESEC failed to comply with the condition for coverage at 42 C.F.R. § 416.44 (Tag Q100, environment). CMS Ex. 1 at 1, 3-4; CMS Ex. 4 at 1. Having concluded that ESEC failed to comply with a condition for coverage, CMS terminated ESEC’s ASC agreement effective August 18, 2018. CMS Ex. 4 at 1.

By letter dated August 17, 2018, Petitioner requested an expedited hearing to challenge CMS’s termination of its ASC agreement. By order dated August 23, 2018, (Pre-hearing Order) I acknowledged Petitioner’s hearing request and established an expedited briefing schedule. Pre-hearing Order ¶ 4. In accordance with the schedule I set, CMS and Petitioner filed pre-hearing exchanges, including pre-hearing briefs (CMS Br. and P. Br., respectively), exhibit and witness lists, and proposed exhibits. Within its pre-hearing brief, CMS moved to dismiss this case, which motion Petitioner opposed. In its exhibit and witness list, Petitioner made a statement that I treated as an effective request to cross-examine CMS’s witnesses. CMS submitted 21 exhibits (CMS Exs. 1-21) and Petitioner submitted 12 exhibits (P. Exs. 1-12). As neither party has objected to any of the proposed exhibits, I admit all of them into the record.

By order dated November 14, 2018, I denied CMS’s motion to dismiss and set this case for hearing. Thereafter, CMS moved for summary judgment (CMS Motion), which Petitioner opposed (P. Opp.). On December 18, 2018, Petitioner withdrew its request to cross-examine CMS’s witnesses and the parties jointly requested that I close the evidentiary record in the matter and that the case be submitted on the written record. I granted the parties’ request and cancelled the hearing, which was no longer necessary. 42 C.F.R. § 498.66(b). Therefore, I decide this case based on the written record. I deny CMS’s motion for summary judgment as moot.

II. Issue

The sole issue in this case is whether CMS had a basis to terminate Petitioner’s ASC agreement.

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III. Jurisdiction

I have jurisdiction to hear and decide this case. Social Security Act (Act) §§ 205(b), 1832(a)(2)(F)(i), 1863 (codified at 42 U.S.C. §§ 405(b), 1395k(a)(2)(F)(i), 1395z)1 ; 42 C.F.R. §§ 416.26(f), 416.35(b)(3), 498.3(b)(8).2

IV. Discussion

A. Applicable Legal Authority

The Social Security Act authorizes the Secretary of Health and Human Services (Secretary) to promulgate regulations specifying “health, safety, and other standards” applicable to ASCs wishing to participate in the Medicare program. Act § 1832(a)(2)(F)(i) (42 U.S.C. § 1395k(a)(2)(F)(i)). The Secretary’s regulations governing ASC participation in Medicare are found at 42 C.F.R. part 416.

In order to receive Medicare payment for services provided to beneficiaries, an ASC must comply with all applicable conditions for coverage specified in 42 C.F.R. part 416. Act § 1832(a)(2)(F)(i) (42 U.S.C. § 1395k(a)(2)(F)(i)); 42 C.F.R. § 416.30(a). Each condition is contained in a single regulation, which is divided into subparts called standards. 42 C.F.R. part 416 subpart C. Compliance with a condition for coverage is determined by the manner and degree to which the supplier satisfies the standards within the condition. 42 C.F.R. § 488.26(b). If a supplier’s “deficiencies are of such character as to substantially limit the . . . supplier’s capacity to furnish adequate care or which adversely affect the health and safety of patients,” the supplier is not in compliance with the conditions for coverage. 42 C.F.R. § 488.24(b).

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The regulations do not clearly define the threshold beyond which deficiencies “substantially limit” a facility’s capacity to furnish adequate care or “adversely affect” patient health and safety and thus rise to condition level. Appellate panels of the Departmental Appeals Board (DAB) have discussed the meaning of these provisions. One panel concluded that “a condition-level deficiency may arise from a potential for harm to patients, as well as from circumstances which result in actual harm.” Nat’l Hosp. for Kids in Crisis, DAB No. 1600 at 8 (1996); see also Beverly Cal. Corp. v. Shalala, 78 F.3d 403, 409 (8th Cir. 1996) (holding that a showing of actual harm to patients was unnecessary to support decertifying a Medicaid provider because “[a] standard requiring harm to Medicaid patients before the Secretary could take action would improperly subvert the Secretary’s oversight of the program”); Dialysis Ctr. at Moreno Valley, Inc., DAB No. 2193 at 23 (2008). Another panel declined to rule on whether deficiencies that posed a risk of no more than minimal harm could constitute condition-level deficiencies because it upheld an administrative law judge’s conclusion that a dialysis facility “failed to meet the conditions for coverage because its deficiencies had a ‘great potential for harm.’” Angel Kidney Care of Inglewood, Inc., DAB No. 2795 at 9 (2017).

If an ASC fails to meet even one condition for coverage or to comply substantially with its ASC agreement, the regulations, and the Act, CMS may terminate its ASC agreement. 42 C.F.R. § 416.35(b)(1); see Day Op of N. Nassau, Inc., DAB No. 2818 at 2 (2017); Digestive Disease Ctrs., DAB CR2216 at 3, 8 (2010). CMS must send notice of the termination to the ASC at least 15 days before the termination takes effect. 42 C.F.R. § 416.35(b)(2). An ASC may request a hearing in accordance with the provisions of 42 C.F.R. pt. 498. 42 C.F.R. § 416.35(b)(3).

The hearing before an administrative law judge is a de novo proceeding. CarePlex of Silver Spring, DAB No. 1683 at 17 (1999) (holding that administrative law judges hold de novo hearings based on issues permitted under the regulations and administrative law judge review is not a quasi-appellate review); see also Claiborne-Hughes Health Ctr. v. Sebelius, 609 F.3d 839, 843 (6th Cir. 2010) (The DAB “reviewed the finding under the de novo standard that the ALJ would have applied.”). On appeal to an administrative law judge, CMS must make a prima facie case that the ASC failed to comply with federal conditions for coverage and, if this occurs, the ASC must, in order to prevail, prove compliance by a preponderance of the evidence. See Hillman Rehab. Ctr., DAB No. 1611 at 8 (1997); see also Batavia Nursing & Convalescent Inn, DAB No. 1911 (2004); Batavia Nursing & Convalescent Ctr., DAB No. 1904 (2004); Emerald Oaks, DAB No. 1800 (2001); Cross Creek Health Care Ctr., DAB No. 1665 (1998). An appellate panel of the DAB has explained that CMS must come forward with “evidence related to disputed findings that is sufficient (together with any undisputed findings and relevant legal authority) to establish a prima facie case of noncompliance with a regulatory requirement.” Evergreene Nursing Care Ctr., DAB No. 2069 at 7 (2007). “Prima facie” means generally that the evidence is “[s]ufficient to establish a fact or raise a presumption unless disproved or rebutted.” Black’s Law Dictionary 1228 (8th ed. 2004).

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

1. CMS had a basis to terminate Petitioner’s ASC agreement because Petitioner did not comply with the Medicare condition for coverage at 42 C.F.R. § 416.44.3

a. CMS has established a prima facie case that Petitioner did not comply with 42 C.F.R. § 416.44.

Condition for Coverage - Environment: 42 C.F.R. § 416.444 : ASCs are required to have a safe and sanitary environment, properly constructed, equipped, and maintained to protect the health and safety of patients. 42 C.F.R. § 416.44. As relevant here, ASCs must meet the provisions applicable to Ambulatory Health Care Occupancies and follow the National Fire Protection Association’s (NFPA’s) Life Safety Code (NFPA 101 and Tentative Interim Amendments (TIA) TIA 12-1, TIA 12-2, TIA 12-3, and TIA 12-4). 42 C.F.R. § 416.44(b)(1). ASCs must also meet the applicable provisions of the 2012 edition of the NFPA’s Health Care Facilities Code (NFPA 99, and TIA 12-2, TIA 12-3, TIA 12-4, TIA 12-5, and TIA 12-6). 42 C.F.R. § 416.44(c).

NFPA Requirements: Three provisions from the versions of NFPA 99 and NFPA 101 in effect at the time of the revisit surveys and termination5  bear on this case. With an exception inapplicable here, section 20.5.2.1 of NFPA 101 (2012 ed.) provides that “[h]eating, ventilating, and air-conditioning shall comply with the provisions of Section 9.2 and shall be installed in accordance with the manufacturer’s specifications . . . .” With a similarly inapplicable exception, section 21.5.2.1 of NFPA 101 (2012 ed.) provides that “[h]eating, ventilating, and air-conditioning shall comply with the provisions of Section 9.2 and shall be in accordance with the manufacturer’s specifications . . . .” These two provisions are substantially similar to the provision on which the surveyors relied, section 20.5.2.1 from the 2000 edition of NFPA 101. CMS Ex. 1 at 12, 14-15; CMS Ex. 2 at 1. Section 6.4.2.2.1.1 of NFPA 99 (2012 ed.) provides

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that “[t]he essential electrical system shall be divided into the following three branches: (1) Life safety[,] (2) Critical[, and] (3) Equipment.” This provision, too, does not differ substantially from section 3-4.2.2 of the 1999 edition of NFPA 99, on which the surveyors relied. CMS Ex. 1 at 17, 19-23; CMS Ex. 2 at 2. Although section 3-4.2.2 only mandated two separate branches for the essential electrical system—critical and life safety—that difference is not material for purposes of this decision.

Ventilation Issue: Surveyors James Nathan Johns and Balinda J. Rhinehart participated in the revisit surveys of Petitioner’s facility; Surveyor Johns also participated in the initial July 2015 LSC survey. CMS Ex. 18 at 1-3; CMS Ex. 19 at 1-2. At the time of the initial LSC survey, Petitioner was using two Steris System 1E sterilizers. CMS Ex. 3 at 3; CMS Ex. 18 at 3. To disinfect surgical equipment, the Steris System 1E sterilizers used peracetic acid (CMS Ex. 11 at 7), which “produces highly irritating vapors and can be combustible,” (CMS Ex. 18 at 3; CMS Ex. 19 at 3). According to Surveyor Johns and Surveyor Rhinehart, the manufacturer’s instructions for these sterilizers recommend placing them in areas that have negative air pressure, are exhausted to the outside, and that have at least 10 air exchanges per hour. CMS Ex. 18 at 3; CMS Ex. 19 at 3.6  In this proceeding, Petitioner does not dispute that Steris System 1E sterilizers require ventilation of this sort.7  However, throughout the survey process, Petitioner kept its two Steris System 1E sterilizers in an area that had none of these characteristics. CMS Ex. 1 at 3, 7, 13-14, 16-17; CMS Ex. 18 at 3; CMS Ex. 19 at 3. Surveyor Johns and Surveyor Rhinehart both stated in their declarations that, “[w]hen rooms are not properly pressurized and exhausted, harmful airborne contaminants and pathogens can escape putting the health of patients (and staff) at risk. Harmful airborne pathogens include . . . chemicals.” CMS Ex. 18 at 3; CMS Ex. 19 at 3.

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Declarations from CMS’s other two witnesses are consistent with the surveyors’ written testimony. CMS Exs. 20, 21. Karen Hoffman, a witness with decades of experience in infection prevention and control (CMS Ex. 20 at 1), stated that “[p]roper air movement and moisture is key to limiting the risk of movement of microorganisms from dirty areas to clean.” Id. at 2.8  Dodjie B. Guioa, whose experience with CMS spans two decades, including his current role as Hospital Program Lead, stated that “[b]ecause the sterilizers were not vented, patients were placed at increased risk for infection.” CMS Ex. 21 at 1.

Electrical Issue: As part of the June 6, 2018 surveys, Surveyors Johns and Rhinehart toured the facility and saw five electrical panels in an electrical closet. CMS Ex. 18 at 4‑5; CMS Ex. 19 at 4. They inspected each of the electrical panels and observed that “critical and life safety code components [were] mixed between each of the existing five electrical branch panels.” CMS Ex. 18 at 5; CMS Ex. 19 at 4. Surveyor Rhinehart further stated in her declaration that this intermixing of the critical and life safety branches “could potentially affect the safety of all patients receiving surgical services during a time where the normal electrical service is interrupted for any reason and all patients, guests and staff during emergency conditions.” CMS Ex. 19 at 4. Surveyor Johns echoed this sentiment in his own declaration. CMS Ex. 18 at 5. In addition, he explained that facilities like Petitioner that “provide general sedation/nitrous oxide, and perform complex/higher level of difficulty procedures . . . are at risk if their electrical system does not meet NFPA code because loss of power or failure of the equipment due to electrical problems could potentially result in loss of human life or cause serious injuries.” Id.; see also CMS Ex. 1 at 2, 11. Mr. Guioa similarly stated that “[s]ingle electrical panels do not protect equipment used during surgeries from loss-of-power, and therefore, places [sic] surgical patients under general anesthesia at increased risk of injury if there were a sudden loss of power.” CMS Ex. 21 at 1. Surveyor Johns also stated that this deficiency existed and was cited as part of the initial July 2015 LSC survey and had not been corrected since that survey. CMS Ex. 18 at 4. In a July 5, 2018 letter to CMS, Petitioner, through counsel, conceded that this “branching issue . . . may be a technical error . . . .” CMS Ex. 14 at 5. Furthermore, in this proceeding, Petitioner has not contested that it failed to divide the critical and life safety components of its essential electrical system into separate branches.

Analysis: Petitioner was supposed to ventilate its equipment in accordance with the manufacturer’s specifications. NFPA 101 §§ 20.5.2.1, 21.5.2.1 (2012 ed.); 42 C.F.R. § 416.44(b)(1). CMS’s undisputed evidence shows that two of Petitioner’s sterilizers needed to be placed in an area that had negative air pressure, was exhausted to the

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outside, and underwent at least 10 air exchanges per hour. CMS Ex. 18 at 3; CMS Ex. 19 at 3. Petitioner also was supposed to divide the life safety and critical components of its essential electrical system into separate branches. NFPA 99 § 6.4.2.2.1.1 (2012 ed.); 42 C.F.R. § 416.44(c). CMS’s evidence shows, and there is no real dispute, that Petitioner did not do these things. CMS Ex. 1 at 3, 7, 13-14, 16-17; CMS Ex. 14 at 4; CMS Ex. 18 at 3, 5; CMS Ex. 19 at 3, 4. Thus, Petitioner violated the standards found at 42 C.F.R. § 416.44(b)(1) and (c).

As discussed above, there is no precise measure for determining whether an ASC’s deficiencies are serious enough to constitute condition-level noncompliance. At a minimum, though, a showing that an ASC’s deficiencies pose a “great potential for harm” is adequate to demonstrate that those deficiencies “substantially limit” the ASC’s capacity to furnish adequate care or “adversely affect” patient health and safety and thus rise to the condition level. See Angel Kidney Care, DAB No. 2795 at 9. As explained in the next paragraph, I conclude that CMS has made a prima facie showing that Petitioner’s deficiencies posed a great potential for harm.

According to written testimony from CMS’s witnesses, the ventilation issue and the electrical issue each had the potential to negatively affect the health and safety of all of Petitioner’s patients. CMS Ex. 18 at 3, 5; CMS Ex. 19 at 3, 4; CMS Ex. 20 at 2; CMS Ex. 21 at 1. The surveyors testified that the decontaminant used in Petitioner’s sterilizers could produce highly irritating vapors and be combustible. CMS Ex. 18 at 3; CMS Ex. 19 at 3. And, Mr. Guioa testified, failing to vent the sterilizers properly increased the risk that Petitioner’s patients would suffer an infection. CMS Ex. 21 at 1. That was the import of Ms. Hoffman’s testimony, as well. CMS Ex. 20 at 2. Without proper ventilation of the sterilizers, then, Petitioner’s patients could be exposed to and harmed by those irritating vapors or combustion and faced an increased risk of infection. See CMS Ex. 18 at 3; CMS Ex. 19 at 3; CMS Ex. 20 at 2; CMS Ex. 21 at 1. In addition, mixing the life safety and critical branches of the essential electrical system created the potential for any power failures at the facility to result in a system-wide failure unconfined to either branch. The surveyors testified that such a hazard could seriously affect the safety of all patients receiving surgical services, as well as Petitioner’s guests and staff. CMS Ex. 18 at 5; CMS Ex. 19 at 4. Moreover, according to Surveyor Johns and Mr. Guioa, patients undergoing surgery, particularly those under general anesthesia, faced a serious risk of injury, or potentially even death, from any such power failure. CMS Ex. 18 at 5; CMS Ex. 21 at 1. This evidence, taken together with Petitioner’s admissions, is more than adequate to establish that Petitioner’s deficiencies posed a “great potential for harm” and thus rose to condition level. See Angel Kidney Care, DAB No. 2795 at 9.

In sum, Petitioner violated the standards found at 42 C.F.R. § 416.44(b)(1) and (c), and CMS has established a prima facie case these deficiencies substantially limited Petitioner’s capacity to furnish adequate care to its patients. CMS thus has established a

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prima facie case that Petitioner did not comply with the condition for coverage at 42 C.F.R. § 416.44.

b. Petitioner has not rebutted CMS’s prima facie case by demonstrating that it complied with 42 C.F.R. § 416.44.

Petitioner offers the written declarations of four witnesses in support of its argument that it complied with the condition for coverage for environment specified at 42 C.F.R. § 416.44. P. Exs. 9-12. Elisse Seals, Petitioner’s Regional Vice President of Operations since December 2011, and Vicki Fox, Petitioner’s Administrator since August 2006, both testified that “at no time since the Facility opened have there been any patient safety issues related to either of the two deficiencies for which the Facility was cited.” P. Ex. 9 at 2; P. Ex. 10 at 2. James Snoddy, who has owned the building housing Petitioner’s facility since its construction, stated that “[t]he plans that were submitted to, and approved by, [the state agency] in 2005 included the deficiencies for which the Facility was cited in 2015, and again in 2017.” P. Ex. 12. He also stated that “[t]he Facility was constructed exactly as it was approved, and no major changes have been made since its construction.” Id. James Farmer, the person responsible for maintaining Petitioner’s facility since December 2011, stated, consistent with Mr. Snoddy’s statements, that “[n]o major changes have been made to either the location of the sterilizers or the configuration of the electrical panel since [he] began working there,” and he was “not aware of any major changes that were made prior to [his] beginning work.” P. Ex. 11 at 1. Mr. Farmer elaborated more about Petitioner’s electrical system, asserting that, “as it existed at the time of 2015 survey, [it was] reliable, well-designed, and adequate for the Facility’s load consideration, even with the entire electrical system operating at the same time.” Id. at 1-2. According to Mr. Farmer, Petitioner’s entire electrical system “requires less than 150 kVA.” Id. at 2. As such, he stated that “only one emergency switch for all the electrical service at the Facility is sufficient.”9  Id. Mr. Farmer also noted that Petitioner has “a 150kVA Onan backup generator that can power on the entire electrical needs of the Facility for more than 1.5 hours” and that testing of the generator demonstrated that it can “power[] up the entire Facility in less than six seconds.” P. Ex. 11 at 2.

As noted in the previous section, Petitioner does not dispute that it violated the standards at 42 C.F.R. § 416.44(b)(1) and (c). Rather, Petitioner’s position is that its deficiencies were not condition level because, “in over thirteen years of operation, [it] has had no incidents whatsoever involving the issues identified in the survey.” P. Br. at 5. Petitioner cites as further evidence of the minimal risk posed by its deficiencies the state agency’s long delay (more than two years) in conducting a revisit survey after first identifying the deficiencies. Id. As Petitioner puts it, “if the electrical panel configuration or placement

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of the sterilizers truly put patient safety at risk . . . then why would [the state agency] have waited over two years after initially identifying the Deficiencies before it conduct a revisit?” Id. (emphasis in original).

I am not persuaded by Petitioner’s position. First, I note that Petitioner’s own argument suggests a possible explanation for the state agency’s delay in conducting a revisit of Petitioner’s facility. According to Petitioner, during the survey process, the state agency “was in constant turmoil, first in the form of a purported ‘budget shortfall’ resulting in nearly two hundred layoffs, followed by the discovery of a hidden, multi-million dollar slush fund, and topped off with an indictment of its General Counsel for falsifying evidence.” P. Br. at 9. Given a state agency in such apparent disarray, it seems likely that the disarray itself caused the revisit to be delayed, rather than any conclusion by the agency that Petitioner’s deficiencies were not serious.

Second, while I acknowledge Petitioner’s evidence that no patient safety issues have arisen from Petitioner’s deficiencies in 13 years of operation, I find that evidence insufficient to outweigh the testimony of CMS’s witnesses regarding the risks the deficiencies pose. As discussed above, I find credible the testimony of Mr. Johns, Ms. Rhinehart, Ms. Hoffman, and Mr. Guioa that Petitioner’s deficiencies put Petitioner’s patients at risk of serious harm, including infection, injury, or even death. Simply put, Petitioner has not persuaded me that it is more likely than not that its deficiencies did not pose a great potential for harm simply because no patient was actually harmed in 13 years.10

Petitioner argues additionally that the deficiencies cited by CMS do not rise to condition level because CMS has not shown a nexus between the deficiencies and Petitioner’s ability to care for its patients adequately and safely. P. Br. at 6. Petitioner cites Profound Health Care, DAB No. 2371 (2011), in support of this argument. Id. As Petitioner puts it, in Profound, the DAB “reversed and remanded an [administrative law judge]’s conclusion that a provider’s noncompliance was a sufficient basis to sustain termination of a provider’s agreement, where ‘the record [did] not evidence a nexus between [the provider’s] noncompliance . . . and [the provider’s] capacity to furnish adequate care or to protect the health and safety of its patients.’” Id. (quoting Profound, DAB No. 2371 at 5).

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Petitioner’s reliance on Profound is misplaced. The deficiency at issue in that case concerned the provider’s undisputed failure to timely transmit data to the state. Profound, DAB No. 2371 at 5-8. The appellate panel disagreed with the administrative law judge that what amounted to a paperwork error had an “obvious potential of limiting substantially [the provider’s] capacity to furnish adequate care to, and to protect the health and safety of, its patients.” Id. at 9. This case does not involve paperwork deficiencies, and the nexus between Petitioner’s deficiencies and its capacity to furnish adequate care to its patients arises not from some presumptive connection between the two but from the credible testimony of CMS’s witnesses, who explain how Petitioner’s deficiencies could have seriously harmed its patients.

Finally, although Petitioner’s brief does not highlight the issue, I explain why Mr. Farmer’s declaration does not convince me that the deficiency regarding Petitioner’s electrical system posed no risk to patient safety. As noted above, Mr. Farmer explained that Petitioner’s backup generator system was adequate to power the entire facility for more than an hour and was tested to work within 6 seconds of a power outage. P. Ex. 11 at 2. The presence and capability of the backup generator are reassuring in some respects. But the backup generator would only protect against an external power failure (e.g., a grid blackout), not a failure of the power distribution system within the facility itself (e.g., a fire destroying electrical hardware in the facility). A backup generator would not protect against a failure of the combined critical and life system components themselves, which I infer is the primary problem that dividing those components into separate branches is meant to insure against. In addition, the fact that, according to Mr. Farmer, the division need not have been at the transfer switch does not mean that Petitioner need not have divided the critical and life safety components into separate branches at all. To the contrary, NFPA 99 section 6.4.2.2.1.2 provides that “[t]he division between the branches shall occur at transfer switches where more than one transfer switch is required.” This strongly implies that the division of branches must occur elsewhere than the transfer switch where only one transfer switch is required. No evidence, including Mr. Farmer’s declaration, supports a contrary interpretation (e.g., that, when a single transfer switch is permitted, critical and life safety branches of the essential electrical system may be intermixed). Indeed, Petitioner itself admitted that the branching issue might be a deficiency. CMS Ex. 14 at 5. For these reasons, I do not find Mr. Farmer’s testimony sufficient to prove that the electrical issue did not pose a great potential for harm. This is so even taking as true that Petitioner’s electrical system did not experience any adverse events within the previous 13 years.

Ultimately, Petitioner has failed to produce evidence sufficient to rebut CMS’s prima facie case and demonstrate, by a preponderance of the evidence, that it complied with the condition for coverage at 42 C.F.R. § 416.44. Consequently, I conclude that Petitioner did not in fact comply with the condition for coverage at 42 C.F.R. § 416.44. See, e.g., Hillman, DAB No. 1611 at 8. CMS therefore had a basis to terminate Petitioner’s ASC agreement. 42 C.F.R. § 416.35(b)(1).

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2. Petitioner’s other arguments are without merit.

Petitioner insists that CMS should not have terminated its ASC agreement and should be estopped from doing so. Petitioner contends that it reasonably and to its detriment relied on statements from and representations by the state agency that led Petitioner to believe it did not need to correct the deficiencies discussed above. P. Br. at 6-9 (citing P. Ex. 1); P. Opp. at 8-11 (also citing P. Ex. 1). Petitioner points first to the state agency’s initial approval of the construction plans for Petitioner’s facility, which Petitioner asserts contained the same issues that the state agency cited as deficiencies in the July 2015 surveys. P. Br. at 7-8; P. Opp. at 9. Petitioner then points to the state agency’s purported grant of a waiver of those issues in January 2016. P. Br. at 8 (citing P. Exs. 3, 4); P. Opp. at 9-10 (also citing P. Exs. 3, 4). Petitioner contends that, although the state agency did not claim to have authority to grant a waiver, Petitioner had no reason or basis to question, and every reason to accept without further inquiry, the validity of the state agency’s purported waiver because the state agency acted as CMS’s agent and thus had at least apparent authority to grant the waiver. P. Br. at 8; P. Opp. at 10. Thus, Petitioner posits, “the only reasonable conclusion [it] could have drawn was that the [state agency] would not grant a waiver it was not authorized to issue.” P. Br. at 8; P. Opp. at 10 (emphasis in original). According to Petitioner, if the state agency in fact lacked authority to grant a waiver, that is an issue between CMS and the state agency that should not affect the validity of the waiver. P. Opp. at 10.

Petitioner’s argument fails on multiple levels. First, Petitioner has not demonstrated that the state agency actually granted a waiver of any LSC requirements. That the state agency approved Petitioner’s construction plans for the facility in 2004 (see P. Ex. 2), does not seem to have any bearing on Petitioner’s failure in 2015, 2017, or 2018 to properly vent sterilizers according to the sterilizer manufacturer’s instructions. Further, the January 14, 2016 letter from the state agency’s general counsel regarding certain deficiencies identified during the July 2015 surveys states that the state agency “may be willing to waive any requirement to remedy” Petitioner’s LSC deficiencies at issue in this case but that it “need[ed] some additional information.” P. Ex. 3 at 1. Being “willing to waive” requirements and actually waiving them are not equivalent, and the letter does not suggest that the state agency would automatically grant a waiver if Petitioner provided the information requested. Thus, the fact that Petitioner may have provided the additional information the state agency sought (see P. Ex. 4), while commendable, did not transform the state’s willingness to consider a waiver into an actual waiver. Furthermore, Petitioner offered no evidence that the state took further action on its stated willingness and actually purported to grant Petitioner a waiver. If the state agency did not even purport to grant Petitioner a waiver of any LSC requirements, it would follow that Petitioner acted unreasonably in relying on the state agency’s statements and representations when it decided not to correct its LSC deficiencies and the attendant condition-level deficiency.

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Even assuming for the sake of argument that the state agency had explicitly granted Petitioner a waiver of any LSC requirements, Petitioner could not reasonably have relied on such a waiver. From the start, CMS (and its predecessor, the Health Care Financing Administration (HCFA)) has reserved to itself the sole authority to waive LSC requirements; state agencies were delegated only the power to recommend to CMS/HCFA that CMS/HCFA grant such waivers. 47 Fed. Reg. 34,082, 34,096 (Aug. 5, 1982). The provision authorizing such waivers, 42 C.F.R. § 416.44(b) (and later 42 C.F.R. § 416.44(b)(2), see 53 Fed. Reg. 11,504, 11,508 (Apr. 7, 1988))11  was in effect in 2005 and 2016. See 42 C.F.R. § 416.44(b)(2) (2004); 42 C.F.R. § 416.44(b)(2) (2015).12

In other words, at all times relevant to this proceeding, the state agency had no authority to waive LSC requirements; only CMS had this authority. These regulations and Federal Register notices put Petitioner on notice that only CMS had authority to grant a waiver of LSC requirements. Hartford HealthCare at Home, Inc., DAB No. 2787 at 8-9 (2017) (citing, inter alia, Heckler v. Cmty. Health Servs. Of Crawford Cnty., 467 U.S. 51, 63-65 (1984)). Contrary to Petitioner’s contentions, then, Petitioner had both a reason and a basis to question the validity of any purported waiver granted by the state agency, including its approval of Petitioner’s construction plans and its communications with Petitioner following the July 2015 surveys. Yet, Petitioner offers no evidence that it inquired further to ascertain whether the state agency’s purported 2005 or 2016 waivers derived from CMS’s waiver authority, and no evidence suggests that either of those events in fact derived from CMS’s waiver authority.13 Consequently, even were I to interpret the state agency’s statements and representations to constitute attempts at waiving the LSC requirements at issue in this case, those attempts were invalid, and Petitioner acted unreasonably in relying on those attempts when it took no action to correct its LSC deficiencies and the attendant condition-level deficiency.

Finally, even were I to accept that Petitioner reasonably relied on the state agency’s statements and representations, I would still find no basis to estop CMS from terminating Petitioner’s ASC agreement. Estoppel against the government, to the extent it may be invoked at all, is unavailable absent a showing of affirmative misconduct. Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 419-22 (1990); see also, e.g., Richard

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Weinberger, M.D., & Barbara Vizy, M.D., DAB No. 2823 at 17-21 (2017); Hartford HealthCare, DAB No. 2787 at 9-12; U.S. Ultrasound, DAB No. 2302 at 8 (2010).14  To make such a showing, a party must show something, like “fraud or deliberate misrepresentation,” that is “more than failing to provide accurate information or negligently giving wrong advice.” Hartford HealthCare, DAB No. 2787 at 10 (emphasis and internal quotation marks omitted). Petitioner falls far short of making such a showing here.

Petitioner complains that the state agency gave “inconsistent guidance at every turn” and that the state agency “was in constant turmoil,” which supposedly frustrated Petitioner’s “multiple attempts to submit an acceptable plan of correction.” P. Br. at 9; P. Opp. at 10. As discussed above, Petitioner asserts that the state agency had a “purported ‘budget shortfall’ [that] result[ed] in nearly two hundred layoffs, followed by the discovery of a hidden, multi-million dollar slush fund, and topped off with an indictment of its General Counsel for falsifying evidence.” P. Br. at 9; P. Opp. at 10. Petitioner also notes that Oklahoma’s attorney general “criticized [the state agency] . . . for ‘deceit, abuse, mismanagement, and utter incompetence’ that he said is ‘impossible to comprehend.’” P. Br. at 9; P. Opp. at 10-11. Based on these assertions, Petitioner suggests that it “is not so inconceivable” to believe that the state agency “also may have misled ESEC regarding its authority to grant a waiver . . . .” P. Br. at 9; P. Opp. at 11.

Even accepting all of these allegations as true, I do not find that they support a finding of affirmative misconduct. None of the allegations reasonably supports an inference that the state agency acted fraudulently or in bad faith in this specific case. The combination of turmoil at the state agency and inconsistent guidance from the state agency most reasonably supports an inference that the state agency was having difficulty giving proper guidance to Petitioner due to the turmoil, not that it was acting maliciously to deceive Petitioner. Such difficulty is more akin to providing inaccurate information or negligently giving wrong advice than to fraud or deliberate misrepresentation. See Hartford HealthCare, DAB No. 2787 at 10. Petitioner has not provided any other evidence to support a finding of bad faith or malicious behavior on the part of anyone, either at CMS or at the state agency, that might justify estopping CMS’s otherwise-lawful termination of Petitioner’s ASC agreement. For all of these reasons, I conclude that equitable estoppel does not lie in this case.

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Separately, Petitioner posits that CMS’s termination of its ASC agreement should be reversed because CMS acted arbitrarily and capriciously in denying Petitioner’s requests for a waiver or for more time to correct is deficiencies. P. Br. at 9-10, P. Opp. at 11-12. Petitioner notes that on two separate occasions, in February and July 2018, it requested that CMS waive its deficiencies or, in the alternative, that CMS give it more time to correct those deficiencies before terminating its ASC agreement. P. Br. at 9; P. Opp. at 11. Petitioner charges that CMS did not even read the waiver requests before denying them or, if it did read them, it denied them arbitrarily and capriciously, without considering the fact that the deficiencies “created no patient safety concerns and that requiring ESEC to comply with the requirements would pose substantial financial hardship.” P. Br. at 9-10; P. Opp. at 11-12. According to Petitioner, CMS’s arbitrary and capricious actions justify reversing CMS’s decision to terminate Petitioner’s ASC agreement. P. Br. at 10. Petitioner cites no authority to support this assertion, however. Id.

This argument also lacks merit. As I have explained above, the regulations permit CMS to terminate an ASC agreement where the ASC no longer meets even a single ASC condition for coverage. 42 C.F.R. § 416.35(b)(1)(i). CMS is not required to grant an ASC an opportunity to correct its noncompliance prior to terminating the ASC agreement. See Profound, DAB No. 2371 at 9. Similarly, although the regulations permit CMS to waive certain LSC requirements, 42 C.F.R. § 416.44(b)(2), there is no provision requiring CMS to consider an ASC’s waiver request before terminating its ASC agreement, if the ASC is not in compliance with a condition for coverage. Further, the decision to waive LSC provisions, or not, is committed to CMS’s discretion and is not subject to my review. Thus, CMS’s decision in this case to deny Petitioner’s waiver requests and refuse to grant additional time for Petitioner to correct its noncompliance before terminating Petitioner’s ASC agreement offers no basis to reverse CMS’s termination of Petitioner’s ASC agreement.

In any event, Petitioner had notice of the above-discussed deficiencies for years, which afforded it ample time to correct those deficiencies. Nevertheless, Petitioner did not correct those deficiencies in that whole time. See, e.g., CMS Ex. 18 at 4. Even after CMS rejected Petitioner’s February 27, 2018 waiver request (CMS Exs. 7, 8), Petitioner’s noncompliance persisted unabated. After such a lengthy period and multiple warnings, it is hardly arbitrary or capricious for CMS to exercise its authority to terminate Petitioner’s ASC agreement.

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V. Conclusion

For all the reasons discussed above, I find that Petitioner did not comply with a Medicare condition for coverage. Therefore, I conclude that CMS had a basis to terminate Petitioner’s ASC agreement.

1. The current version of the Social Security Act can be found at: https://www.ssa.gov/OP_Home/ssact/ssact-toc.htm.  Each section of the Act on that website contains a reference to the corresponding United States Code chapter and section.  Also, a cross-reference table for the Act and the United States Code can be found at 42 U.S.C.A. Ch. 7, Disp. Table.
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2. Curiously, the parties both describe Petitioner as a provider of services throughout their briefs.  In addition, CMS incorrectly cites to 42 C.F.R. § 489.53, rather than to 42 C.F.R § 416.35(b), for its authority to terminate Petitioner’s ASC agreement.  However, ASCs are not included in the statutory definition of “provider of services.”  Act § 1861(u) (42 U.S.C. § 1395x(u)).  Nor are ASCs listed as providers subject to the regulations found in 42 C.F.R. pt. 489.  42 C.F.R. § 489.2(b).  ASCs are, in fact, suppliers, not providers, under the Act and regulations.  Act § 1861(d) (42 U.S.C. § 1395x(d)); 42 C.F.R. §§ 488.1, 498.2.
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3. My conclusions of law appear as headings in bold italic type.  My findings of fact appear in the supporting text.
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4. The text of 42 C.F.R. § 416.44 changed substantially between the July 2015 surveys and the revisit surveys.  81 Fed. Reg. 26,872, 26,896-97 (May 4, 2016); 81 Fed. Reg. 42,548 (June 30, 2016).  I rely on the amended regulatory text, as that was version of the regulation in effect at the time CMS terminated Petitioner’s ASC agreement.
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5. The Statements of Deficiencies from the two revisit surveys erroneously refer to the NFPA 99 and NFPA 101 provisions that applied prior to the revision of 42 C.F.R. § 416.44 discussed in the previous footnote.  CMS Ex. 1 at 12, 14-15, 17, 19-23; CMS Ex. 2 at 1, 2.
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6. CMS Ex. 9 contains manufacturer’s instructions for a type of sterilizer, the V-PRO 60 Low Temperature Sterilization System, produced by Steris, but not the System 1E.  Perhaps this is due to Petitioner’s plan of correction following the November 2017 surveys, in which Petitioner asserted that, as of April 2, 2018, it would no longer use its Steris System 1E sterilizers and instead acquire a new V-PRO 60 Low Temperature Sterilization System.  P. Ex. 6 at 2‑3.  However, during the June 2018 surveys, Surveyor Rhinehart observed that Petitioner was still utilizing two Steris System 1E sterilizers.  CMS Ex. 1 at 3; CMS Ex. 19 at 2.  It is thus unclear why CMS included manufacturer’s instructions for a type of sterilizer that Petitioner did not actually use while failing to include manufacturer’s instructions for the sterilizers that Petitioner did use.
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7. Petitioner previously had claimed that the Steris System 1E sterilizers it used did not need to be ventilated, CMS Ex. 10 at 7; CMS Ex. 14 at 6; P. Ex. 6 at 1, but it does not press this claim now and, like CMS, did not submit manufacturer’s instructions for that type of sterilizer.
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8. Ms. Hoffman also expressed serious reservations about other characteristics of the location in which Petitioner kept its sterilizers.  CMS Ex. 20 at 2.  These concerns are also echoed elsewhere in CMS’s evidence.  CMS Ex. 1 at 3-8, 9, 12-14; CMS Ex. 3 at 3‑4, 26-29; CMS Ex. 21 at 1.  However, CMS has not relied on those concerns to support its position before me.  See CMS Br. at 1, 2, 6.
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9. Mr. Farmer’s statement is consistent with section 6.4.2.2.1.4(B) of NFPA 99 (2012 ed.), which allows a facility to utilize a single transfer switch to serve multiple branches that place “a continuous load on the switch of 150 kVA (120 KW) or less.”
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10. Indeed, the lack of any prior issues, combined with the testimony from CMS’s witnesses about the potential for serious harm that Petitioner’s deficiencies posed, suggests that the longer those deficiencies remained uncorrected, the more likely they were to actually trigger an incident that seriously harmed Petitioner’s patients in one or more of the ways described by CMS’s witnesses.  This brings into serious question Petitioner’s decision to leave these deficiencies uncorrected for years after they were first identified.
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11. Petitioner inexplicably cites to 42 C.F.R. § 482.41 as the provision authorizing CMS to waive LSC requirements for ASCs, even though that regulation applies to hospitals, not ASCs.  P. Br. at 9; P. Opp. at 11.
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12. ;The regulation was amended effective July 5, 2016, but the amendment did not give states any authority to grant waivers.  81 Fed. Reg. 26,872, 26,897 (May 4, 2016).
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13. To the contrary, the evidence of record indicates that CMS was unwilling to grant Petitioner a waiver of the LSC deficiencies at issue here.  CMS Exs. 6, 8, 20.
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14. Despite explicitly asking that I estop CMS from enforcing a condition for coverage against Petitioner (P. Br. at 4, 8, 10; P. Opp. at 9), Petitioner claims that it is not seeking equitable relief in this case (P. Opp. at 12-13).  I find it difficult to square this claim with Petitioner’s other equitable arguments.  Out of an abundance of caution, I have considered Petitioner’s equitable arguments as set forth in the text, but I caution Petitioner to be clear in the future what arguments it is making and what claims for relief it is actually seeking.  Any less unnecessarily taxes the adjudicator, who already must deal with significantly constrained resources.
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