Caidan Enterprises, Inc., DAB CR5472 (2019)

DECISION

There is a basis for the imposition of a civil money penalty (CMP) against the Affected Party pursuant to 42 C.F.R. §§ 422.510(a)(1), (a)(4)(ii), and 422.752(c)(1),1 based on violations of the requirements of 42 C.F.R. §§ 422.568(b) and 422.572(a).  A CMP of $57,715 is authorized by 42 C.F.R. § 422.760(b)(2), and is appropriate and reasonable.

I.  Procedural History

The Centers for Medicare & Medicaid Services (CMS) notified the Affected Party’s chief executive officer by letter dated November 21, 2016, that CMS determined to impose a CMP of $57,715 against the Affected Party.  CMS cited 42 C.F.R. § 422.752(c)(1) and 42 C.F.R. § 422.760(b) as authority for the action.  CMS advised the Affected Party that the CMP was imposed based on violations of 42 C.F.R. § 422.568(b) and 42 C.F.R. § 422.572(a) as explained by CMS policies in CMS Pub. 100-16, the Medicare Managed

Page 2

Care Manual (MMCM), chap. 13, §§ 40.1 and 50.1.2  CMS alleged that, due to the regulatory violations, the Affected Party failed substantially to carry out the terms of its contract with CMS and substantially failed to comply with regulatory requirements related to processing grievances and appeals, which would permit CMS to terminate the Affected Party’s contracts pursuant to 42 C.F.R. § 422.510(a)(1) and 42 C.F.R. § 422.510(a)(4)(ii), respectively.  CMS Exhibit (Ex.) 6.

The Affected Party requested a hearing before an administrative law judge (ALJ) on December 19, 2016 (RFH).  The case was docketed and assigned to Judge Anderson on February 3, 2017, and an Acknowledgment and Prehearing Order was issued (Prehearing Order).  The case was reassigned to me on August 25, 2017, upon Judge Anderson’s departure.

On May 4, 2017, CMS filed a consolidated prehearing brief and motion for summary judgment with CMS Exs. 1 through 6 (CMS Br.).  On June 5, 2017, the Affected Party filed a consolidated prehearing brief and response in opposition to the CMS motion for summary judgment (P. Br.), with no exhibits but stating it chose to rely upon the CMS exhibits.  The Affected Party filed a list of proposed witnesses on July 19, 2017, but withdrew that list on August 2, 2017.  The Affected Party made no objection to my consideration of CMS Exs. 1 through 6, and they are admitted as evidence.

II.  Discussion

A.  Applicable Law

Congress created Medicare Part C, referred to originally by the Act as Medicare+Choice but now referred to generally as Medicare Advantage.  Social Security Act (Act) §§ 1851-1859 (42 U.S.C. §§ 1395w-21 – 1395w-28).  Medicare beneficiaries may elect to receive their Medicare benefits, except certain prescription drug benefits, under a Medicare Part C Medicare Advantage program, rather than under Medicare Parts A and B.  Act § 1851(a)(1).  Eligibility and coverage and related requirements are established by Act §§ 1851 and 1852.  Medicare Part C benefits are administered by organizations, referred to as Medicare Advantage organizations, that have a contract with

Page 3

the Secretary for that purpose.  Act §§ 1857, 1859(a)(1).  Medicare Advantage organizations are also permitted to offer a prescription drug plan as established under Medicare Part D (Act § 1860D-1 (42 U.S.C. § 1395w-101)).  Act § 1857(f)(3).  The Affected Party is a Medicare Advantage organization under Medicare Part C that offers a prescription drug benefit under Medicare Part D (MA-PD).

The Secretary has issued regulations that implement the requirements of the Act related to Medicare Parts C and D at 42 C.F.R. pts. 422 and 423.

Medicare Advantage organizations are required to comply with the requirements of their contract with the Secretary, including the requirements of the Act and the regulations.  Act § 1857; 42 C.F.R. §§ 422.503(b)(4)(vi), 422.504(a).  The Secretary and his delegate CMS are authorized to terminate a contract for any of the reasons listed in Act § 1857(c)(2) and 42 C.F.R. § 422.510(a).  Failure to perform substantially the terms of the contract and failure to comply substantially with the requirements of 42 C.F.R. pt. 422, subpt. M related to grievances and appeals are both authorized reasons for terminating a Medicare Advantage organization’s contract with CMS.  Act § 1857(c); 42 C.F.R. § 422.510(a)(1) and (a)(4)(ii).  CMS is required to audit Medicare Advantage organizations to ensure compliance with their contracts, including compliance with the Act and regulations.  42 C.F.R. § 422.503(d).

The Secretary is authorized to impose intermediate sanctions in lieu of or in addition to termination for any of the reasons listed in Act § 1857(g)(1).  Intermediate sanctions are authorized for failing to substantially “provide medically necessary items and services that are required (under law or under the contract) to be provided to an individual covered under the contract, if the failure has adversely affected (or has substantial likelihood of adversely affecting) the individual.”  Act § 1857(g)(1)(A).  A CMP imposed in accordance with Act § 1128A is an authorized intermediate sanction or remedy.  Act § 1857(g)(2)(A), (4).

The Secretary delegated authority to impose intermediate sanctions, including a CMP, to CMS.  42 C.F.R. pt. 422, subpt. O.  CMS may impose one or more intermediate sanctions, including a CMP, upon a Medicare Advantage organization for any of the reasons listed in 42 C.F.R. § 422.752(a) and (c)(1).  Under the regulations, a CMP may be imposed for failing “substantially to provide medically necessary items and services that are required (under law or under the contract) to be provided to an individual covered under the contract, if the failure has adversely affected (or has the substantial likelihood of adversely affecting) the individual.”  42 C.F.R. § 422.752(a)(1).  The procedures for imposing a CMP are set forth in 42 C.F.R. §§ 422.756(e)(2) and 422.764 (specifies the application of Act § 1128A except subsections (a) and (b)).  The determination of the amount of the CMP to impose is governed by 42 C.F.R. § 422.760.

Page 4

A CMP may not be collected by CMS until the affected party (the Medicare Advantage organization against which a CMP is imposed) has had notice and the opportunity for a hearing before an ALJ, review by the Departmental Appeals Board (Board), and judicial review if timely requested.  42 C.F.R. §§ 422.1000(a)(1), 422.1006(a).  The procedures for conducting ALJ and Board review are established by 42 C.F.R. pt. 422, subpt. T.  CMS has the burden of presenting “evidence related to disputed findings that is sufficient (together with any undisputed findings and legal authority) to establish a prima facie case that CMS has a legally sufficient basis for its determination.”  42 C.F.R. § 422.1046(b)(4).  The affected party has the burden of presenting sufficient evidence to establish any affirmative argument or defense.  42 C.F.R. § 422.1046(b)(5).  The affected party has the ultimate burden of persuasion that is met only if the affected party shows by a preponderance of the evidence on the whole record that there is no basis for the CMS determination.  42 C.F.R. § 422.1046(b)(6).  If I conclude that CMS has a basis for imposing a CMP under 42 C.F.R. § 422.752, I may not set or reduce the CMP to zero and I may not review the exercise of discretion by CMS to impose a CMP.  42 C.F.R. § 422.1046(c).

B.  Issues

The Affected Party does not dispute that there is a basis for imposing a CMP.  Therefore, the issues are:

Whether summary judgment is appropriate; and

Whether the CMP imposed is appropriate and reasonable.

C.  Analysis

1.  Summary judgment is appropriate.

CMS has moved for summary judgment and the Affected Party opposes summary judgment.  Pursuant to Act § 1128A(c)(2), which is made applicable in cases such as this by Act § 1857(g)(4), an affected party against which the Secretary or CMS proposes to impose a CMP is entitled to notice and a hearing before an ALJ.  42 C.F.R. §§ 422.756(e)(2)(v), 422.758(b), 422.764, 422.1000(a)(2).  An affected party may waive its right to appear and present evidence at a hearing but it must do so affirmatively and in writing, in which case a hearing need not be conducted.  42 C.F.R. § 422.1056.  The Affected Party has not waived an oral hearing in writing as required by the regulation, and I will not infer such a waiver based on the Affected Party’s withdrawal of its witness list.  Therefore, only if summary judgment is appropriate may this case be decided on the current record.

Page 5

The procedures established by 42 C.F.R. pt. 422, subpt. T for ALJ and Board reviews do not establish or mention summary judgment.  However, in his February 3, 2017 prehearing order, paragraph 4a, Judge Anderson specifically advised the parties that they could request summary disposition.  I construe the reference to summary disposition to mean summary judgment because the order specifies that the principles of Federal Rule of Civil Procedure 56, which establishes procedures for summary judgment in the federal courts, and applicable case law are to be applied in deciding such a motion.  The parties were also served a copy of the Civil Remedies Division Procedures (CRDP) with the Prehearing Order.  CRDP § 19a provides that the parties may request summary judgment which would be treated like a motion for summary judgment pursuant to Federal Rule of Civil Procedure  56 and related cases.  Furthermore, in promulgating the regulations at 42 C.F.R. pt. 422, subpt. T, CMS specifically intended to adopt procedures closely similar to those found in 42 C.F.R. pt. 498.  Part 498 establishes due process procedures for several types of CMS cases, and there is a long history of interpretation of Part 498 by the Board, including the Board’s acceptance of summary judgment as an acceptable procedural device.  72 Fed. Reg. 68,700, 68,717 (Dec. 5, 2007).3

Summary judgment is not automatic upon request, but is limited to certain specific conditions.  The Secretary’s regulations at 42 C.F.R. pt. 498 also do not establish a summary judgment procedure or refer to such a procedure.  However, the Board has long accepted that summary judgment is an acceptable procedural device in cases adjudicated pursuant to 42 C.F.R. pt. 498.  See, e.g., Ill. Knights Templar Home, DAB No. 2274 at 3-4 (2009); Garden City Med. Clinic, DAB No. 1763 (2001); Everett Rehab. & Med. Ctr., DAB No. 1628 at 3 (1997).  Despite CMS’s omission of any reference to summary judgment in 42 C.F.R. pt. 422, subpt. T, the Board is most likely to approve the use of summary judgment in cases subject to those regulations.  The Board has recognized in addressing summary judgment that the Federal Rules of Civil Procedure do not apply in administrative adjudications such as this, but the Board has accepted that Fed. R. Civ. Pro. 56 and related cases provide useful guidance for determining whether summary judgment is appropriate.

Summary judgment is appropriate when there is no genuine dispute as to any material fact for adjudication and/or the moving party is entitled to judgment as a matter of law.  In determining whether there are genuine issues of material fact for trial, the reviewer must view the evidence in the light most favorable to the non-moving party, drawing all reasonable inferences in that party’s favor.  The party requesting summary judgment bears the burden of showing that there are no genuine issues of material fact for trial

Page 6

and/or that it is entitled to judgment as a matter of law.  Generally, the non-movant may not defeat an adequately supported summary judgment motion by relying upon the denials in its pleadings or briefs but must furnish evidence of a dispute concerning a material fact, i.e., a fact that would affect the outcome of the case if proven.  Mission Hosp. Reg’l Med. Ctr., DAB No. 2459 at 5 (2012) (and cases cited therein); Experts Are Us, Inc., DAB No. 2452 at 5 (2012) (and cases cited therein); Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300 at 3 (2010) (and cases cited therein); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The standard for deciding a case on summary judgment and an ALJ’s decision-making in deciding a summary judgment motion differ from that used in resolving a case after a hearing or on the written record when no oral testimony is offered.  On summary judgment, the ALJ does not make credibility determinations, weigh the evidence, or decide which inferences to draw from the evidence, as would be done when finding facts after an oral hearing or in a decision on the record.  Rather, on summary judgment, the ALJ construes the evidence in a light most favorable to the non-movant and avoids deciding which version of the facts is more likely true.  Holy Cross Vill. at Notre Dame, Inc., DAB No. 2291 at 5 (2009).  The Board also has recognized that on summary judgment it is appropriate for the ALJ to consider whether a rational trier of fact could find that the party’s evidence would be sufficient to meet that party’s evidentiary burden.  Dumas Nursing & Rehab., L.P., DAB No. 2347 at 5 (2010).

There is no genuine dispute as to any material fact in this case related to the issues the Affected Party raises.

In its request for hearing, the Affected Party does not dispute the CMS findings related to the bases for imposing a CMP.  The Affected Party concedes CMS found that in 1,030 out of 4,799 cases, the Affected Party failed to notify enrollee4 of its standard organization decisions within 14 days.  However, the Affected Party argues that the 1,030 cases were individual requests; only 544 enrollees were actually impacted and, in 200 of the 1,030 cases, the enrollees received their notices within 24 hours to four days after the deadline; and 79 percent “eventually received the service.”  The Affected Party concedes that CMS found that in 314 out of 694 cases, notice of an expedited organization determination was not issued within 72 hours.  The Affected Party points out that 314

Page 7

was the number of requests and only 143 enrollees were actually involved.  The Affected Party argues that in 52 cases, the enrollees received their notice within 24 hours after the 72 hour deadline; in 61 cases, the enrollees received their notice within 48 hours, and in 41 cases, the enrollees received their notice within 72 hours after the regulatory deadline had passed.  The Affected Party also asserts only 137 of the 314 claims found by CMS were actually for expedited organization determinations as the rest were non-urgent requests.  The Affected Party states that 86 percent of the enrollees “eventually received the service.”  The Affected Party states that it disagrees with the CMS conclusion that access to medical services were likely delayed or denied to a significant number of enrollees.  RFH at 1-2; RFH, app. I.

In its opposition to summary judgment and prehearing brief, the Affected Party argues that CMS should have considered additional factors under 42 C.F.R. § 422.760(a)(3), (5), and (6) when determining the CMP amount and whether a reduction in the CMP is warranted.  P. Br. at 1, 3.  The Affected Party also challenges the CMS action on the basis that CMS has not published its standards for imposing Immediate Corrective Action Request (ICAR) violations.  P. Br. at 2, 4-5.

Even accepting the Affected Party’s assertions of fact as true and drawing inferences in favor of the Affected Party, the issues raised by the Affected Party must be resolved against the Affected Party as a matter of law.  Accordingly, I conclude that summary judgment is appropriate.

2.  The Affected Party violated the terms of its contract with CMS and the requirements of 42 C.F.R. §§ 422.568(b) and 422.572(a) because it failed to timely process standard and expedited organization determination requests.

3.  The Affected Party’s failure to timely process standard and expedited organization determination requests amounted to a failure to substantially provide medically necessary items or services required to be provided to enrollees and the failure adversely affected or had the substantial likelihood to affect enrollees, within the meaning of 42 C.F.R. § 422.752(a)(1).

4.  There are bases for imposition of a CMP pursuant to 42 C.F.R. §§ 422.510(a)(1), (a)(4)(ii), and 422.752(c)(1) based on violations of the requirements of 42 C.F.R. §§ 422.568(b) and 422.572(a).

5.  A CMP $36,794 per affected enrollee is authorized pursuant to 42 C.F.R. § 422.760(b)(2) and 45 C.F.R. § 102.3, but in this case a total CMP of $57,715 is appropriate and reasonable.

Page 8

a.  Undisputed Facts

CMS states in its November 21, 2016 notice of initial determination, that CMS audited the Affected Party’s Medicare operations during the period April 4 through 15, 2016.5  A September 28, 2016 audit report concluded that the Affected Party did not comply with 42 C.F.R. pt. 422, subpt. M related to Medicare Part C organization determinations, appeals, and grievances.  The audit report further found that the Affected Party’s failures to comply were systemic and resulted in or had substantial likelihood to result in the Affected Party’s enrollees inappropriately experiencing delayed or denied access to benefits or increased out-of-pocket costs.  CMS Ex. 6 at 1.  CMS specifically found that the Affected Party failed to notify its enrollees or their representatives of standard organization decisions within 14 days of receipt and expedited organization determinations within 72 hours of receipt.  CMS found that, as a result of the violations, the Affected Party’s enrollees’ access to medical services were likely delayed or denied for a significant number of enrollees or they were subject to increased out-of-pocket expenses.  CMS Ex. 6 at 2.  CMS advised the Affected Party that it determined that the Affected Party’s violations directly adversely affected or had a substantial likelihood to adversely affect the Affected Party’s enrollees and, therefore, a CMP was appropriate.  CMS Ex. 6 at 3.  CMS does not state in its notice of initial determination how many violations were actually found or how it weighed any of the factors it was required to consider under 42 C.F.R. § 422.760(a).  CMS placed in evidence the draft report of the April 2016 audit of the Affected Party (CMS Ex. 2) and the final audit report (CMS Ex. 4); a summary of the Affected Party’s responses to the draft audit report (CMS Ex. 3); and worksheets CMS represents show recommendations for the determination of the amount of the CMP (CMS Exs. 1, 5).  None of the materials included in CMS Exs. 1 through 5 specifically address the factors CMS was required to consider under 42 C.F.R. § 422.760(a).

I accept as true for purposes of summary judgment the Affected Party’s assertions that:

CMS found that in 1,030 out of 4,799 cases the Affected Party failed to notify enrollees of its standard organization decisions within 14 days.  However, as the Affected Party asserts, the 1,030 cases were individual requests; only 544 enrollees were actually impacted and, in 200 of the 1,030 cases, the enrollees received their notices within 24 hours to four days after the deadline; and 79 percent eventually received services.

Page 9

CMS found that in 314 out of 694 cases notice of an expedited organization determination was not issued within 72 hours.  However, as the Affected Party asserts, 314 was the number of claims and only 143 enrollees were actually involved; in 52 cases, the enrollees received their notice within 24 hours after the 72 hour deadline; in 61 cases, the enrollees received their notice within 48 hours, and in 41 cases, the enrollees received their notice within 72 hours; only 137 of the 314 claims found by CMS were actually for expedited organization determinations as the rest were non-urgent requests; and 86 percent eventually received the service.

RFH; P. Br. at 3-4.

CMS states that only 121 unique enrollees were adversely effected or were subject to a substantial likelihood of adverse effect by the Affected Party’s failure to timely issue standard organization determinations.  CMS Br. at 2, 12; CMS Ex. 5 at 5.  CMS states that only 89 unique enrollees were adversely effected or were subject to a substantial likelihood of adverse effect by the Affected Party’s failure to timely issue expedited organization determinations.  CMS Br. at 2, 12; CMS Ex. 5 at 5.  Because the CMS numbers of unique enrollees are lower than those stated by the Affected Party, I accept the CMS numbers which are the most favorable for the Affected Party.  CMS Br. at 18 n.6, 19 n.7.

b.  Analysis

Section 1852(g)(1) of the Act requires that a Medicare Advantage organization establish a procedure for organization determinations that timely determine whether an enrollee is entitled to receive a health service and, if so, at what cost to the enrollee.  The Medicare Advantage organization must provide a procedure for expediting organization determinations and any appeals of those determinations.  Act § 1852(g)(2)-(5).  The requirements for a grievance procedure6 and for making organization determinations and

Page 10

appeals of organization determinations are found in the regulations at 42 C.F.R. §§ 422.562(a) and 422.564 through 422.619, including the requirement to inform enrollees in writing of the procedures.  The rights of enrollees related to timely grievance procedures and organization determinations are set forth in 42 C.F.R. § 422.562(b).

Organization determinations may be requested by the enrollee (including a representative of the enrollee), a provider or supplier who furnishes or intends to furnish services for the enrollee, or the enrollee’s estate.  An expedited organization determination may be requested by the enrollee (including a representative) or his or her physician.  42 C.F.R. § 422.566(c).  A request for organization determination may be oral or written, except a request for payment must be in writing, unless the Medicare Advantage organization has a policy of accepting such requests orally.  42 C.F.R. § 422.568(a).  The Medicare Advantage organization must notify an enrollee of its determination on a standard request for an organization determination, i.e., a non-expedited request for a coverage determination, within 14 calendar days of receipt, subject to one possible 14-calendar day extension.  42 C.F.R. § 422.568(b), (d) (notice of denial of coverage must be written).  Failure to give timely notice of an organization determination is treated as an adverse organization determination that triggers a right to appeal, i.e., reconsideration, ALJ review, Medicare Appeals Council review, and judicial review.  42 C.F.R. § 422.568(f).  A request for expedited organization determination may be oral or in writing.  42 C.F.R. § 422.570(b).  The Medicare Advantage organization must promptly decide whether to expedite an organization determination when requested and inform the enrollee orally and in writing of the denial of a request to expedite.  42 C.F.R. § 422.570(c), (d).  If the Medicare Advantage organization agrees to expedite an organization determination, it must notify the enrollee and/or physician within 72 hours of receiving the request to expedite, subject to one possible 14-day extension.  42 C.F.R. § 422.572(a), (b).  An enrollee must be informed of an adverse expedited organization determination orally followed by a written notice within three calendar days.  42 C.F.R. § 422.572(c).  Failure to provide an enrollee timely notice of an expedited organization determination is treated as an adverse organization determination and triggers appeal rights.  42 C.F.R. § 422.572(f).

The Affected Party does not dispute that CMS auditors found that in 1,030 out of 4,799 requests for standard organization determinations the Affected Party failed to notify enrollees of its determination on requested services within 14 days.  The Affected Party does not dispute or present any evidence to rebut the CMS audit findings that the late notifications caused delays in enrollee access to needed medical services.  CMS Ex. 4

Page 11

at 15; RFH, P. Br. at 3-4.  The Affected Party argues that the 1,030 requests for standard organization determinations cited by the auditors were only made by 544 enrollees and only those enrollees were impacted by delays.  The regulations, however, do not create different standards for processing multiple requests by a single enrollee.  42 C.F.R. § 422.568(b).  The Affected Party states that some of the enrollees involved received their notices within 24 hours to four days after the deadline; and 79 percent eventually received services.  I accept these assertions of fact as true for purposes of summary judgment and consider them in deciding the appropriate CMP amount.  RFH; RFH app. I; P. Br. at 3-4.  The Affected Party does not aver that any of the late standard organization determinations identified by the auditors involved an extension under 42 C.F.R. § 422.568(b)(1).  Therefore, even notices issued within 24 hours after the 14-day deadline were, as a matter of law, late and violated 42 C.F.R. § 422.568(b).  Furthermore, the fact that any or all of the enrollees received services in advance of filing a request for a standard organization determination is not an exception to the 14-day processing deadline of 42 C.F.R. § 422.568(b).

The Affected Party does not dispute that CMS auditors found that in 314 out of 694 requests for expedited organization determination involving a coverage determination, the Affected Party failed to issue the expedited organization determination within 72 hours.  The Affected Party does not dispute or present evidence to rebut the audit finding that the late notification of the coverage determination resulted in delayed enrollee access to needed medical services.  CMS Ex. 4 at 15; RFH; P. Br. at 3-4.  The Affected Party asserts that while there were 314 requests, only 143 enrollees were actually involved.  However, the regulations do not establish different deadlines for processing multiple requests for expedited organization determinations from enrollees or their physicians.  42 C.F.R. § 422.572(a).  The Affected Party states that, in 52 cases, the enrollees received their notice within 24 hours after the 72-hour deadline; in 61 cases, the enrollees received their notice within 48 hours, and in 41 cases, the enrollees received their notice within 72 hours.  RFH; P. Br. at 3-4.  I accept these assertions of fact as true for purposes of summary judgment and consider them in deciding the appropriate CMP amount.  The Affected Party does not aver that any of the late expedited organization determinations identified by the auditors involved an extension under 42 C.F.R. § 422.572(b)(1).  Therefore, even notices issued within 24 hours after the 72-hour deadline were, as a matter of law, late and violated 42 C.F.R. § 422.572(a).  The Affected Party also asserts that only 137 of the 314 requests found by CMS were actually for expedited organization determinations as the rest were non-urgent requests, and 86 percent eventually received services.  RFH; RFH app. I; P. Br. at 3-4.  The Affected Party is required to review a request for an expedited organization determination and promptly decide whether the request is appropriate for expedited treatment or whether it should be treated as a standard request.  42 C.F.R. § 422.570(c)(2).  The Affected Party does not aver that it followed this procedure for the 314 pre-service requests for expedited organization determination identified by the auditors or deny that it treated all 314 as expedited under 42 C.F.R. § 422.570, which are subject to the deadline of 42 C.F.R. § 422.572(a).

Page 12

I conclude that the Affected Party has shown no genuine dispute as to any material fact related to the bases for the CMS action and, even accepting the Affected Party’s alleged facts as true and drawing all inferences in its favor, the arguments raised must be resolved against the Affected Party as matters of law.  Accordingly, summary judgment is appropriate on the bases for the CMS action.

Summary judgment is also appropriate on whether a CMP is authorized and the amount of the CMP.  CMS may impose a CMP against a Medicare Advantage organization for failing “substantially to provide medically necessary items and services that are required (under law or under the contract) to be provided to an individual covered under the contract, if the failure has adversely affected (or has the substantial likelihood of adversely affecting) the individual.”  42 C.F.R. § 422.752(a)(1).  CMS found in its initial determination that the Affected Party’s failure to timely process requests for standard and expedited organization determinations was “systemic and resulted in, or had the substantial likelihood of resulting in, enrollees inappropriately experiencing delayed or denied access to benefits and/or increased out-of-pocket costs.”  CMS Ex. 6 at 1-2.  CMS specifically stated that the adverse effect or substantial likelihood of adverse effect was due to the Affected Party’s failure to perform the terms of its contract with CMS as required by 42 C.F.R. § 422.510(a)(1) and failure to comply with the requirements of 42 C.F.R. § 422.510(a)(4)(ii) by failing to comply with regulatory requirements of 42 C.F.R. pt. 422, subpt. M related to processing requests for standard and expedited organization determinations.  Even accepting as true the Affected Party’s assertions that in some cases services were eventually provided, the Affected Party does not dispute that delayed payment was substantially likely to result in increased out-of-pocket costs, even if only temporarily.  For enrollees seeking authorization in advance of receiving services, the Affected Party does not dispute that there was a substantial likelihood of adverse effect due to delay in receiving medically necessary items and services.  The Affected Party bears the ultimate burden of persuasion by a preponderance of the evidence.  42 C.F.R. § 422.1046(b)(6).  The Affected Party offered no evidence and averred no facts to show that actual or substantially likely adverse effects were not caused by its delay in timely processing requests for organization determinations.  Accordingly, I conclude that summary judgment is appropriate on the issue of whether a CMP is authorized based on the CMS determination that the Affected Party failed to fulfill the terms of its contract and comply with the regulatory requirements for timely processing requests for organization determinations.

If CMS determines to impose a CMP as it did in this case, the Affected Party is entitled to notice and opportunity for hearing.  Act §§ 1128A(c)(2), 1857(g)(4); 42 C.F.R. §§ 422.756(e)(2)(v), 422.758(b), 422.764, 422.1000(a)(2).  The notice required is specified by 42 C.F.R. § 422.756(e)(2).  The notice to an affected party must:

• Be written;

Page 13

• Describe the basis for the determination;
• State the basis for the penalty;
• State the amount of the penalty;
• State the date the penalty is due;
• Inform the affected party of its right to a hearing under 42 C.F.R. pt. 422, subpt. T; and
• Inform the affected party about where to file a request for hearing.

42 C.F.R. § 422.756(e)(2).  The CMS notice of initial determination dated November 21, 2016, satisfied all requirements of the regulation.  Nothing in the regulation requires that CMS state in the notice of initial determination how it determined the CMP amount or how it weighed the factors of 42 C.F.R. § 422.760(a), and CMS committed no error by not including such information in its notice of initial determination.

I have concluded that CMS had a basis for imposing intermediate sanctions and authority to impose a CMP.  My authority to review the appropriateness of the CMP CMS imposed is limited by 42 C.F.R. § 422.1046(c).  The regulation provides that I may not “[s]et a penalty of zero or reduce the penalty to zero” or review the CMS determination to impose a CMP.  42 C.F.R. § 422.1046(c)(1), (2).  As noted earlier, in promulgating the regulations at 42 C.F.R. pt. 422, subpt. T, CMS specifically intended to adopt procedures similar to those found in 42 C.F.R. pt. 498, and specifically included in 42 C.F.R. § 422.1046(b)(4)-(6) the allocation of the burden of persuasion similar to that adopted by the Board for cases adjudicated pursuant to 42 C.F.R. pt. 498.  72 Fed. Reg. at 68,717.  Appellate panels of the Board in long-term care facility cases subject to 42 C.F.R. pt. 498 have concluded that ALJs and the Board are limited to assessing the reasonableness of a CMP, i.e., whether the amount of an imposed CMP is within reasonable bounds considering the purpose of the Act and regulations.  Emerald Oaks, DAB No. 1800 at 10 (2001); CarePlex of Silver Spring, DAB No. 1683 at 14-16 (1999); Capitol Hill Cmty. Rehab. & Specialty Care Ctr., DAB No. 1629 (1997).  A fair reading of the plain language of 42 C.F.R. § 422.1046 is that my de novo review of the CMP in this case is not as limited as the Board suggests.  I also note that, although CMS is clearly aware of prior Board decisions, CMS did not adopt the limitation on ALJ or Board review of a CMP that the Board has imposed in cases subject to review under 42 C.F.R. pt. 498.  I conclude that my review of the amount of the CMP is de novo and based upon the evidence in the record before me subject only to the limitations of 42 C.F.R. § 422.1046(c).  I accept that the CMS determination of the CMP amount is evidence of a possible appropriate CMP.  However, I conclude that I am not bound to defer to the CMS determination of an appropriate CMP and I am free to provide meaningful review and make a de novo determination of the appropriate CMP.  Out of an abundance of caution, I also conduct my review with due consideration of the “reasonableness standard” adopted by the Board and conclude that the appropriate CMP I determine is in a reasonable range.

Page 14

The factors I am to consider in determining the appropriate CMP are not specified in 42 C.F.R. § 422.1046(c).  However, the Secretary provided guidance in 42 C.F.R. § 422.760(a) as to the factors CMS is required to consider in determining the amount of a CMP.  I conclude that the factors CMS is required to consider are also appropriate for my consideration.  The regulation provides:

In determining the amount of penalty imposed under [42 C.F.R. § ]422.752(c)(1), CMS will consider as appropriate:

(1) The nature of the conduct;
(2) The degree of culpability of the MA organization;
(3) The adverse effect to enrollees which resulted or could have resulted from the conduct of MA organization;
(4) The financial condition of the MA organization;
(5) The history of prior offenses by the MA organization or principals of the MA organization; and,
(6) Such other matters as justice may require.

42 C.F.R. § 422.760(a).

Pursuant to 42 C.F.R. § 422.760(b)(1), (2), and (c)(1) if a deficiency on which CMS bases its determination to impose a CMP “has directly adversely affected (or has the substantial likelihood of adversely affecting) one or more” of the Affected Party’s enrollees, CMS may impose a CMP of up to $25,000 as adjusted annually7 for each determination or for each enrollee directly adversely effected or for which there is a substantial likelihood of adverse effect due to a deficiency.  Pursuant to 42 C.F.R. § 422.760(b)(1), arguably CMS can impose an adjusted CMP of up to $36,794 against the Affected Party for each late response to a request for organization determination that had an adverse effect or posed a substantial likelihood of adverse effect, even if multiple requests relate to a single enrollee.  However, under 42 C.F.R. § 422.760(b)(2), arguably CMS is limited to imposing an adjusted CMP of $36,794 against the Affected Party for each enrollee who suffered an adverse effect or for whom there a substantial likelihood of adverse effect.  The regulatory history for 42 C.F.R. § 422.760(b) shows that CMS felt it needed the discretion to assess a CMP based either upon the number of violations of the contract and/or regulations or the number of enrollees affected.  72 Fed. Reg. at 68,716-17, 68,726; 74 Fed. Reg. 1494, 1533-34, 1542-43 (Jan. 12, 2009).  The regulatory history

Page 15

also shows CMS intentionally did not define the phrase “substantial likelihood of adversely affecting” in promulgating the regulations to maintain maximum discretion.  74 Fed. Reg. at 1534.

The Affected Party does not deny that CMS calculated the CMP in this case pursuant to 42 C.F.R. § 422.760(b)(2) based on the number of unique enrollees affected, rather than the total number of requests for standard and expedited organization determinations.  CMS Ex. 5 at 5-6; CMS Br. at 17; RFH; P. Br.  CMS placed in evidence worksheets showing that it considered aggravating factors to increase and mitigating factors to reduce what CMS characterized as a standard penalty for each of the two deficiencies, i.e. failure to timely issue a standard organization determination and failure to timely issue an expedited organization determination, and then multiplied the adjusted CMP by the number of unique enrollees affected by each deficiency.  CMS Ex. 5 at 5-6; CMS Br. at 12-13.  CMS does not explain the source for what is referred to in the worksheets as the “standard penalty” or the source for the process of considering aggravating and mitigating factors CMS used in calculating the CMP amount.  CMS Ex. 5 at 5-6; CMS Br. at 12-13.  However, my review is de novo, and I am not bound to follow the process used by CMS, which does not appear to be based on the regulations or the Act that I am required to follow.

The Affected Party argues that CMS did not consider all six of the factors established by 42 C.F.R. § 422.760(a)(1)-(6).  P. Br. at 3.  My review is de novo and not based on whether CMS considered all the required factors.  My consideration of the six required factors is as follows:

(1) The nature of the conduct.  The Affected Party does not dispute that the requests for standard organization determinations of 121 unique enrollees were late.  CMS Br. at 2, 12; CMS Ex. 5 at 5.  The Affected Party does not dispute that the requests for expedited determinations for 89 unique enrollees were issued late.  CMS Br. at 2, 12; CMS Ex. 5 at 5.  A total of 210 standard and expedited organization determinations were issued late and in violation of the Affected Party’s contracts with CMS and the regulations.  The Affected Party concedes that the “delayed notices impacted a number of members.”  RFH at 2.  However, the Affected Party argues that the number of enrollees impacted is not significant because many eventually received their notices within 24 hours to 4 days of the original deadline; many enrollees received their “service with little to no harm in access to care”; and many of the services were not urgent, such as office visits and elective surgery.  RFH at 2.  The Affected Party submitted no evidence from which I can infer that there was no adverse effect or that services for which requests were submitted were not urgent.  The Affected Party also submitted no evidence from which I can infer that 210 is not a significant number of enrollees impacted.

Page 16

(2) The degree of culpability of the Medicare Advantage organization.  The Affected Party was clearly culpable for violating its contract and the regulations.  The Affected Party submitted no evidence from which I can infer that it was without fault in not timely processing requests for organization determinations.  The Affected Party does not deny that as many as 1,344 requests were not timely responded to or that at least 210 individual enrollees were impacted.  The fact that many responses were issued in one to four days after the deadlines is considered mitigating.

(3) The adverse effect to enrollees that resulted or could have resulted from the conduct of the Medicare Advantage organization.  Delayed services or increased out-of-pocket expenses, even temporary, due to late responses are adverse effects upon enrollees.

(4) The financial condition of the Medicare Advantage organization.  The Affected party has presented no evidence of its financial condition that I can consider as justifying a reduction in the CMP amount.

(5) The history of prior offenses by the Medicare Advantage organization or principals of the Medicare Advantage organization.  There is no evidence that the Affected Party has a history of prior offenses, which I consider mitigating.  CMS Ex. 5 at 1.

(6) Such other matters as justice may require.  I consider that the amount of the CMP determined by CMS is some evidence of an appropriate CMP amount.  CMS determined to impose the CMP based on the number of enrollees affected.  There is no dispute that 210 enrollees were affected and at the maximum authorized CMP of $36,794 per enrollee the total maximum CMP could be $7,726,740.  The $52,715 CMP (an average of $251.02 for each enrollee) CMS chose to impose8 is less than one percent of the maximum CMP that could be imposed.  If, as suggested by 42 C.F.R. § 422.750, the purpose of intermediate sanctions including a CMP is to encourage correction of deficiencies and ensure that they will not recur, then a more meaningful CMP of two times or three times the amount per enrollee chosen by CMS would have been more appropriate.  However,

Page 17

I choose not to increase the amount CMS determined to impose, even though I think such a low CMP is not effective either as a deterrent or to encourage prompt correction.  I also consider that the Affected Party rationalizes its violations as not affecting a significant number of enrollees and that there was no substantial likelihood of an adverse effect.  I also consider the table the Affected Party filed with its request for hearing.  I accept the information as true for purposes or summary judgment and in the absence of objection by CMS.  The table reflected the following:

As already noted, I consider the total number of cases for which notice was issued within 24 hours to 4 days of the deadline mitigating.  However, because the CMP imposed by CMS is already less than one percent of the maximum authorized CMP, I conclude no reduction is necessary based on any of the mitigating factors I have identified.

The Affected Party argues that I should treat as mitigating its policy of treating as expedited all requests characterized by the requestor as expedited, whether or not the request should be expedited.  The Affected Party urges me to consider that the policy had an unintended consequence.  P. Br. at 3-4; RFH.  A Medicare Advantage organization has an affirmative duty under 42 C.F.R. § 422.570(c) and (d) to develop a process for promptly determining whether a request is proper to be expedited or not and for advising the requestor if the request to expedite is denied.  While a Medicare Advantage organization may save some labor hours by not conducting the required review and issuing denials, treating more requests as expedited than should be clearly has some potential for delaying other requests that truly should be expedited.  Furthermore, I will not treat as mitigating the Affected Party’s failure to comply with 42 C.F.R. § 422.570(c) and (d).

Page 18

The Affected Party also takes issue with the way CMS applied and/or weighed the aggravating factors CMS considered.  P. Br. at 4-5.  My review is de novo and reviewing how CMS weighed aggravating factors is not particularly helpful and certainly not controlling.

The Affected Party complains that CMS has not published a clear methodology for issuing Immediate Corrective Action Requests (ICARs).  The Affected Party indicates that ICARs are a significant part of the CMS determination regarding the amount of the CMP.  While I agree with the Affected Party that CMS should be as transparent as possible with its processes, based on the limited information before me, ICARs appear to be related to the audit process.  ICARs are not discussed in the Act, the regulations, or the policies of CMS available to me.  Further, my review is de novo, and whether or how CMS treated or considered ICARs has no relevance to my review.

Based on my de novo review of the factors required by 42 C.F.R. § 422.760(a)(1)-(6), I conclude that the CMP of $57,715 is appropriate (and within a reasonable range) and no change is necessary.

III.  Conclusion

For the foregoing reasons, there is a basis for the imposition of a CMP.  A CMP of $57,715 is authorized, appropriate, and reasonable.

• 1. Citations are to the 2016 revision of the Code of Federal Regulations (C.F.R.) that was in effect at the time of the initial determination, unless otherwise stated.
• 2. CMS states in its notice that the CMP was based in part on violation of the provisions of the MMCM. However, the MMCM was not promulgated using notice and comment rulemaking under the Administrative Procedure Act, 5 U.S.C. § 553 or the procedure required of the Secretary of Health and Human Services (Secretary) under section 1871(a)(1), (a)(2), and (b) of the Social Security Act (Act) (42 U.S.C. § 1395hh(a)(1), (a)(2), (b)). Therefore, the MMCM does not have the force and effect of law. Act § 1871(a)(2); Azar v. Allina Health Servs., 587 U.S. ___, 139 S.Ct. 1804 (2019).
• 3. I do not construe CMS’s apparent intentional failure to specifically provide for summary judgment in the regulations to be a rejection of summary judgment as an available procedure in these cases.
• 4. The parties use both “member” and “enrollee” to refer to Medicare-eligible beneficiaries enrolled in the Affected Party’s Medicare Advantage program. The Act also uses both member and enrollee but enrollee is more frequently used. See, e.g., Act § 1852(a)(1)(A) and (a)(2)(C). In this decision, enrollee, as defined in 42 C.F.R. § 422.561, is used to refer to Medicare-eligible beneficiaries enrolled in the Affected Party’s plan.
• 5. There is no dispute that the auditors reviewed requests for organization determinations for the period November 22, 2015 to February 22, 2016. CMS Ex. 4 at 4.
• 6. Section 1852(f) of the Act requires that a Medicare Advantage organization establish meaningful grievance procedures for hearing and resolving grievances between the organization and its enrollees. The regulations define grievance to include any complaint or dispute other than one that is as an organization determination. 42 C.F.R. § 422.561. Pursuant to 42 C.F.R. § 522.564(d) an enrollee may file a grievance orally or in writing no more than 60 days from the event that triggers the grievance. The Medicare Advantage organization is required to notify the enrollee in writing of its decision on the grievance within 30 days of the date the grievance is received, subject to one possible 14-day extension. 42 C.F.R. § 422.564(e). An expedited grievance must be responded to within 24 hours. 42 C.F.R. § 422.564(f). The Affected Party’s processing of grievances is not at issue in this case.
• 7. CMP amounts are subject to annual adjustment pursuant to 45 C.F.R. pt. 102. The maximum CMP imposable under 42 C.F.R. § 422.760(b) was increased to $36,794, effective September 6, 2016. 45 C.F.R. § 102.3 (table at page 777).
• 8. CMS notes that the CMP was originally calculated as $57,725 but was incorrectly listed in the notice of initial determination as $57,715. CMS elected to proceed on the smaller amount rather than send an amended or revised notice. CMS Br. at 13 n.5; CMS Ex. 5 at 5-6.