Fernando D. Palacios, Fernando Palacios MD Inc., DAB CR6754 (2025)

DECISION

Petitioner, Fernando D. Palacios (Dr. Palacios), is a physician, licensed to practice in California, who participated in the Medicare program as a supplier of services.  Petitioner Fernando Palacios MD Inc. (FPMI) is a medical practice also in California.  As of July 30, 2022, Dr. Palacios was a 5% or greater owner of FPMI.  Beginning on November 10, 2023, Dr. Palacios was also the managing employee and medical director of Bright and White Hospice (Bright and White).

On May 9, 2024, Bright and White was notified that its Medicare enrollment was revoked pursuant to 42 C.F.R. § 424.535(a)(8)(ii), effective June 8, 2024.  Thereafter, in May 2024, Dr. Palacios and FPMI (referred to collectively as Petitioners) were notified that their Medicare enrollments were being revoked pursuant to 42 C.F.R. § 424.535(a)(19).  Petitioners were additionally notified of a ten-year reenrollment bar, and that they were being added to the Medicare preclusion list.

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Petitioners now appeal.

I affirm CMS’s determinations.  I find that CMS is authorized to revoke Petitioners’ Medicare privileges and to add their names to the Medicare preclusion list because Petitioners’ affiliation with the revoked Bright and White posed undue risk of fraud, waste or abuse.

I have no authority to review the length of the reenrollment bar.

Statutory and Regulatory Background.  The Social Security Act (Act) authorizes the Secretary of Health and Human Services (Secretary) to create regulations governing the enrollment of providers and suppliers to furnish health care items and services to Medicare program beneficiaries.  See 42 U.S.C. § 1395cc(j).  Under the regulations, a supplier must enroll in the Medicare program to receive payment for covered Medicare items or services provided to beneficiaries.  42 C.F.R. § 424.505.  To enroll, a supplier must complete and file an enrollment application with CMS and meet the requirements to be a supplier.  42 C.F.R. §§ 424.510, 424.530.

Once enrolled, CMS may revoke a supplier’s enrollment for any of the reasons stated in 42 C.F.R. § 424.535(a).  When CMS revokes enrollment, it will establish a re-enrollment bar from one to ten years in duration.  42 C.F.R. § 424.535(c).  If CMS revokes a supplier’s enrollment and establishes a re-enrollment bar, CMS may also add the supplier to CMS’s preclusion list if CMS determines that the basis for revocation is detrimental to the best interests of the Medicare program.  42 C.F.R. §§ 422.2, 423.100.

A supplier may request a hearing before an administrative law judge to dispute a revocation or being added to CMS’s preclusion List.  42 C.F.R. §§ 498.3(b)(17), (20), 498.5(l)(2), (n)(2).  However, “the right to review of CMS’s determination by an [administrative law judge] serves to determine whether CMS has the authority to revoke [the supplier’s] Medicare billing privileges, not to substitute the [administrative law judge’s] discretion about whether to revoke.”  Letantia Bussell, M.D., DAB No. 2196 at 13 (2008) (emphasis omitted).

Procedural Background

On May 28 and May 30, 2024, the Medicare contractor, Noridian Healthcare Solutions, notified Petitioners that their Medicare privileges would be revoked, effective June 27, 2024 and June 29, 2024.  CMS Ex. 4 at 4-6; CMS Ex. 5; CMS Ex. 6.  The notices advised that Petitioners’ billing privileges were being revoked pursuant to 42 C.F.R. § 424.535(a)(19) for an affiliation with Bright and White that poses undue risk.  Id.  The contractor imposed a ten-year reenrollment bar.  Id.  Petitioners were also added to CMS’s preclusion list, as authorized by 42 C.F.R. §§ 422.2, 422.222, 423.100, and 423.120(c)(6).  Id.  Finally, the notice explained that, if Petitioners requested reconsideration, this action would become effective on the date the reconsidered determination was issued.  Id.

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Petitioners subsequently requested reconsideration.  CMS Exs. 1, 2, 4.  On October 22, 2024, a CMS hearing officer issued a reconsidered decision in which Petitioners’ revocations were upheld.  CMS Ex. 14.  The hearing officer specifically found that Petitioners had an affiliation with Bright and White, a provider that had its Medicare billing privileges revoked due to “abuse of billing by submitting claims that failed to meet Medicare requirements.”  Id. at 7.  The hearing officer also upheld the determination to impose the reenrollment bar and to include Petitioners on CMS’s preclusion list.  Id. at 8-10.

Decision based on the written record.  CMS has moved for summary judgment.  However, the standing order directed the parties to list all proposed witnesses and to submit, as a proposed exhibit, the complete, written direct testimony of any proposed witness.  Acknowledgment and Standing Order at 9-10.  The order further stated that a hearing would be necessary only if a party files admissible, written direct testimony, and the opposing party asks to cross-examine.  Id.

CMS has not proposed any witnesses.  Petitioners listed two witnesses but only provided the declaration of Dr. Palacios.  See Pre-hearing exchange; see also declaration of Dr. Palacios. CMS has not requested to cross examine Dr. Palacios.  As there are no witnesses to be cross-examined, an in-person hearing would serve no purpose, and I may decide this case based on the written record, without considering whether the standards for summary judgment have been met.1

Exhibits.  CMS submits its brief (CMS Br.) with 15 exhibits (CMS Exs. 1-15).  Petitioners did not object to CMS’s exhibits.  In the absence of any objections, I admit into evidence CMS Exs. 1-15.

Petitioners submit their brief (P. Br.) with 1 exhibit that includes several different documents.  (P. Ex. 1).  These documents were also attached to the request for hearing and are labeled as Exhibit A: Dr. Palacios’ resignation letter dated January 17, 2024; Exhibit B: a screenshot of a text message conversation; Exhibit C: a letter from Bright and White to Dr. Palacios dated January 22, 2024; and Exhibit D: a portion of an email correspondence between Dr. Palacios and the California Department of Public Health dated May 4, 2024.

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I note that CMS objected to Petitioners’ attachments accompanying the request for hearing, to the extent they are untimely and new evidence.  See CMS Br. at 11 n. 1.  However, CMS did not file any objections following receipt of Petitioners’ pre-hearing exchange.  The primary standard for the admission of evidence is whether it is relevant and material.  42 C.F.R. § 498.60(b).  Further, the regulations require providers and suppliers to submit all evidence with its reconsideration request.  42 C.F.R. § 405.803(e).  Providers and suppliers must show good cause to submit new evidence to an administrative law judge.  42 C.F.R. § 498.56(e). 

Petitioners do make any attempt to argue that it has good cause to submit new evidence for the first time at the ALJ level.  In any event, I do not find that good cause exists to admit the new evidence attached as exhibits B, C, and D, as these documents, based on their dates, appear to have been available at the time of the initial or reconsiderations determinations, and thus I exclude them as required by 42 C.F.R. § 498.56(e)(2)(ii).  However, I need not rule on Exhibit A, as that document was submitted below and is already part of the administrative record.  See CMS Exs. 4 at 8, 14 at 2.

Discussion

1. CMS properly revoked Petitioners’ Medicare enrollment under 42 C.F.R. § 424.535(a)(19) because Petitioners’ affiliation with Bright and White poses an undue risk of fraud, waste and abuse.2

A.       Legal Background

Revocation of enrollment.  CMS may revoke Petitioners’ Medicare enrollment and billing privileges if Petitioners had an affiliation under 42 C.F.R. § 424.535(a)(19) that poses an undue risk of fraud, waste or abuse to the Medicare program. 
42 C.F.R. § 424.502 defines the term “affiliation” as including any of the following 3:

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(1) A 5% or greater direct or indirect ownership interest that an individual or entity has in another organization.

(2) A general or limited partnership interest (regardless of the percentage) that an individual or entity has in another organization.

(3) An interest in which an individual or entity exercises operational or managerial control over, or directly or indirectly conducts, the day-to-day operations of another organization (including, for purposes of this paragraph, sole proprietorships), either under contract or through some other arrangement, regardless of whether or not the managing individual or entity is a W–2 employee of the organization.

(4) An interest in which an individual is acting as an officer or director of a corporation.

(5) Any reassignment relationship under § 424.80.

Undue risk. If an affiliation is established, CMS determines whether any of the disclosed affiliations pose an undue risk of fraud, waste, or abuse by considering the following factors:

(1) The duration of the affiliation.

(2) Whether the affiliation still exists and, if not, how long ago it ended.

(3) The degree and extent of the affiliation.

(4) If applicable, the reason for the termination of the affiliation.

(5) Regarding the affiliated provider’s or supplier’s disclosable event under paragraph (b) of this section:

(i) The type of disclosable event.

(ii) When the disclosable event occurred or was imposed.

(iii) Whether the affiliation existed when the disclosable event occurred or was imposed.

(iv) If the disclosable event is an uncollected debt:

(A) The amount of the debt.

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(B) Whether the affiliated provider or supplier is repaying the debt.

(C) To whom the debt is owed.

(v) If a denial, revocation, termination, exclusion, or payment suspension is involved, the reason for the disclosable event.

(6) Any other evidence that CMS deems relevant to its determination.

(g) Determination of undue risk. A determination by CMS that a particular affiliation poses an undue risk of fraud, waste, or abuse will result in, as applicable . . . the revocation of the provider’s or supplier’s Medicare enrollment under § 424.535(a)(19).

42 C.F.R. § 424.519.

Disclosable Events: A disclosable event under 42 C.F.R. § 424.519 is defined to include, whether a provider or supplier:

(4) Has had its Medicare, Medicaid, or CHIP enrollment denied, revoked, or terminated, regardless of—

(i) The reason for the denial, revocation, or termination;

(ii) Whether the denial, revocation, or termination is currently being appealed;

or

(iii) When the denial, revocation, or termination occurred or was imposed.

42 C.F.R. § 424.502.

B.            Analysis

The facts demonstrate that as of November 10, 2023, Dr. Palacios was listed in Bright and White’s Medicare enrollment filings as both a contracted managing employee and medical director.  CMS Ex. 9 at 4-7.  Dr. Palacios was also the authorized official, director/officer and with a greater than 5% interest in FPMI.  CMS Ex. 13 at 1; CMS Ex. 15 at 22-25.  In fact, Dr. Palacios is the sole owner of FPMI.  CMS Ex. 13 at 1.

Petitioners do note dispute that there was an affiliation under 42 C.F.R. § 424.502 with Bright and White.  See generally P. Br.  I further note that Dr. Palacios does not deny his affiliation with FPMI or that his affiliation with Bright and White is also imputed to FPMI.  See id.  It is also undisputed that Bright and White’s Medicare billing privileges were

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revoked pursuant to 42 C.F.R. § 424.535(a)(8)(ii) for engaging in a pattern or practice of submitting claims that fail to meet Medicare requirements.  CMS Ex. 7.  Further, Dr. Palacios was Bright and White’s medical director and contracted managing employee only a few months prior to when the Bright and White’s billing privileges were revoked – and during the time in which fraudulent payments were submitted.  CMS Exs. 8, 9 at 4-7.

In addition, Petitioners do not challenge CMS’s finding that Bright and White’s Medicare enrollment revocation was a disclosable event under 42 C.F.R. § 424.502.  See generally P. Br.  As such, the only issue to determine is whether the Petitioners’ affiliation with Bright and White posed an undue risk of fraud, waste, or abuse.

Petitioners challenge CMS’s position that it has demonstrated that the disclosed affiliations pose an undue risk of fraud, waste, or abuse by considering the regulatory factors listed under 42 C.F.R. § 424.519(f).  Id. at 4-5.  Specifically, Dr. Palacios states that his “affiliation with [the] Hospice was brief” and that he “was only employed with [the] revoked Hospice for less than two months and submitted his resignation on January 17, 2024.”  Id.  at 3-4.  Dr. Palacios adds that he “never had any ownership interest, managerial control and or billing control of the Hospice [and] . . .  never even received compensations from or on behalf of Hospice.”  Id. at 3.  Petitioner further avers that he “resigned because he was uncomfortable working at Hospice.”  Id.  Lastly, Dr. Palacios states that while Bright and White’s “administrative inefficiencies” delayed the effective date of his resignation until April 1, 2024, his affiliation with the Hospice ended in January 2024.  Id. at 5.

I observe that these arguments were raised below in Petitioners’ request for reconsideration and were rejected by the hearing officer.  CMS Ex. 14.  The hearing officer considered all of the regulatory factors listed in 42 C.F.R. § 424.519(f) and found the evidence supported that Petitioners had an affiliation that posed an undue risk of fraud, waste, or abuse.  Id. at 6-8.

The hearing officer specifically found that with respect to factor 1 (duration of affiliation with revoked provider Bright and White), factor 2 (whether the affiliation still exists), and factor 4 (reason for termination of affiliation, if applicable), Dr. Palacios was Bright and White’s medical director during the period from November 10, 2023 through April 1, 2024.  Id. at 6.  Moreover, during that period, in which Dr. Palacios was the medical director, Bright and White submitted noncompliant claims with dates of service January 5, 2024, through February 29, 2024.  Id.; see also CMS Ex. 7 at 5.  And, even accepting for the sake of argument that Dr. Palacios’ resignation was effective January 17, 2024 (P. Br. at 5), the record reflects, and CMS points out, that numerous noncompliant claims were submitted by Bright and White with dates of service January 5, 2024, January 7, 2024, and January 9, 2024.  CMS Br. at 16-17 (citing CMS Ex. 7 at 5).

The hearing officer also determined that regarding factor (3) (the degree and extent of the affiliation with revoked provider Bright and White), that Dr. Palacios was listed by Bright and White as its medical director on its Medicare enrollment documentation at the

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time “of the submission of noncompliant claims which resulted in the revocation of the Hospice’s Medicare enrollment.”  CMS Ex. 14 at 6-7.  CMS also considered that “hospices and their medical directors have an extremely close affiliation” and that “as a condition of Medicare participation, a hospice must have a medical director” that is responsible for certifying that a patient’s life expectancy is six months or less.  Id. at 7 (citing § 418.102).

The hearing officer next considered all the applicable parts of factor (5) (the affiliated provider’s or supplier’s disclosable event)4 and found that Bright and White’s Medicare enrollment was revoked during a period in which Dr. Palacios was its medical director due to its submission of noncompliant claims.  CMS Ex. 14 at 7.  Moreover, regarding factor (5)(v), the hearing officer observed that a total of 10 claims with dates of service from January 5, 2024 through February 29, 2024 were denied because “the information provided did not support a terminal prognosis of six months or less, the notice of election for the beneficiary was not received as requested, and the face-to-face encounter requirements were not met.”  Id.  It was further noted that the revocation became final when Bright and White failed to file a timely request or reconsideration.  Id.

Lastly, CMS considered factor (6) (other evidence) and observed that Dr. Palacios, as medical director during the time the noncompliant billing was submitted, “cannot be counted on to own or direct a Medicare enrolled entity in a way that does not compromise the integrity of the Medicare program.  The noncompliant behavior that Bright and White exhibited could easily be replicated by Dr. Palacios with him at the helm of the Practice and enrolled in the Medicare program.”  Id.

Based on the above, CMS established a legal basis for Petitioners’ revocation.  The Board has consistently held that an administrative law judge’s review of CMS’s determination to revoke a supplier’s Medicare enrollment is limited to deciding whether CMS has established one or more of the grounds specified in section 424.535(a).  Dobbin & Ebony Wellness, DAB No. 3136 at 8 (2024); William Garner, M.D., DAB No. 3026 at 16 (2020); Norman Johnson, M.D., DAB No. 2779 at 11 (2017).  Although CMS itself has the discretion to consider “unique or mitigating circumstances in deciding whether, or how, to exercise its revocation authority,” I do not.  I may not substitute my discretion for that of CMS in determining whether the revocation is appropriate.  Johnson, DAB No. 2779 at 11 (citing Care Pro Home Health, Inc., DAB No. 2723 at 9 n.8 (2016)); Abdul Razzaque Ahmed, M.D., DAB No. 2261 at 19 (2009), aff’d, Ahmed v. Sebelius, 710 F. Supp. 2d 167 (D. Mass. 2010).

Moreover, the Board has explained that “[t]he ALJ’s . . . role in an appeal of CMS’s . . . revocation of enrollment in the Medicare program is to determine

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whether CMS had a legal basis for its action,” and “[i]f it did, then [the ALJ is] bound to affirm the . . . revocation.”  Dr. Robert Kanowitz, DAB No. 2942 at 4 (2019).  The Board has further explained that “the right to review of CMS’s determination by an ALJ serves to determine whether CMS had the authority to revoke [the petitioner’s] Medicare billing privileges, not to substitute the ALJ’s discretion about whether to revoke.”  Letantia Bussell, M.D., DAB No. 2196 at 13 (2008) (emphasis omitted).  As such, the scope of my review is whether CMS had a legitimate basis to revoke Petitioners’ Medicare enrollment.  Though I have no reason to question the veracity of the aforementioned claims by Petitioners, the sole matter before me is whether CMS was authorized to revoke Petitioners’ Medicare enrollment pursuant to 42 C.F.R. § 424.535(a)(19), and not whether I would have taken the same action.

The regulation required that CMS consider certain factors when determining to revoke enrollment and billing privileges.  The reconsidered determination shows that the CMS hearing officer considered the factors required by 42 C.F.R. § 424.535(a)(19) when it concluded that Petitioners’ affiliation with Bright and White posed an undue risk of fraud, waste, or abuse.  CMS Ex. 14 at 6-8.  Therefore, I find that CMS acted within its authority when it determined that there was an affiliation between Petitioners and Bright and White because Dr. Palacios was listed on the Bright and White’s Medicare enrollment as a medical director and contracted managing employee.  CMS has further established that the Petitioners’ affiliations with the revoked Bright and White posed an undue risk of fraud, waste, or abuse.

Finally, I do not have authority to reinstate Petitioners’ Medicare enrollment and billing privileges on equitable grounds.  “The Board has consistently held that it (and the ALJs) lack the authority to restore a supplier’s billing privileges on equitable grounds.”  Neb Grp. of Ariz. LLC, DAB No. 2573 at 6 (2014) (citations omitted). “[O]nce CMS has shown that one of the regulatory bases for revocation exists, the ALJ and the Board may not refuse to apply the regulation and must uphold the revocation.”  Donald W. Hayes, D.P.M., DAB No. 2862 at 15 (2018).

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2. CMS acted within its authority when it added Petitioners to the preclusion list because Petitioners are currently revoked and under a re-enrollment bar and CMS has determined that the underlying conduct that led to the revocation was detrimental to the best interests of the Medicare program and its beneficiaries.5

The preclusion list.  Effective January 1, 2019, CMS implemented a “preclusion list” as part of its effort to “prevent fraud, waste, and abuse, and to protect Medicare enrollees.”  See 82 Fed. Reg. 56,336, 56,448 (Nov. 28, 2017); 83 Fed. Reg. 16,440, 16,643 (Apr. 16, 2018).  Pursuant to 42 C.F.R. § 422.2 (Part C) and 42 C.F.R. § 423.100 (Part D), CMS’s “preclusion list” includes individuals and entities that:

(i)      The [individual, entity, or prescriber] is currently revoked from Medicare for a reason other than that stated in [42 C.F.R.] § 424.535(a)(3) . . .

(ii)     The [individual, entity, or prescriber] is currently under a reenrollment bar under [42 C.F.R] § 424.535(c).

(iii)     CMS determines that the underlying conduct that led to the revocation is detrimental to the best interests of the Medicare program. In making this determination under this paragraph . . ., CMS considers the following factors: 

(A)  The seriousness of the conduct underlying the . . . revocation.

(B)  The degree to which the . . . conduct could affect the integrity of the [Medicare/Part D] program.

(C) Any other evidence that CMS deems relevant to its determination . . ..

42 C.F.R. §§ 422.2, 423.100.

Review of Petitioners’ inclusion on the preclusion list.  My review here is limited to whether CMS had the authority to include Petitioners on the preclusion list.  42 C.F.R.

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§ 498.3(b)(20); see 83 Fed. Reg. 16,642-16,643 (Apr. 16, 2018) (explaining that appeals are limited to the individual’s inclusion on the preclusion list).

The record reflects that the hearing officer considered all of the factors, including that Petitioners are currently revoked from Medicare enrollment, are under a ten-year re-enrollment bar and determined that the underlying conduct led to an undue risk of fraud, waste or abuse which is detrimental to the best interests of the Medicare program.  CMS Ex. 14.

While Petitioners generally reassert most of their arguments (P. Br. at 6-7), Petitioners have not demonstrated legal error in CMS’s determination upholding their placement on its preclusion list, and as I previously explained, I am not authorized to second-guess CMS’s refusal to exercise its discretion.  Because I have upheld Petitioners’ revocation pursuant to 42 C.F.R. § 424.535(a)(19) and Petitioners remain under a bar to re-enrollment, and CMS addressed the regulatory factors outlined at 42 C.F.R. §§ 422.2 and 423.100, CMS was authorized to uphold Petitioners’ placement on its preclusion list.  See 42 C.F.R. §§ 422.2, 423.100.

Conclusion

Petitioners were affiliated with Bright and White and that affiliation posed an undue risk per 42 C.F.R. § 424.535(a)(19).  Moreover, Bright and White’s billing privileges were revoked for engaging in a pattern or practice of submitting claims that fail to meet Medicare requirements.  Therefore, CMS acted within its authority when it concluded that Petitioners’ affiliation posed an undue risk of fraud, waste or abuse.  CMS may therefore revoke Petitioners’ Medicare enrollment and billing privileges, impose a reenrollment bar, and include them on the preclusion list.

I have no authority to review the lengths of the reenrollment bar nor the time on the preclusion list.

For these reasons, I affirm CMS’s determinations.