Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
In the Case of:
Desert Hospital,
Petitioner,
- v. -
Health Care Financing Administration.
DATE: July 24, 1997
Civil Remedies
CR448
App. Div. Docket No.
A-97-78
Decision No. 1623
FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION
The Health Care Financing Administration (HCFA) appealed
the decision of Administrative Law Judge (ALJ) Steven T.
Kessel granting summary disposition in favor of Desert
Hospital (Petitioner). Desert Hospital, DAB CR448
(1996)(ALJ Decision). The ALJ concluded that HCFA lacked
authority to impose the remedy of denial of payment for
new admissions effective March 20, 1996, because he found
that Desert Hospital did not have adequate notice of
HCFA's intent to impose it. ALJ Decision at 14-15.
We conclude that the notice provided by HCFA on February
29, 1996 adequately informed Desert Hospital of the
immediate imposition of the remedy of denial of payment
for new admissions to take effect March 20, 1996, absent
a showing before that date of substantial compliance by
Desert Hospital. HCFA was not required to provide an
additional notice period before the denial of payment
became effective. Therefore, we reverse the ALJ
Decision, vacate the findings of fact and conclusions of
law (FFCLs) to which HCFA excepted, make substitute FFCLs
reflecting our analysis, and remand the case to the ALJ
for further proceedings consistent with this decision.
Factual Background
The facts in relation to the resolution of the issues
before us are not in dispute. The issues depend largely
on the interpretation of documents that are in the
record. The State survey agency (California Department
of Health Services) conducted a survey of Desert
Hospital's distinct part skilled nursing facility (SNF)
in Palm Springs, on February 6, 1996. ALJ Decision,
FFCL 3. The report of the survey (on a form entitled
HCFA 2567L) listed deficiencies evidencing that Desert
Hospital was not complying with a number of federal
participation requirements for the Medicare and/or
Medicaid programs. HCFA Ex. 1. On February 15, 1996,
the State survey agency advised Desert Hospital that,
based on this survey, it would require submission of an
acceptable plan of correction and would recommend that
HCFA impose remedies against Desert Hospital, including
denial of payment for new admissions effective March 5,
1996. ALJ Decision, FFCL 3; Petitioner (P.) Ex. 1. The
February 15, 1996 letter also notified Desert Hospital
that its noncompliance with Quality of Care requirements
at 42 C.F.R. § 483.25 constituted substandard quality of
care, which resulted in certain consequences (such as a
requirement to take steps to notify the physicians of the
affected residents). P. Ex. 1. By letter dated March 4,
1996, the State survey agency amended this notice to
indicate that noncompliance found with Quality of Life
standards at 42 C.F.R. § 483.15 also constituted
substandard quality of care. P. Ex. 2.
HCFA acted on the State survey agency's recommendations
by a letter to Desert Hospital dated February 29, 1996.
Since the meaning of this letter is at the core of the
issues before us, we quote a substantial portion of it
verbatim:
On February 6, 1996, a survey was conducted at your
facility by the California Department of Health
Services to determine if your facility was in
compliance with Federal participation requirements
for nursing homes participating in the Medicare
and/or Medicaid programs. This survey found that
your facility was not in substantial compliance.
As a result of the survey findings listed on the
Statement of Deficiencies and Plan of Correction
(Form HCFA-2567) which was forwarded to you after the
survey, the California Department of Health Services
notified you that it would recommend to . . . HCFA
that remedies be imposed. We concur with the survey
findings which indicate that the following Medicare
requirements were out of compliance:
42 C.F.R. 483.15(f)(1) Quality of Life
42 C.F.R. 483.25(c) Quality of Care
Based upon your current and past noncompliance with
Medicare requirements, your facility's Medicare
agreement will terminate on August 5, 1996 [42 C.F.R.
§488.456]. . . .
In addition to termination, we have decided to deny
payment for new admissions and impose a Civil Money
Penalty (CMP).
Denial of payments for new admissions to Desert
Hospital D/P SNF is pursuant to Section 1819(h) of
the Social Security Act. The denial of payment will
become effective March 20, 1996 and will remain in
effect until compliance is achieved or August 5, 1996
whichever is earlier. If compliance is not achieved
your provider agreement will be terminated August 5,
1996 [42 C.F.R. §488.412(d)].
P. Ex. 3, at 1-2 (bold in original, underlining added).
On March 13, 1996, Desert Hospital notified the State
survey agency that it had prepared the required plan of
corrections, had completed corrective actions, and was
prepared for a resurvey "to demonstrate our substantial
compliance." P. Ex. 4. The letter asserted that Desert
Hospital had made "substantial changes in our systems to
ensure ongoing quality of care to residents in compliance
with applicable Federal and State regulations." Id. In
addition, the letter expressly waived Desert Hospital's
"right to a hearing based on our current non-compliance."
Id. (In its brief before us, Desert Hospital stated
again that it "does not now and never has denied that
deficiencies existed at its facility which were
identified during the February 6, 1996 survey." P. Resp.
to HCFA Request for Review at 6.)
Based on Desert Hospital's representation of having
achieved compliance, a resurvey was conducted on March
20, 1996. P. Exs. 5, 6. That survey found that Desert
Hospital had still not achieved substantial compliance.
Although most deficiencies, including the two
specifically identified in HCFA's February 29, 1996
letter, had been corrected, three deficiencies were
found. P. Ex. 7. (As discussed below, the parties
disputed whether these constituted uncorrected or new
deficiencies.) 1/
Relevant provisions of law
The survey and enforcement scheme for long-term care
facilities, including SNFs, is set forth in sections
1819(g) and (h) of the Social Security Act (Act), as
amended by the Omnibus Budget Reconciliation Act of 1987
(OBRA '87). OBRA '87, Pub. L. No. 100-203 (December 22,
1987). The Act provides, in relevant part, that the
states are responsible for conducting surveys of private
SNFs and certifying their compliance with the
participation requirements. Act, § 1819(g). If a state
finds that a SNF is not in compliance, the state may
recommend that the Secretary impose a remedy (and the
state must so recommend if the deficiencies immediately
jeopardize residents' health or safety). Act, §
1819(h)(1). In the case of immediate jeopardy, the law
requires the Secretary to take immediate action to remove
the jeopardy or to terminate the facility's
participation. Act, § 1819(h)(2)(A)(i). In cases which
do not constitute immediate jeopardy, the Act provides
that "the Secretary may impose any of the remedies"
provided. Act, § 1819(h)(2)(A)(ii). The Act specifies
three kinds of remedies "with respect to a finding that a
facility has not met an applicable requirement,"
including denial of payment with respect to all
beneficiaries or with respect to new admissions, as well
as civil money penalty authority and authority to appoint
temporary management. Act, § 1819(h)(2)(B). 2/ Where
a denial of payment is imposed, the Act provides that it
shall terminate "when the Secretary finds that the
facility is in substantial compliance with all the
requirements . . . ." Act, § 1819(h)(3).
The Secretary adopted regulations in 1994 implementing
the SNF survey and enforcement provisions. 59 Fed. Reg.
56,115 (Nov. 10, 1994); 42 C.F.R. Part 488, Subparts E
and F. The regulations provide that when a facility is
not in substantial compliance but its deficiencies do not
constitute immediate jeopardy, HCFA "may terminate the
facility's provider agreement or may allow the facility
to continue to participate" for up to six months (if
required conditions are met). The regulations set out
three categories of alternative remedies which may be
imposed instead of or in addition to termination and
provide criteria for their application depending on the
seriousness of the noncompliance. 3/ Denial of payment
for new admissions (the remedy contested here) is grouped
in category 2. 4/ Category 2 remedies may be applied
to any deficiency unless the facility is in substantial
compliance. Specifically, an optional denial of payment
for new admission may be imposed by HCFA 5/ whenever a
Medicare facility is not in substantial compliance and
payments "resume prospectively on the date that the
facility achieves substantial compliance, as indicated by
a revisit or written credible evidence acceptable to
HCFA." 42 C.F.R. §488.417(a)(1) and (d); see also 42
C.F.R. § 488.454(a). 6/ No payments will be made for
new admissions for the period between the date that the
remedy is imposed and the date the facility achieves
substantial compliance. 42 C.F.R. § 488.417(e).
Substantial compliance is defined as --
a level of compliance with the requirements of
participation such that any identified
deficiencies pose no greater risk to resident
health and safety than the potential for causing
minimal harm.
42 C.F.R. § 488.301. Deficiency is, in turn, defined as
a SNF's "failure to meet a participation requirement
specified in the Act or" the relevant regulations at 42
C.F.R. Part 483, Subpart B. 42 C.F.R. § 488.301. In
addition, the regulations define substandard quality of
care to mean --
one or more deficiencies related to participation
requirements under § 483.13, Resident behavior
and facility practices, § 483.15, Quality of
life, or § 483.25, Quality of care of this
chapter, which constitute either immediate
jeopardy to resident health or safety; a pattern
of or widespread actual harm that is not
immediate jeopardy; or a widespread potential
for more than minimal harm, but less than
immediate jeopardy, with no actual harm.
42 C.F.R. § 488.301.
Issues on appeal
HCFA excepted, in whole or in part, to FFCLs 2, 4, and 5-
14 in the ALJ Decision. The following FFCLs to which
neither party excepted are hereby affirmed without
further discussion:
1. HCFA is required to give a long term care
facility at least 15 days' notice in writing of
its intent to impose a remedy against the
facility, except in a case where HCFA determines
that the facility's noncompliance with Medicare
participation requirements poses immediate
jeopardy to the health and safety of residents.
3. On February 15, 1996, the California Department
of Health Services (California survey agency)
advised Petitioner that, based on a survey which
the California survey agency conducted of
Petitioner on February 6, 1996, Petitioner had
been found not to be complying with federal
participation requirements for the Medicare and
Medicaid programs. The California survey agency
told Petitioner that, based on these findings of
noncompliance, it would recommend to HCFA that
HCFA impose remedies against Petitioner,
including denial of payment for new admissions.
ALJ Decision at 2-3.
We do not repeat the remaining FFCLs here, since this
decision vacates them and they would have no relevance to
the resolution of any outstanding issue in the case. 7/
Where necessary to the disposition of the case on
remand, we made substitute FFCLs which are set out in the
conclusion to this decision.
On appeal of a summary disposition, we review whether the
decision is erroneous as to a disputed issue of law.
Golden State Manor and Rehabilitation Center v. HCFA, DAB
1597 (1996). To the extent that any disputed issues of
material fact require resolution as a result of our
conclusions here, we have instructed the ALJ to resolve
them on remand.
In ruling in favor of Desert Hospital, the ALJ
interpreted HCFA's February 29, 1996 letter to mean that
HCFA concurred only in the two listed survey findings of
noncompliance (implicitly rejecting the remaining
findings as bases for the remedies to be imposed) and
further to mean that HCFA "would impose" the denial of
payment remedy on March 20, 1996 based on the two listed
findings if Desert Hospital did not attain compliance by
then. ALJ Decision at 9, 11, and 13. The ALJ found that
the noncompliance identified at the March 1996 resurvey
was not based on repeat findings of either of the two
deficiencies listed in HCFA's February 29, 1996 notice
(which, it is not disputed, had been corrected) but
solely on three other deficiencies (which had not been
corrected). Id. at 11-12. Consequently, the ALJ treated
HCFA's determination to impose denial of payment
effective March 20, 1996 as a new action, based on the
findings of the March 1996 resurvey, of which Desert
Hospital had no notice before April 16, 1996, contrary to
the requirement that HCFA give 15 days' notice of the
basis for such a determination. ALJ Decision at 12.
Desert Hospital stated that it fully agreed with the ALJ
Decision and also argued that it had no actual knowledge
that it would be subject to the denial of payment remedy
once the "high severity deficiencies" referenced in
HCFA's notice letter were corrected. P. Resp. to HCFA
Request for Review at 4; P. Ex. 9. Desert Hospital
pointed out that the State survey agency letter after the
March 1996 resurvey (unlike the one after the original
February 6, 1996 survey) did not make any recommendation
to HCFA for a denial of payment remedy and the March 1996
resurvey report documentation does not properly report
repeat deficiencies. Further, Desert Hospital argued
that the three deficiencies found at the March 1996
resurvey, even if they were repeated from the original
survey, "could not justify the harsh remedy of denying
payment for new admissions," so it never realized it
would be subject to such a remedy until it received
HCFA's letter dated April 16, 1996. P. Resp. to HCFA
Request for Review at 2-8.
HCFA argued that, in reaching his conclusions, the ALJ
misunderstood both the meaning of the February 29, 1996
letter and the regulatory process for imposing a denial
of payment for new admissions. HCFA argued that the two
listed findings were specifically mentioned because they
established substandard quality of care (which triggered
various other consequences), not because they alone
formed the basis for the remedies being imposed. On the
contrary, HCFA contended, the letter, read as a whole,
and in light of the other communications with Desert
Hospital and in the context of the regulatory scheme,
based the imposition of remedies on the totality of the
noncompliance found by the State survey agency.
According to HCFA, one effect of the substandard quality
of care was that, combined with the past findings of
noncompliance referenced in the next sentence, it
justified the immediate imposition of remedies without
further opportunity to correct, because it showed that
Desert Hospital was a poorly performing provider. For
that reason, HCFA asserted, the February 29, 1996 letter
notified Desert Hospital that, among other consequences,
denial of new payment was being imposed to begin March
20, 1996 and to end when Desert Hospital demonstrated
substantial compliance or was terminated. 8/ HCFA
argued that the remedy was to take effect automatically
once the required notice period passed without any
opportunity to correct prior to imposition and that the
effect of the March 1996 resurvey findings was that the
remedy was not lifted because substantial compliance was
not found. Since the remedy was already in place, HCFA
argued, no new 15-day notice was required to impose it.
HCFA also sought to have the ALJ amend the prehearing
order in which he set out the issues to be resolved. The
ALJ held that this motion was moot since he issued
summary disposition on the basis that the notice of the
disputed remedy was inadequate without reaching the
merits of the case. In light of our reversal, we must
also address below the status of this motion.
Analysis
HCFA's February 29, 1996 letter cannot reasonably be
interpreted as concurring in only the two
findings listed there.
The phrase in the letter which caused the ALJ to conclude
that HCFA did not concur in and base its remedies on the
survey findings as a whole read: "We concur with the
survey findings which indicate that the following
Medicare requirements were out of compliance . . . ." P.
Ex. 3, at 1. The two findings of substandard quality of
care are then specifically named.
Desert Hospital's interpretation of this wording to mean
that the named findings alone formed the basis for HCFA's
actions and that HCFA rejected the other survey findings
is untenable. To begin with, this reading ignores the
surrounding language in the letter. The preceding
sentence stated that the remedies (which HCFA proceeds to
impose in the letter) were recommended by the State
survey agency as "a result of the survey findings listed
on the Statement of Deficiencies and Plan of Correction
(HCFA Form-2567) which was forwarded to you after the
survey." Id. The sentence following the disputed phrase
stated that action was being taken to terminate Desert
Hospital's provider agreement "[b]ased upon [its] current
and past noncompliance with Medicare requirements." Id.
(emphasis in original). Read together, the plain
implication of these two sentences is that HCFA is basing
its remedies on the survey's noncompliance findings
(combined with a prior history of noncompliance) and that
notice of the content of those findings is to be found in
the statement of deficiencies. 9/ While the singling
out of the substandard quality of care findings was
awkwardly done, the meaning in the context of the letter
as whole was that HCFA concurred in the survey findings
and that the findings indicated substandard quality of
care. 10/
This reading is also grammatically preferable, since
"which" (unlike "that") is a non-defining or
nonrestrictive pronoun. W. Strunk & E.B. White, The
Elements of Style at 59 (3rd ed. 1979). 11/ Thus, the
phrase following "which" does not identify the findings
that HCFA accepted but simply serves to provide
additional information about the survey findings, i.e.,
that they demonstrated substandard quality of care.
In addition, HCFA's letter must be interpreted in light
of the full communication between the provider, the State
survey agency, and HCFA. Certainly, nothing in the
correspondence as a whole supports an inference that HCFA
disagreed with any of the survey findings. The letter
which HCFA sent to Desert Hospital on March 6, 1996
giving details of the civil money penalty stated that the
State survey agency recommended the penalty "[a]s a
result of the survey findings listed" on the statement of
deficiencies (a copy of which was attached) and that HCFA
was imposing it effective January 30, 1996 until
substantial compliance was achieved. 12/ This letter
clearly notifies Desert Hospital that HCFA was taking
action against it based on the survey findings as a
whole, which would be inconsistent with the ALJ's
inference that the mention of the substandard quality of
care findings in the February 29, 1996 implicitly
communicated nonconcurrence by HCFA in the other survey
findings.
Furthermore, Desert Hospital's own contemporaneous
actions undercut its present claim that it understood
HCFA to be rejecting any of the State survey agency's
findings. It seems unlikely that Desert Hospital would
write to HCFA on March 13, 1996 that it waived its right
to a hearing on its "current noncompliance with Medicare
requirements" and would simply submit a plan of
correction for all deficiencies found in the survey, if
it believed that the vast majority of the survey findings
had been rejected by HCFA. See P. Ex. 4; HCFA Ex. 1.
The phrasing of the sentence at issue, however inelegant,
had no material consequence, in any case. The
regulations make abundantly clear that HCFA had
discretion to impose any category 2 remedy in any
situation where deficiencies are found that create a risk
greater than the potential for causing minimal harm,
i.e., when a facility is not in substantial compliance.
By definition, the findings listed, each of which
constituted substandard quality of care, are more than
sufficient to justify the remedy even it were based on
those findings alone.
We thus conclude that HCFA based its remedy selection on
all the survey findings and adequately informed Desert
Hospital of that. However, we further conclude below
that, even if the denial of payment remedy had been based
only on the listed findings, that would suffice to
sustain HCFA's imposition of the remedy to be lifted upon
achievement of substantial compliance.
The denial of payment remedy in the February 29,
1996 notice was imposed immediately (to go into
effect after the required notice period).
The ALJ's analysis also depended on reading the February
29, 1996 letter as informing Desert Hospital that a
denial of payment for new admissions would be imposed
unless Desert Hospital came into compliance by March 20,
1996, i.e., as contingent on the occurrence of a
condition precedent (noncompliance on March 20, 1996).
We find this reading inconsistent with the plain language
of the letter that advised Desert Hospital that the
denial of payments was being imposed, and would last from
March 20, 1996 until substantial compliance or
termination. We also find that HCFA's immediate
imposition of a remedy (after the required notice period)
was within its authority under the circumstances here.
HCFA's February 29, 1996 letter stated that, in addition
to termination, HCFA has "decided to deny payment for new
admissions" and that the denial of payment for new
admissions "is pursuant to Section 1819(h)" of the Act.
P. Ex. 3, at 1 (emphasis added). Further, it
unambiguously stated that the denial of payment remedy
"will become effective March 20, 1996 and will remain in
effect until compliance is achieved," or, until the
termination date if compliance is not achieved. Id. at
1-2. The language in the letter consistently represents
that an action is being taken, not that it will be taken
in the future. The remedy is being imposed and "will"
take effect on a date certain, not if an uncertain event
occurs. The achievement of compliance is represented as
a condition subsequent that could end the effective
period of the remedy prior to the termination, not as a
condition precedent to the imposition of the remedy.
13/
HCFA explained that its decision not to offer an
opportunity to correct was based on Desert Hospital's
history. HCFA pointed to the State Operations Manual
(SOM) which states that, in situations short of immediate
jeopardy, the decision about whether to "impose remedies
immediately or permit a facility an opportunity to
correct . . . is based on whether the facility is
considered a poor performing facility." SOM, § 7313.
For poor performers, the state survey agency is to send a
notice stating that "it is recommending that remedies be
imposed and stating when those remedies are likely to be
effective" and then HCFA "sends out the formal notice to
the provider imposing the remedy(ies)." SOM, § 7313A.
This is precisely what occurred here. 14/
Poor performers are defined to include facilities with "a
history of going in and out of compliance." SOM, §
7304B. For these facilities, "remedies are imposed
without an opportunity to correct as long as minimum
notice requirements are met." Id. The minimum notice
requirements were met here by setting the effective date
of the remedy to begin after the 15-day notice period,
plus 5 days for mailing. 15/
Again, Desert Hospital's own contemporaneous
correspondence suggests that it understood that the
remedy had already been imposed by the February 29, 1996
letter. In its letter of April 18, 1996, Desert Hospital
wrote HCFA that its Administrative Director "was of the
understanding that when [its] high severity deficiencies
were corrected . . . that the denial of payment for new
admissions would be lifted." P. Ex. 9, at 1 (emphasis
added). Desert Hospital went on to ask that
consideration be given to "lifting" the remedy "in this
instance." Id. at 2. Nothing in the letter indicates
that Desert Hospital ever believed that the remedy had
not been imposed yet or would not be imposed if the
resurvey findings were favorable. The use of the word
"lifted" implies a remedy already imposed which Desert
Hospital had hoped to have ended sooner.
Desert Hospital argued that its impression that the
denial of payment for new admissions was based only on
the two findings of substandard quality of care was
reinforced by the actions of the State survey agency. P.
Resp. to HCFA Request for Review at 4-5. A State survey
agency letter dated April 3, 1996 stated that Desert
Hospital was found not to be in substantial compliance at
the March 1996 resurvey, despite having submitted an
allegation of compliance. P. Ex. 6. The letter further
informed Desert Hospital that the State survey agency
would recommend remedies to HCFA, including directed in-
service training and a civil money penalty of $100 per
day. Id. However, the April 3, 1996 letter did not
recommend the remedy of denial of payment for new
admissions (as had the February 15 and March 4, 1996
letters from the State survey agency after the initial
survey). Compare P. Ex. 6 with P. Exs. 1 and 2. Desert
Hospital concluded that this evidenced that the State
survey agency did not believe that the three deficiencies
found at the March 1996 resurvey justified the "harsh
remedy of denying payment for new admissions even if they
were `left over' from the original survey." P. Resp. to
HCFA Request for Review at 5.
Desert Hospital's position misunderstands the action of
the State survey agency after the March 1996 resurvey.
The State survey agency recommended to HCFA further or
different actions that it believed should be taken in
light of Desert Hospital's continued failure to achieve
substantial compliance after having alleged compliance.
Since its recommendation for imposition of the denial of
payment for new admissions had already been accepted and
executed by HCFA, the State survey agency did not need to
recommend further action by HCFA in order to keep that
remedy in force. The denial would automatically continue
in effect by its own terms until Desert Hospital
demonstrated substantial compliance. Had the State
survey agency believed that the remedy was no longer
warranted, presumably it would have affirmatively
recommended lifting the denial of payment remedy. 16/
The basis for continuing the denial of payment
remedy after the March 20, 1997 survey was that
substantial compliance had not been achieved
(not that deficiencies found in the prior survey
had not been corrected).
There is no dispute that the deficiencies named
specifically in HCFA's February 29, 1996 letter (which
established substandard quality of care) were not
repeated in the resurvey. However, the parties did not
agree about whether the deficiencies found in the March
1996 resurvey were new or repeat deficiencies. Nor did
they agree about the consequences of a determination
about whether the deficiencies were new or repeat.
HCFA argued that the three participation requirements
with which Desert Hospital was found out of compliance at
the February 6th survey were also not satisfied at the
resurvey, i.e., 42 C.F.R. §§ 483.20(d)(3)(i), 483.45(b),
and 483.75(i). HCFA's Request for Review at 21-23. HCFA
further argued that whether the deficiencies found at the
resurvey were new or repeat is immaterial to its
authority to impose the remedy here, because only a
finding of substantial compliance would suffice to
terminate the denial of payment for new admissions. HCFA
Reply Br. at 9.
Desert Hospital argued that (1) a review comparing the
two survey reports would show that the deficiencies were
actually new, (2) HCFA did not follow the correct
procedures to notify it of repeat deficiencies, and (3)
Desert Hospital believed that "once the high severity
deficiencies had been corrected, the denial of payment
for new admissions was to be lifted." P. Response to
HCFA's Request for Review at 7-8.
The HCFA-2567L form for the March 1996 resurvey
(Statement of Deficiencies and Plan of Correction) 17/
described the three findings of deficiencies and
expressly stated that they were repeat deficiencies. The
ALJ found that the State survey agency, although finding
in the March 1996 resurvey that the two deficiencies
mentioned in HCFA's February 29, 1996 letter had been
corrected, also "found that Petitioner had not attained
compliance with other participation requirements that it
had found that Petitioner was not complying with at the
February 6, 1996 survey of Petitioner." ALJ Decision at
4 (FFCL 8)(emphasis added). In his discussion of the
facts, the ALJ noted that the State survey agency
concluded that Desert Hospital "remained noncompliant"
with the three requirements cited at the March 1996
resurvey and described these as the "three continuing
deficiencies." ALJ Decision at 10-11. Desert Hospital
stated unequivocally in its brief on appeal that it
"fully agrees with each finding of fact and conclusion of
law made by the [ALJ] and also fully agrees with his
discussion of the governing law to the facts." P. Resp.
to HCFA Request for Review at 2. Desert Hospital cannot
now be heard to claim that it disputes the ALJ's finding
that the deficiencies identified by the State survey
agency in the March 1996 resurvey were repeat. In any
case, a review of the substance of the findings set out
in the two survey reports does not support Desert
Hospital's assertion that such a comparison would show
that the resurvey findings were "in reality . . . new
deficiencies." P. Response to HCFA's Request for Review
at 8, n.1. 18/
Despite the statements in the March 20, 1996 HCFA-2567L
that these were repeat deficiencies and the similarity of
the substance of the findings, 19/ Desert Hospital
also argued that it did not have notice that the findings
constituted uncorrected deficiencies. P. Resp. to HCFA
Request for Review at 7. Desert Hospital pointed to the
postcertification revisit report form that it received
after the March 1996 resurvey (HCFA-2567B). P. Ex. 5.
This form is "to show those deficiencies previously
reported . . . that have been corrected and the date such
corrective action was accomplished," and if "all
deficiencies are not corrected, the surveyor should check
the block at the bottom of this form indicating the need
for the completion of the HCFA-2567E, Summary of
Deficiencies Not Corrected." Id. The indicated block
was not checked, and no HCFA-2576E was completed.
However, HCFA-2567B form did not list the deficiencies
from the initial February 1996 survey that were found
again out of compliance in March 1996, implying that they
were not among the previously-reported deficiencies "that
have been corrected."
The documentation on its face might cause some confusion
as to whether the findings were determined to be
uncorrected or new deficiencies. However, the failure to
complete the forms consistently is inconsequential here
for several reasons. First, the context as a whole,
including the substantive descriptions of the nature of
the deficiencies, should have been adequate to alert
Desert Hospital to the State survey agency's conclusion
that these were uncorrected deficiencies. Second, we
find no evidence that any error in form completion
affected the actions of HCFA or the State survey agency
or prejudiced Desert Hospital. 20/ Although HCFA's
letter setting forth the consequences of the March 1996
resurvey results stated both that the facility "continues
to be out of substantial compliance" and that it "did not
correct all deficiencies as previously alleged," the
letter did not represent that any action was taken on the
basis that the findings were repeat deficiencies. P. Ex.
8. In particular, it was clear in the February 29, 1996
letter, and is clear in the Act and regulations, that the
remedy challenged here would be lifted only upon
achievement of substantial compliance, not the correction
of prior deficiencies. The effect of the deficiencies
was that Desert Hospital was not certified as in
substantial compliance, which, as noted below, resulted
in the denial of payment remedy not being lifted,
regardless of whether the deficiencies were repeat.
We conclude that the procedural errors in completing the
documentation after the March 1996 resurvey were
harmless.
HCFA could properly continue the denial of payment
remedy absent a showing of substantial
compliance, even if the deficiencies found at
the resurvey were all new.
Desert Hospital argued that HCFA's action here was
improper under its own guidelines requiring a new 15-day
notice to impose a remedy where a resurvey shows that
previously-cited deficiencies have been corrected but new
deficiencies are found, citing section 7318.B of the
State Operations Manual:
When a provider has deficiencies identified at a
survey and the provider corrects those
deficiencies as verified at a revisit, but new
deficiencies which constitute noncompliance are
found at the revisit, the RO [Regional Office]
and SMA [State Medicaid agency] are obligated to
give providers a 15-day notice before imposing
remedies, except CMPs and State monitoring.
However, the RO and SMA, at its discretion,
could set another date in which remedies will be
imposed if substantial compliance is not
achieved.
P. Ex. 10. This provision is inapposite. The cited
provision deals with a situation where a provider has
been notified that remedies will be imposed if
deficiencies are not corrected. Another provision
discusses the situation where a remedy has been imposed
and a provider alleges substantial compliance has been
achieved: "If a remedy has already been imposed, the
remedy remains in effect until the date of documentation
confirming substantial compliance . . . ." SOM, § 7317C.
In the present case, a resurvey found that the
provider's allegations of having achieved substantial
compliance were unfounded and, therefore, the remedy
remained in effect.
HCFA also argued that the fact that the remedy was
imposed immediately made moot Desert Hospital's argument
that the action was based on only the two deficiencies
named in the February 1996 letter. Thus, HCFA argued
that, even if it had based its remedy only on the two
findings relating to substandard quality of care, it
would still not have lifted the remedy simply because
those (or even all of the other deficiencies found in the
prior survey) were corrected. Rather, HCFA contended,
consistent with the statutory and regulatory scheme (as
well as the notice letter itself), the denial of payment
for new admissions would remain in effect until a showing
of substantial compliance with participation
requirements. HCFA Reply Br. at 2, n.1.
We agree with HCFA that both the Act and the regulations
explicitly make rescission of a denial of payment for new
admissions, once imposed, dependent on the achievement of
substantial compliance. Thus, the Act provides that the
denial of payment ends "when the Secretary finds that the
facility is in substantial compliance with all the
requirements . . . ." Act, § 1819(h)(3); see also 42
C.F.R. §488.417(a)(1) and (d); 42 C.F.R. § 488.454(a).
Desert Hospital's argument that the remedy of denial of
payment for new admissions would be justified only if
substandard quality of care was found is without merit.
21/ The Act and regulations provide that in those cases
where substandard quality of care is found on three
consecutive surveys denial of payment must be imposed and
may not be lifted until the facility demonstrates not
only that it is in substantial compliance but that it
will remain in substantial compliance with all
requirements. Act, § 1819(h)(2)(E); 42 C.F.R. § 488.414.
Thus, a finding of substandard quality of care has
implications for the selection of remedies. However,
Desert Hospital cited to no authority for the proposition
that a finding of substandard quality of care is a
prerequisite to the imposition of denial of payment for
new admissions. 22/ In the preamble to its
regulations, HCFA rejected a suggestion that this remedy
be limited to situations "posing a hazard to residents"
or compromising their rights and stated that the remedy
is appropriate both for the situations where it is
mandatory and for those where it was available as an
option. 59 Fed. Reg. at 56,191. HCFA noted that it
believed that this "will be one of our most effective
remedies because it will strongly motivate facilities to
come into and remain in compliance." Id.
The issue on remand is whether Desert Hospital was
in substantial compliance as of March 20, 1996,
so that the denial of payment remedy should have
been lifted.
Turning to HCFA's motion to amend the prehearing order,
we find that the definition of the issues before the ALJ
is no longer moot in light of our reversal of his
decision on the adequacy of the notice. In addition, the
prehearing order was issued prior to the Board's decision
in Hillman Rehabilitation Center, DAB 1611 (1997), and
therefore misstates the applicable burden of proof.
Further, our resolution of the dispute concerning notice
has clarified the scope of the issues on review. In
light of our conclusions that the remedy was imposed
immediately by the February 29, 1996 letter, that Desert
Hospital waived any right to challenge the findings of
the survey on which the remedy was based, and that the
regulations prescribe that a denial of payment remedy
once imposed will be lifted only when a facility achieves
substantial compliance, it is evident that the issue
remaining to be resolved in regard to the denial of
payment remedy is whether Desert Hospital achieved
substantial compliance as of the resurvey.
It is not entirely clear on the record before us that
Desert Hospital now asserts, as a matter of fact, that it
was in substantial compliance as of the resurvey on March
20, 1996. The briefing on appeal focused on the issues
relating to notice and the question of whether the
deficiencies found in the resurvey constituted new or
repeat findings. In its initial hearing request, Desert
Hospital set out factual or legal disagreements with the
survey findings. In light of the various pleadings filed
below couching the issues for hearing inconsistently, the
ALJ should determine on remand whether Desert Hospital
does intend to present evidence that it was in
substantial compliance with Medicare participation
requirements on March 20, 1997.
It is also not entirely clear whether Desert Hospital
intended to reserve its right to a hearing on the civil
money penalty. The ALJ dismissed that request in view of
Desert Hospital's "assertion that it would withdraw its
hearing request concerning the civil money penalty if it
prevailed in its motion for summary disposition." ALJ
Decision at 1. In its last submission before the ALJ
responding to HCFA's motion to amend the prehearing
order, Desert Hospital stated that "[b]ecause of the
relatively insubstantial sum of the civil money penalty
that was assessed, Desert Hospital is not challenging
that aspect of the initial determination." P. Resp. to
HCFA Request to Amend the Statement of Issues at 2.
23/ The response went on to state that, should the
requested summary disposition be denied, "a hearing will
be necessary to determine whether HCFA can establish that
the facility was out of substantial compliance with the
participation requirements as of March 20, 1996." Id.
This would seem to waive any hearing on the civil money
penalty, but in its conclusion to the response, Desert
Hospital went on to say that it was "proceeding on the
basis that it can present argument and evidence on all
substantive and procedural questions raised concerning
the April 16, 1996 determination." Id. at 3.
On remand, the ALJ should ascertain whether material
issues of fact remain to be resolved to determine whether
Desert Hospital was in substantial compliance on March
20, 1996. Further, the ALJ should determine whether
Desert Hospital intends to withdraw or press its right to
a hearing on the civil money penalty in light of our
resolution of the issues relating to the denial of
payment for new admissions. In making these
determinations, the ALJ may require Desert Hospital to
make an offer of proof.
Conclusion
For the reasons explained above, we reverse the ALJ
Decision and remand the case to the ALJ for further
proceedings as directed herein. We vacate the contested
FFCLs, sustain the uncontested FFCLs (set forth above),
and adopt the following additional FFCLs (which should be
included in any subsequent decision by the ALJ):
A-1 HCFA's letter of February 29, 1996 adequately
informed Desert Hospital that HCFA was accepting
the State survey agency's recommendations to
impose remedies against Desert Hospital based on
the findings of the State's original February
1996 survey, which were contained in the
Statement of Deficiencies and Plan of Correction
(HCFA Form 2567).
A-2 HCFA provided adequate notice in its letter of
February 29, 1996 to Desert Hospital of the
immediate imposition of remedies, including the
denial of payment for new admissions, effective
upon the expiration of the notice period (March
20, 1996) without further opportunity to
correct.
A-3 The remedy of denial of payment for new
admissions imposed by HCFA's February 29, 1996
letter was to remain in effect from March 20,
1997 until Desert Hospital was found to be in
substantial compliance with Medicare
requirements or until its provider agreement was
terminated.
____________________________
Judith A. Ballard
____________________________
M. Terry Johnson
____________________________
Cecilia Sparks Ford
Presiding Board Member
* * * Footnotes * * *
1. We note that Petitioner's Exhibit 7 may be
missing the final two pages, in that the portion that
constitutes the Statement of Deficiencies form indicates
that it contains nine pages and is numbered consecutively
(i.e., Page 1 of 9, Page 2 of 9, etc.) but ends at page
seven. On remand, the ALJ may give the parties an
opportunity to determine if the exhibit should be
supplemented.
2. The Act further instructed the Secretary to
specify criteria for imposing each remedy, directed that
such criteria "minimize the time between the
identification of violations and final imposition of the
remedies and . . . provide for the imposition of
incrementally more severe fines for repeated or
uncorrected deficiencies," and permitted the Secretary to
provide for additional remedies, such as directed plans
of correction. Act, § 1819(h)(2)(B). We discuss below
the regulations adopted by the Secretary under this
authority.
3. The relation between level of noncompliance
and category of remedy which may or must be applied is
depicted in grid form in the preamble to the regulations.
59 Fed. Reg. at 56,183; see also State Operations
Manual, § 7400. The grid, like the text of the
regulations, shows that denial of payment for new
admissions is available as an optional remedy for any
noncompliance greater than level 1 (those deficiencies
posing no actual harm with potential only for minimal
harm), whether or not substandard quality of care is
found.
4. Category 1 remedies include directed plans of
correction, state monitoring and directed in-service
training and may be applied to any deficiency where the
facility is not in substantial compliance. 42 C.F.R. §
488.408(c). Besides the remedy at issue here, category 2
remedies include denial of payments for all individuals
and civil money penalties of $50-$3,000 per day. 42
C.F.R. § 488.408(d)(1). One or more category 2 remedies
will be applied by HCFA (and must be applied by the
State) when there are "widespread deficiencies that
constitute no actual harm with a potential for more than
minimal harm but not immediate jeopardy" or "one or more
deficiencies that constitute actual harm that is not
immediate jeopardy." 42 C.F.R. § 488.408(d)(2). In
addition, HCFA or the State may apply a category 2 remedy
to "any deficiency except when . . . the facility is in
substantial compliance" (and except that the civil money
penalty must be in the upper range where there is
immediate jeopardy). 42 C.F.R. § 488.408(d)(3).
Category 3 remedies include temporary management,
immediate termination, and civil money penalties of
$3,050-$10,000 per day, and one or both of the first two
must be applied in cases of immediate jeopardy. 42
C.F.R. § 488.408(e).
5. Denial of payments for new admissions is
required when a facility is not in substantial compliance
after three months or substandard quality of care has
been found on the last three consecutive standard
surveys. 42 C.F.R. § 488.417(b).
6. Resumption of payments in cases of repeated
findings of substandard quality of care requires
additional showings. 42 C.F.R. § 488.417(c).
7. The text of the vacated FFCLs is set out in
the ALJ Decision at 3-5.
8. HCFA stated that this date, rather than the
date originally proposed by the State survey agency, was
chosen specifically to provide the requisite 15-day
notice allowing five days for receipt by Desert Hospital.
9. HCFA's position that it did not need to, and
therefore did not attempt to, spell out all the findings
on which it relied in its notice letter, is supported by
language in the preamble rejecting comments suggesting
that the certificate of noncompliance sent by the survey
agency should include the basis for the determination
(not just the nature of the noncompliance). 59 Fed. Reg.
at 56,155. HCFA explained that it would not do this
because the statement of deficiencies form prepared after
the survey provided sufficient information for facilities
to prepare plans of correction and because including
"such detailed information in the notice of noncompliance
would be duplicative and administratively burdensome."
Id. While the letter involved here was the next step in
the process (i.e., HCFA's imposition of the recommended
remedy based on the State survey agency's certification
of noncompliance), the same rationale supports the
approach of not including all the underlying reasons for
the finding of noncompliance. HCFA's February 29, 1996
letter referenced the statement of deficiencies which had
already been sent to Desert Hospital. It was not
necessary for it to set forth all the specific findings
again.
10. The findings of substandard quality of care
triggered certain notification requirements (imposed by
the State in its notice letters) and affected the "count"
for certain remedies that apply after multiple findings
of substandard quality of care, as well as contributing
to a conclusion that Desert Hospital was a poor performer
(discussed further below). See P. Exs. 1 and 2; 42
C.F.R. §488.414. Therefore, HCFA, like the State, had a
reason to highlight these findings.
11. Better style would have been to separate
the nonrestrictive phrase with a comma to make its
parenthetical nature clearer, but such a stylistic flaw
can hardly suffice to defeat the plain meaning conveyed
by the letter as a whole and in the surrounding context.
Cf. W. Strunk & E.B. White, The Elements of Style at
2-5.
12. This letter was attached to HCFA's Request
for Review and is admitted into the record on appeal
without objection pursuant to 42 C.F.R. § 498.86(a).
13. Reading the February 29, 1996 letter as
imposing the denial of payment remedy immediately to take
effect upon the end of the legally-required notice period
is also consistent with the April 16, 1996 letter from
HCFA specifying the consequences of the findings of the
March 1996 resurvey. The April 16, 1996 letter noted
that the facility was still out of substantial compliance
and did not correct all previous deficiencies. P. Ex. 8,
at 1. It then listed the remedies imposed in the
February 29, 1996 letter and stated the effect on each.
(For example, directed in-service training "continued in
effect" while the amount of the civil money penalty was
reduced.) Denial of payment for new admissions is listed
as one of the remedies "effective March 20, 1996 as
stated in our February 29, 1996 letter." P. Ex. 8, at 1.
The ALJ erroneously characterized of the April 16, 1996
letter as advising Desert Hospital that HCFA "had
determined to impose remedies . . . effective March 20,
1996" and as being "premised" on findings of repeat
deficiencies at the March 1996 resurvey. But cf. ALJ
Decision at 4. The April 16, 1996 letter, in fact,
advised Desert Hospital of the impact that its failure to
achieve substantial compliance had on the outstanding
remedies.
14. By contrast, when an opportunity to correct
is to be provided, the state survey agency is to set "a
`date certain' by which the facility must be in
substantial compliance or [the state survey agency] will
recommend to [HCFA] that remedies be imposed. SOM, §
7313B.
15. While HCFA's notice letter did not
expressly state that the immediate imposition was
selected because Desert Hospital was a poor performer, it
provided adequate notice both of the fact of the
immediate imposition and of the basis for that decision,
in that it referred both to the current findings of
substandard quality of care and to the present and past
noncompliance with Medicare requirements. P. Ex. 3.
16. The ALJ apparently shared Desert Hospital's
misinterpretation of the State survey agency's actions
since he stated that it "did not recommend that HCFA
impose against Petitioner denial of payment for new
admissions as a remedy for the three remaining
deficiencies . . . identified at its March 20, 1996
resurvey . . . ." ALJ Decision at 11. It is correct
that the State survey agency did not recommend imposition
of a denial of payment remedy based on the March 1996
resurvey deficiency findings. However, any implication
that the State survey agency therefore did not support
the continued implementation of the denial of payment
remedy imposed at its recommendation (based on the
February 1996 survey) is erroneous, since the State did
not recommend lifting or modifying the denial of payment
for new admissions imposed at its recommendation by
HCFA's February 29, 1996 letter.
17. While, as noted above, the HCFA-2567L in
the record appears to be incomplete, it includes
statements that two findings are repeat deficiencies and
that the third requirement was unmet after "repeated
deficient practices occurring over a two year period."
P. Ex. 7, at 7.
18. For example, the findings as to 42 C.F.R.
§ 483.20(d)(3)(i) in both reports indicate that Desert
Hospital failed to meet professional standards of care in
that, inter alia, the physical therapy assistant was
permitted to function outside the scope of his practice
by receiving verbal orders from the physician. Compare
HCFA Ex. 1, at 30-32 with P. Ex. 7, at 2-5. Further,
both reports indicated instances in which the facility
failed to follow physician's orders for treatment. Id.
Similarly, as to 42 C.F.R. § 483.45(b), in both surveys,
Desert Hospital was found to have provided rehabilitative
services without a physician's order. The specific
incidents described as examples were not identical, being
drawn from a different time period and presumably
involving different patients, but were strikingly
similar.
19. Desert Hospital did not deny that it
received the HCFA-2567L form after the March 1996
resurvey. P. Exs. 5, 9.
20. Desert Hospital asserted that it was
prejudiced in that it would have submitted its second
allegation of compliance earlier than April 9, 1996 had
it realized that the denial of payment for new admissions
would go into effect because of the finding of
uncorrected deficiencies. P.'s Resp. to HCFA Request for
Review at 7-8. Since we find that the remedy would have
continued in effect based on the absence of substantial
compliance regardless of whether or not the findings
constituted uncorrected deficiencies, it follows that no
prejudice to Desert Hospital has been shown even if we
determined (which we do not) that Desert Hospital mistook
the findings for new deficiencies as a result of the form
completion errors. Desert Hospital should have had the
same impetus to achieve substantial compliance as soon as
possible regardless of whether the outstanding
deficiencies were repeats.
21. This argument is based on the assumption
that the remedy was imposed based on the findings in the
March 20th survey, which did not include substandard
quality of care. As discussed elsewhere, we conclude
that the remedy was imposed based on the initial survey,
which resulted in uncontested findings of substandard
quality of care (and was not lifted on March 20th because
the follow-up survey did not demonstrate that substantial
compliance had been achieved). In this section, we
clarify that substandard quality of care was not a
prerequisite to the imposition of the denial of payment
remedy.
22. Desert Hospital characterized denial of
payment for new admissions as a "harsh" remedy that would
not be justified for less than "high severity"
deficiencies. P. Resp. to HCFA Request for Review at 4-
5. However, HCFA's guidelines demonstrate that, while
HCFA treats the denial of payment for new admissions as a
serious step, the remedy may be selected whenever a
provider is found out of substantial compliance.
This remedy may be imposed at any time the facility
is found to be out of substantial compliance, as
long as the facility is given written notice at
least 2 days before the effective date in
immediate jeopardy cases and at least 15 days
before the effective date in all others.
However, HCFA or the SMA would normally impose
this remedy only when the facility makes little
or no effort to come into substantial
compliance, e.g., when it fails to adhere to its
PoC [Plan of Correction].
SOM, § 7506B; see also Act, §§ 1819(h)(2)(B)(i) and
1919(h)(2)(A)(i); 42 C.F.R. § 488.417(a). Thus, we
conclude that findings of substandard quality of care
were not a prerequisite to HCFA's authority to select
this remedy.
23. In a prior submission, Desert Hospital
stated its intention to dismiss "any appeal it has with
respect to the imposition of a civil money penalty,
effective March 20, 1996, if the remedy of denial of
payment of new admissions is set aside." P. Motion for
Summary Judgment at 1, n.1.