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Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division


IN THE CASE OF  
CarePlex of Silver Spring, Petitioner, Date: 1999 April 13

- v. -

 
Health Care Financing
Administration.
App. Div. Docket No. A-98-94
Decision No. 1683

DECISION
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FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

On June 11, 1998, Administrative Law Judge (ALJ) Steven T. Kessel issued a decision on remand in this matter holding that the Health Care Financing Administration (HCFA) was authorized to collect a civil money penalty (CMP) from CarePlex of Silver Spring (CarePlex), in the amount of $50 per day for the 79 days from September 28, 1995 to December 15, 1995. CarePlex of Silver Spring, DAB CR536 (1998)(ALJ Remand Decision). Both parties requested review by the Departmental Appeals Board (Board) of the ALJ Remand Decision. HCFA asked the Board to uphold its original imposition of a CMP in the amount of $750 per day and took exception to findings of fact and conclusions of law (FFCLs) 2, 3, 6, and 7 in the ALJ remand decision. CarePlex asked the Board to find that the ALJ erred in concluding that he lacked authority to set aside the entire CMP on the grounds that HCFA failed to show a basis for it, and also took exception to FFCL 1 in which the ALJ found that a basis did exist to support a CMP.

In this decision, we sustain the CMP of $50 per day for the stated period. We affirm the ALJ Remand Decision but modify the rationale as set out below.

Background

This case is before the Board for the second time. In his first decision, the ALJ held that HCFA had shown a basis for imposing a CMP on CarePlex and that CarePlex had waived its right to contest the amount of the CMP. CarePlex of Silver Spring, DAB CR457 (1997). CarePlex appealed that decision, arguing that HCFA had no authority to impose a CMP on it under the circumstances of the case and that CarePlex had not waived its right to challenge the amount of the CMP. The Board upheld the ALJ's conclusion that HCFA had shown an adequate basis to impose a remedy on CarePlex and had established that CarePlex was not in substantial compliance with Medicare certification requirements for skilled nursing facilities until December 15, 1995. CarePlex of Silver Spring, DAB 1627 (1997). However, the Board found that CarePlex had not waived its right to challenge the reasonableness of the amount of the CMP, and remanded the case to the ALJ to permit CarePlex to raise any arguments as to the amount of the CMP. On remand, the ALJ held a hearing to receive evidence on the reasonableness of the amount and issued the decision at issue here.

The underlying facts were set forth in the Board's prior decision and are summarized only briefly here. See DAB 1627, at 2-4. It is undisputed that CarePlex acquired a skilled nursing facility that had a history of repeated noncompliance with Medicare requirements. CarePlex took over the facility the day before a survey was conducted by the State survey agency (the State). It is undisputed that serious deficiencies were found at that survey, some of which caused actual harm and threatened potential harm to residents. CarePlex was advised that a CMP might be imposed based on the survey findings and the facility's history. CarePlex submitted a plan of correction indicating the various dates on which the deficiencies would be corrected, extending through at least December 15, 1995. A re-survey beginning December 18th confirmed that CarePlex had achieved substantial compliance by December 15, 1995, despite some remaining deficiencies. Thereafter, HCFA notified CarePlex of imposition of the CMP appealed here, running from September 28, 1995 to December 15, 1995, and advised that the amount of $750 per day was based on, in addition to the scope and severity of deficiencies found at the first survey, the facility's past history including repeat deficiencies, degree of culpability, and financial condition.

Arguments of the Parties

Essentially, CarePlex argued on appeal that it was not responsible for the many deficiencies which it admitted were found during the survey of its facility, because it took over ownership of the facility only the day before the survey began and most of the problems were caused by the prior management. CarePlex Request for Review at 2. Further, CarePlex argued that corrections were begun immediately, in some cases even during the survey, and that no threat of a CMP was required to motivate its best efforts at upgrading the facility. Id. To support this argument, CarePlex pointed to testimony that it had presented at the hearing on remand to show (1) the planning done before the change of ownership, to demonstrate its intent to address the problems even before the survey; (2) the corrections that were completed before December 15, 1995; and (3) the large investment of both staff and financial resources it devoted to upgrading the facility. CarePlex Reply Br. at 2-3. CarePlex argued that, based on this record, it had shown it actually corrected the deficiencies before the days covered by the CMP and that, consequently, HCFA had no basis for the CMP for those days because it had no direct evidence of a lack of substantial compliance on those dates. Id. at 5-6. Based on this argument, CarePlex further suggested that the ALJ should have set aside the entire CMP. Although CarePlex acknowledged that regulations prohibit an ALJ from reducing a CMP to zero, when a basis for a CMP exists, CarePlex contended that no basis was shown to exist in the circumstances of this case. CarePlex Request for Review at 10-11.

HCFA responded that the ALJ had correctly held that the basis for the CMP was established conclusively in the prior proceedings in this matter and could not be challenged anew during the remand. HCFA Br. at 30-31. HCFA further argued that the ALJ erred in treating the facility's poor compliance history as irrelevant, simply because the ownership had changed. Id. at 20-26. In addition, HCFA contended that the ALJ erred in crediting the diligent efforts made by CarePlex to correct conditions or its partial success in achieving compliance before December 15, 1995, because neither was an appropriate factor for the ALJ to consider in setting the amount of the CMP and neither was verifiable so long after the fact. Id. at 9-19. HCFA contended that, as a result of having considered inappropriate factors in weighing the reasonableness of the amount of the CMP, the ALJ erred in reducing the daily amount to $50. Id. at 39.


ISSUES
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
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ANALYSIS
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The ALJ determined that the existence of a basis for the imposition of a CMP was conclusively established during the earlier phase of these proceedings. ALJ remand decision at 8-9. CarePlex conceded from the beginning of this case the accuracy of the findings of the surveyors, which included the presence of deficiencies in the care of residents serious enough to cause actual harm (including in one case the death of a resident). Many of the deficiencies found were the result of long-standing conditions that required significant time and effort to turn around. As we explained in our initial appellate decision, CarePlex had the option to decline assignment of the existing provider agreement and to apply to participate in the program once it was able to meet the participation requirements. However, once CarePlex chose to take over the facility's provider agreement, it also undertook to operate the facility in compliance with the applicable participation requirements from that point. DAB 1672, at 7. The basis for the CMP was not the pre-existing condition of the facility when CarePlex acquired it but rather CarePlex's substantial noncompliance during a period lasting from two weeks to almost three months of operation by CarePlex. Id.; see 42 C.F.R.

§ 488.402(b)(basis for remedy is noncompliance found during surveys). We therefore agree with the ALJ that HCFA established a basis to impose the CMP remedy on CarePlex.

The legal basis for the imposition of the CMP is not undercut by the uncontested evidence that CarePlex engaged in efforts to improve the operation and upgrade the facility during that period. A CMP is an alternative remedy to termination of a facility that is not in substantial compliance with participation requirements. The purpose of notifying a noncompliant provider that a CMP may be imposed during the period until it achieves substantial compliance is to provide an incentive for prompt improvements and corrections. See 42 C.F.R.

§ 488.402(a). The fact that such efforts were in fact undertaken does not preclude the enforcement of a CMP for the period of noncompliance -- to rule otherwise would render the notice that a CMP may accrue until substantial compliance is achieved a toothless threat. We therefore reject CarePlex's attempt to reopen the question of whether a basis exists to support a CMP against it and find that the record amply established the existence of a legal basis, as discussed more fully in our prior decision. DAB 1627, at 6-14.

The ALJ also rejected CarePlex's argument that HCFA had no basis to impose the CMP for the full time period because it had not proven that CarePlex was out of substantial compliance on each of those days. To this end, CarePlex offered testimony about when various correction efforts occurred. The ALJ found that CarePlex was not in substantial compliance with all participation requirements as of September 28, 1995 and did not attain substantial compliance until December 15, 1995. DAB CR536, at 6, 8-9.

The regulations provide that a CMP may start accruing as early as the first date when a facility is found to be

out of compliance and continues "until the date the facility achieves substantial compliance" or is terminated. 42 C.F.R. § 488.440(a) and (b). Substantial compliance must be established by a resurvey or by credible written evidence produced by the facility (verifiable without an on-site visit). 42 C.F.R.

§ 488.454 (a)(1).(1) CarePlex was informed of this in the State's notice and therefore knew that the critical factor to stop the accrual of the penalty was a demonstration that the facility had achieved substantial compliance. HCFA Ex. 4, at 2. Nothing in the regulations suggests that HCFA or the State is obligated to independently assess the status of a facility's compliance for each intervening date. Plainly, it would be impracticable to expect surveyors to return daily to monitor corrections before the facility even offers a credible allegation that it has achieved substantial compliance. Nor do the regulations provide for any right to graduated phase-out or reduction of the CMP amount as individual deficiencies are corrected.(2)

As a factual matter, as the ALJ pointed out, CarePlex's own evidence amply demonstrated that achieving compliance took a considerable period of time and substantial investment of resources. Id. at 9. Furthermore, CarePlex did not even submit a plan of correction until November 3, 1995, and that plan indicated that corrections would not be completed until at least December 15, 1995. The State conducted a survey on December 18th and agreed that substantial compliance was achieved as of the date alleged by CarePlex (i.e., December 15). The ALJ correctly declined to consider testimony of CarePlex staff alone, offered years after the fact, as a credible basis to determine retrospectively whether substantial compliance may have been achieved at some earlier date. Therefore, we reject CarePlex's exception and find no error in the ALJ's conclusion that there was a basis to impose a CMP for the full time period.

The ALJ then turned to the amount of the CMP and concluded correctly that, even where a basis has been shown to impose a CMP, the amount must be reasonably related to a legitimate remedial purpose. DAB CR536, at 9. He further suggested, however, that no remedial purpose existed here because CarePlex had shown that it was motivated to correct the deficiencies and had exercised due diligence (even extraordinary efforts) in doing so, without regard to the accruing CMP. DAB CR536, at 2, 13, 18-19, 21-22. Although we disagree with HCFA that the ALJ erred in admitting such evidence, we conclude that the ALJ erred in evaluating the evidence in terms of whether a particular CMP is remedial or punitive based on the subjective impact of the CMP on the decision-making of the affected provider. Furthermore, we concluded in our prior decision that imposition of a CMP in this case, even at the higher amount, was not punitive. CarePlex of Silver Spring, DAB 1627, at 15-17 (1997).

The ALJ is correct that, in setting a daily amount, HCFA is not free to impose any amount. The remedial purpose of the CMP remedy is, as discussed in the preamble to the regulations, to motivate providers to correct and maintain substantial compliance. The regulations define two ranges of CMP amounts calculated to address this objective: a range from $3050 to $10,000 per day for noncompliant providers with deficiencies creating immediate jeopardy and a range from $50 to $3000 per day for less serious situations. 42 C.F.R. § 488.438(a). Further, the regulations define factors to be considered in addition to the scope and severity of deficiencies to set an amount reasonably calculated to bring about compliance. 42 C.F.R. § 488.438(f).

The assessment of an amount reasonably related to the remedial purposes of the Act as contemplated by the regulations is thus objective and requires HCFA to weigh the factors set out in the statute and regulations. In reviewing HCFA's determination, the ALJ should look neither to the subjective reactions of the provider staff nor to the internal decision-making processes of officials at HCFA or the State. Rather, the inquiry should be whether the evidence presented on the record concerning the relevant regulatory factors supports a finding that the amount of the CMP is at a level reasonably related to an effort to produce corrective action by a provider with the kind of deficiencies found and in light of the other factors involved (financial condition, facility history, and culpability). Further, the scope of the ALJ's review of HCFA's determination of a reasonable amount of a CMP is constrained somewhat under the regulatory scheme, as discussed in detail below.

HCFA's authority to impose a CMP on a noncompliant provider (in addition to or instead of a termination action) derives from section 1819(h) of the Social Security Act (Act). Specifically, section 1819(h)(2)(B)(ii) sets forth the Secretary's (and hence HCFA'S) authority to impose a CMP of up to $10,000 for each day of noncompliance. The statute also provides that the provisions of section 1128A (other than subsections (a) and (b) of that section) apply to CMPs imposed by HCFA under the authority of section 1819(h)(2)(B)(ii).(3)

In relevant part, section 1128A provides that no adverse determination shall be made against a person except after notice and an opportunity for a hearing on the record and that, in determining the amount of a penalty, the Secretary shall take into account the following factors:

(1) the nature of claims and the circumstances under which they were presented,

(2) the degree of culpability, history of prior offenses, and financial condition of the person presenting the claims, and

(3) such other matters as justice may require.

Section 1128A(c) and (d); see also 42 C.F.R. § 498.1(h) and (i). However, it is clear that the provisions of section 1128A, originally designed for the context of cases involving the Inspector General imposing a penalty on a provider who has submitted false claims, do not lend themselves to direct application in the context of the enforcement of nursing home certification requirements without some interpretation. For example, the emphasis in the Act on HCFA's flexibility to select from a variety of actions those best calculated to induce compliance and to improve services to residents of nursing home facilities differs from the focus of CMPs in Inspector General cases brought under section 1128A on protecting the fiscal integrity of the health care programs from dishonest providers. One goal of the nursing home reforms enacted in the Omnibus Budget Reconciliation Act of 1987, Public Law No. 100-203 (OBRA 1987), was to provide the states and the federal government with a range of alternative remedies in addition to termination to obtain substantial compliance by nursing facilities. See, e.g., H.R. Rep. No. 391, 100th Cong., 1st Sess. 942 (1987); see discussion of OBRA 1987 at 59 Fed. Reg. 56,116-17, 56,177-78. Thus, the applicable provisions of section 1128A must be interpreted within the context of the nursing home enforcement scheme as a whole.

The Secretary issued regulations setting out her interpretation of how these statutory provisions are to be appropriately applied in the nursing home context. Thus, in determining the amount of CMP to impose within each of the set ranges, the regulations provide that HCFA considers the following factors:

(1) the facility's history of non-compliance, including repeated deficiencies.

(2) the facility's financial condition.

(3) the factors specified in 488.404.

(4) The facility's degree of culpability.

42 C.F.R. § 488.438(f)(emphasis in original). (We note that culpability is defined to include negligence, indifference, or disregard of residents and to preclude the absence of culpability from serving as a mitigating factor.) The factors cross-referenced in 42 C.F.R.

§ 488.404 include an initial assessment of the seriousness of the deficiencies found (defined in terms of what level of harm was caused or threatened and how widespread the deficiencies were). After this initial assessment, HCFA may consider other factors which include but are not limited to the relationship among the deficiencies and the facility's prior history of noncompliance generally and with regard to the specific deficiencies cited. 42 C.F.R. § 488.404(c).

The regulations provide that a facility dissatisfied with HCFA's initial determination of noncompliance resulting in the imposition of a remedy may appeal that determination and receive a hearing. 42 C.F.R.

§ 498.3(b)(12). However, no appeal may be had as to HCFA's classification of the level of noncompliance, unless a change in that level would affect the available range of CMP, i.e., where the facility asserts that the level of noncompliance was below the immediate jeopardy threshold to support a CMP of $3050 or greater. 42 C.F.R. § 498.3(b)(13). In addition, the scope of the hearing on a CMP remedy is specified at 42 C.F.R.

§ 488.438(e). Id. That section limits the role of the ALJ in a hearing on a CMP as follows:

When an [ALJ] . . . finds that the basis for imposing a [CMP exists, the ALJ] . . . may not --

(1) Set a penalty of zero or reduce a penalty to zero;

(2) Review the exercise of discretion by HCFA or the State to impose a [CMP]; and

(3) Consider any factors in reviewing the amount of the penalty other than those specified in paragraph (f) of this section.

We conclude that the ALJ correctly found that he was authorized to review the amount of the CMP imposed by HCFA, even where the basis to impose some CMP was admitted or established. HCFA did not take exception to his conclusion to that effect. However, we also conclude that the scope of that review was constrained by regulation to preclude any reconsideration of the level of noncompliance (that is, of the scope and severity of the deficiency findings on which the CMP was based) and to preclude any consideration of factors other than those listed in the regulation.

In this case, HCFA objected on two grounds to the factors considered by the ALJ. First, HCFA objected to the ALJ discounting the poor compliance history of the facility as a relevant factor despite the change of ownership. Second, HCFA objected to the ALJ introducing factors not listed in 42 C.F.R. § 488.438(f) such as due diligence or partial correction of deficiencies. We sustain the reduction of the CMP based on the facts as found by the ALJ and a proper analysis of the relevance of the facility's history under the applicable regulations. However, we agree with HCFA that the ALJ erred in considering those facts as relating to factors other than those specified in section 488.438(f).

As stated above, section 488.438(f) sets out a limited list of factors for the ALJ to consider and references the factors "specified in § 488.404" as part of that list. In addition to specifying certain factors, section 488.404 provides that HCFA's basis for its selection of remedies may include but is not limited to factors specified in section 488.404(c). Our conclusion is that this language expanded the factors to which HCFA could cite in an appropriate case but did not provide the ALJ expanded authority to base his review on factors beyond those identified or referred to in section 488.438(f) (including the factors "specified" in 488.404(b) or (c)). The ALJ's conclusion that he could consider a factor not "specified" in the regulations is inconsistent with the wording of the regulations. However, we conclude that the error in the ALJ's analysis is harmless, since the ALJ had sufficient grounds to reduce the CMP to $50 per day based on his revised analysis of the facility's history.

Contrary to HCFA's characterization, the ALJ did not treat the facility's history of noncompliance as irrelevant simply because the ownership had changed. Rather, he concluded that the extraordinary diligence and strong motivation (even predating the survey) demonstrated that this owner needed no spur to correcting deficiencies that it did not cause. DAB CR536, at 13. HCFA's position was that it must disregard any change of ownership and that in all cases it is required to treat the facility's past history as controlling. HCFA Br. at 20-21. This is inconsistent with the intention of the governing regulations as explained in their preamble:

A facility's prior compliance history should be considered regardless of a change in ownership. A facility is purchased "as is." The new owner acquires the compliance history, good or bad, as well as the assets. While we agree that after consideration of the facility's compliance history, HCFA or the State may conclude that such is no longer a valid predictive factor of the facility's ability to achieve and maintain compliance (for example, following a change of ownership where the new owner "cleans house") the burden of proof is on the new owner to demonstrate that poor past performance no longer is a predictive factor.

59 Fed. Reg. 56,175-76.

The preamble discussion presupposes that the facility's history remains a relevant consideration after a change of ownership, but does not foreclose a new owner from rebutting the presumption that the facility's history remains predictive of likely future compliance. The circumstances in which the preamble suggested that this presumption might be rebutted, i.e., where "the new owner 'cleans house'," are precisely those which the ALJ found to exist here. Substantial evidence on the record supports the ALJ's finding that CarePlex made plans even in advance of the survey to upgrade and "turn around" conditions at the facility and that it exercised diligence in executing those plans. Hence, we find no error in the ALJ's conclusion that the facility's history did not justify the amount of the CMP in the circumstances presented in this case. Therefore, we uphold his reduction of the daily amount of the CMP from $750 to $50.

However, as noted, we do agree with HCFA that the ALJ erred in considering factors not identified or referenced in 42 C.F.R. § 488.438(f) when he addressed the "due diligence" of the facility in making corrections. The ALJ relied on the general language of section 1128A of the Act as requiring him to consider any factor which justice might require in an individual case, and concluded that he should read HCFA's regulations broadly to permit him to do what he believed the Act required him to do. While acknowledging that he was "reading much significance into 42 C.F.R. § 488.404(c)," the ALJ stated his concern that, unless the regulation is read to incorporate the broad language of section 1128A(d)(3), the regulation might be found to be ultra vires the Act. DAB CR536, at 12.

We do not think that the regulations must be interpreted as the ALJ suggested to avoid a risk of the regulations being found to be ultra vires the Act. First, the provisions of section 1128A are not the direct authority for CMPs in these cases and require perforce some interpretation to apply. For example, the reference to claims presented as a factor is not directly relevant to the context of findings of deficiencies in meeting certification requirements. The regulations adopted pursuant to section 1819 of the Act constitute the Secretary's assessment of those factors which justice requires to be considered in the nursing home enforcement context. Thus, in place of claims presented, the Secretary's regulations have appropriately focused on the analogous assessment of the scope and severity of deficiencies. The regulations also identify other factors to be considered, such as the interrelationship and history of repetition of particular deficiencies. Second, the regulations reserve some flexibility for HCFA to consider additional factors that may arise in a particular case that are not precisely covered by the regulations, by indicating in 42 C.F.R. § 488.404(c) that the factors HCFA may consider include but are not limited to those listed. The preamble states that HCFA did "not want to limit valid assessment considerations unnecessarily" because "it is impossible to predict every factor that would have a bearing on every particular case." 59 Fed. Reg. at 56,174. The preamble to the regulations expressly discussed section 1128A and concluded that that provision "require[d] the Secretary to consider specific matters and also provide[d] authority to take into account any other items relevant to the penalty determination." Id. at 56,204 (1994).

Section 1128A(d), however, does not necessarily require that the scope of the ALJ's (and our) review of HCFA's enforcement action must be co-extensive with HCFA's own discretion in order to provide an adequate hearing right. It is clear in fact that, in this case, the regulations do not contemplate consideration by the ALJ or the Board of factors for setting the amount of a CMP that would be co-extensive with the scope of HCFA's consideration. It is true, as the ALJ noted, that subparagraph (f) cross-references the regulation on selection of remedies. The ALJ interpreted that cross-reference to bring within his review the additional factors listed in that regulation and, because that listing is not exclusive, any other factor. This reading is unreasonably expansive because it removes all meaning from the restrictive language of section § 488.438(e) by interpreting it to mean that an ALJ reviewing the amount of a CMP may not consider any factor except those specified in subparagraph (f) and anything else that the ALJ believes justice may require him to consider.

We conclude that, where HCFA did not cite to any additional factors to justify the amount of a CMP which it has imposed, the regulations do not empower the ALJ to introduce novel factors not specifically set out in the regulation to justify altering the amount of the CMP. Such a grant of authority to the ALJ is inconsistent with the overall scheme of the regulations. First, the ALJ is expressly barred from re-evaluating the level of noncompliance, the primary factor on which HCFA's decision about the amount of a CMP is based (unless a reconsideration could reduce the applicable range below immediate jeopardy). Second, the regulation which reserves the flexibility for HCFA to consider other factors is explicitly related to the selection of remedies, and the ALJ is precluded from revisiting HCFA's decision whether to impose a remedy or which remedy to impose. See 42 C.F.R. §§ 488.404 and 488.408. In particular, the regulations expressly bar review of the "factors considered by HCFA or the State in selecting the remedy, specified in § 488.404." 42 C.F.R.

§ 488.408(g)(2). This juxtaposition suggests that the regulations, read as a whole, were not intended to expand the scope of the factors to be reviewed on appeal beyond those specifically listed in subparagraph (f) of section 488.438. Third, the entire thrust of the preamble explaining the regulations governing surveys, remedies and appeals focuses on the importance of HCFA (or the state survey agency) selecting a remedy that it "believes is most likely to achieve correction of the deficiencies." 59 Fed. Reg. at 56,117.

The preamble indicated that the selection of the remedy would be based on the nature of the deficiencies, and that the choice of remedy, including the manner of applying the scope and severity assessments to the deficiencies, would not be subject to review. Id. at 56,121; see also id. at 56,159. Specifically, the preamble stated that the "most important issue on which to grant an appeal is the existence of deficiencies which lead to a remedy," and that no appeal is available from HCFA's enforcement choice or decision as to the level of noncompliance. Id. at 56,178. Indeed, HCFA pointed out in the preamble that, in the case of most alternative sanctions, even if the facility's noncompliance were found to properly belong in category 1 rather than category 2, the error would be irrelevant because HCFA has "complete discretion to choose [a remedy] from either category." Id. (The exception is for CMPs above $3,050, which can only be sustained if the level of noncompliance falls in the immediate jeopardy range, so that a facility may appeal the level of noncompliance determination in such cases. Id. at 56,179.) The overall approach of the regulations is to permit review of the factual underpinnings on which the remedy is based (including the specific factual elements on which the amount of the CMP is determined) but to make unreviewable the decision to impose a remedy and the choice of that remedy. Finally, in discussing the intended ALJ review of the amount of the CMP, the preamble stated that its scheme of limiting the review of the amount of the CMP, once a basis is found, to the factors specified or referenced at section 488.438(f) is consistent with section 1128A(d) of the Act. 59 Fed. Reg. at 56,206. Since the Secretary through her regulations thus clearly framed the scope of appeal with the provisions of section 1128A(d) in mind, we decline to read the regulations as the ALJ did and to expand the scope of review beyond that intended by the regulations simply because section 1128A(d) could be read to provide broader hearing rights. Rather, we believe that we are bound by the restrictive reading of the scope of appeal implicit in the language of section 488.438(e).

We conclude that the most reasonable reading that reconciles the effect of all these regulations is that, once the basis for a lower-range CMP has been established, the ALJ may review the amount of the CMP imposed, but that review is limited to considering whether or not the evidence on the record before the ALJ supports factual findings as to the factors specified in section 488.438(f) sufficient to uphold the reasonableness of the amount of the CMP imposed by HCFA. Thus, the ALJ may take evidence on contested issues as to the facility's history of noncompliance, financial condition, and degree of culpability (if used as an aggravating factor), but must accept HCFA's assessment of the level of noncompliance (scope and severity of deficiencies).

The regulatory limitations on the scope of the ALJ's review do not defeat the purpose of providing a de novo hearing on the finding of noncompliance leading to a remedy. It is correct that the ALJ decision is not a quasi-appellate review of the regularity of HCFA's determination but rather a determination of the reasonableness of the amount based on the evidence in the record as a whole as developed before the ALJ. Thus, if evidence is developed at the hearing as to a relevant factor, the ALJ must take that evidence into account even if it was not available to or considered by HCFA. It is also true that the de novo hearing does not presume the validity of HCFA's determination, but rather requires HCFA to present a prima facie case establishing a basis for its action. Hillman Rehabilitation Center, DAB 1611 (1997). However, the authority of the ALJ to review de novo on the record before him whether the amount set by HCFA was reasonable based on the relevant factors does not authorize an ALJ to simply substitute his or her judgment as to what amount of CMP to impose or what factors to consider. The ALJ is not obligated to presume that HCFA correctly assessed the evidence and factors, but is bound to follow the regulatory procedures to make an independent determination of whether the amount set by HCFA is reasonable based on the evidence as fully developed in the hearing. Cf. DAB CR536, at 14. The requirement for a de novo hearing does not in itself imply authority to expand the scope of the hearing to address matters expressly precluded from review by the regulations.

We thus agree with HCFA that, in considering the reasonableness of the amount of a CMP in a case where the basis for imposing a remedy has been established and the appropriate range of CMP is not at issue, the ALJ may not independently go beyond the factors listed or referenced in section 448.438(f) and may not reassess HCFA's evaluation of the level of noncompliance.

However, in this case, the consideration by the ALJ of matters outside the listed factors was harmless error. The evidence of due diligence in correcting deficiencies beginning with planning even before the facility takeover and including substantial investments of resources did relate to the factor of the facility's history of noncompliance, which is properly considered. As discussed above, in the case of a change of ownership, the preamble to the regulations indicates that there is a rebuttable presumption that the facility history remains relevant. We found above that the evidence presented by CarePlex successfully rebutted that presumption.


CONCLUSION
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For the reasons discussed above, we sustain the CMP of $50 per day for the stated period. We affirm the ALJ remand decision, but modify the analysis as explained above. As to CarePlex's exception, we sustain FFCL 1. As to HCFA's exceptions, we sustain FFCLs 2 and 3 and the first sentence of FFCL 6. We reverse the second sentence of FFCL 6 and the entirety of FFCL 7.


JUDGE
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Cecilia Sparks Ford Donald F. Garrett
M. Terry Johnson
Presiding Board Member


FOOTNOTES
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1. An official from HCFA testified at the hearing that correction of deficiencies involving actual harm, as did those here, must be verified by on-site surveys. Transcript of hearing on remand at 124. However, the policy made no difference in this case, since the resurvey found substantial compliance as of the earliest date alleged by the facility.

2. The only provision in the regulation requiring reduction of a CMP due to partial compliance applies where an immediate jeopardy situation has been removed but noncompliance continues (and this provision parallels a provision to increase the penalty amount where a situation deteriorates into immediate jeopardy after a CMP begins to accrue). 42 C.F.R. § 488.438(c) and (d). A HCFA official testified at the hearing that HCFA could as a matter of discretion reduce a CMP when a facility alleged substantial compliance and the resurvey found considerable improvement, but that the facility would first have to allege correction for the surveyors to revisit. Transcript of hearing on remand at 127-28, 144-45, 174-75.

3. The ALJ mistakenly referenced section 1128A of the Act as the source of authority for HCFA to impose CMPs. See DAB CR536, at 9. The Board has previously affirmed that HCFA'S authority derives from section 1819(h), which provides a range of remedies from which HCFA may choose in dealing with noncompliant facilities. See Cross Creek Health Care Center, DAB 1665, at 13, n.10 (1998).

CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES