SUBJECT:

Ridge Terrace,

Petitioner,

Centers for Medicare & Medicaid Services

DECISION ON REMAND

An appellate panel of the Departmental Appeals Board (Board) remanded this case to me with instructions that I decide whether Petitioner, Ridge Terrace, lacks the wherewithal to pay civil money penalties that I imposed against it in a decision dated February 4, 2002 (Ridge Terrace, DAB CR866 (2002)). On remand, I decide that Petitioner did not prove by a preponderance of the evidence that its financial condition is a reason for me to reduce the civil money penalties. Therefore, I reaffirm my previous decision to impose the following civil money penalties against Petitioner:

1. $3,050 per day for each day of a period that began on January 12, 2000, and which ran through January 26, 2000;

2. $700 per day for each day of a period that began on January 27, 2000, and which ran through March 12, 2000; and

3. $250 per day for each day of a period that began on March 13, 2000, and which ran through March 26, 2000.

The total amount of civil money penalties that I impose against Petitioner is $81,450.

I. Background

This case arises from a hearing request by Petitioner to challenge determinations by the Centers for Medicare & Medicaid Services (CMS) to impose civil money penalties against Petitioner as follows: (1) $3,950 per day for a period that began on January 12, 2000, and which ran through January 26, 2000; and (2) $700 per day for a period that began on January 27, 2000, and which ran through March 26, 2000. The total amount of civil money penalties that CMS determined to impose against Petitioner was in excess of $100,000.

I issued partial summary disposition in favor of CMS on the issue of Petitioner's liability for an immediate jeopardy level deficiency during the January 12 - 26, 2000 period. I then conducted an in-person hearing in Cincinnati, Ohio, on May 23, 2001. Subsequently, I issued a decision. My decision incorporated my previous entry of partial summary disposition in favor of CMS on the immediate jeopardy level deficiency. I found also that Petitioner had manifested non-immediate jeopardy level deficiencies during the January 27 - March 26, 2000 period.

I imposed civil money penalties of $3,050 per day for the January 12 - 26, 2000 period, based on the seriousness of Petitioner's immediate jeopardy level deficiency. This was a reduction in the penalty amount from the $3,950 daily penalties that CMS determined to impose for the immediate jeopardy level deficiency. I found that evidence as to Petitioner's financial ability to pay such a penalty was irrelevant inasmuch as the penalty amount of $3,050 per day that I sustained was the lowest daily amount permitted by the regulations for immediate jeopardy level deficiencies.

I imposed civil money penalties of $700 per day for a period that began on January 27, 2000, and which ran through March 12, 2000, based on the seriousness of the deficiencies manifested by Petitioner during this period and on the relationship that Petitioner's deficiencies had to one another. I imposed civil money penalties of $250 per day for a period running from March 13, 2000 through March 26, 2000. This was a reduction from the $700 per day civil money penalties that CMS had determined to impose for each day of this period. I imposed reduced civil money penalties for the March 13 - 26, 2000 period because the deficiencies manifested by Petitioner during this period were considerably fewer in number and significantly less serious than those that were present during the January 27 - March 12, 2000 period.

I declined to consider whether the civil money penalties for Petitioner's non-immediate jeopardy level deficiencies should be reduced further based on evidence pertaining to Petitioner's financial condition. I held that Petitioner had not made any arguments that were directed to the issue of whether its financial condition precluded it from paying these non-immediate jeopardy level penalties.

Petitioner appealed my decision. On June 19, 2002, an appellate panel of the Board issued its decision. Ridge Terrace, DAB No. 1834 (2002). It affirmed all of my findings except those in which I decided to impose non-immediate jeopardy level civil money penalties. With respect to those, it affirmed my reasoning justifying the penalties based on the seriousness and interrelationship of the deficiencies that were the basis for the penalties. However, it held that I had erred in not considering Petitioner's financial condition in deciding the amount of the non-immediate jeopardy level civil money penalties. It remanded the case to me with directions that I issue:

a revised decision addressing . . . [Petitioner's] financial condition in determining what constitutes a reasonable . . . [civil money penalty] amount for the non-immediate jeopardy deficiencies.

DAB No. 1834, at 22.

The appellate panel's decision contained no instructions concerning whether I should receive additional evidence or arguments from the parties. See DAB No. 1834, at 22. I decide that it would be inappropriate for me to do so. Prior to issuing my first decision in this case, I gave the parties ample opportunity to brief all of the issues and instructed them as to the issues which were important. Transcript (Tr.) at 230 - 236. I cautioned the parties to make their arguments as explicit as possible. To give the parties yet another bite at the apple at this time would be to reward them for their failure to make arguments which they should have or could have made when they were given the opportunity to do so.

II. Issues, findings of fact and conclusions of law

A. Issues

The issues that remain to be decided on remand in this case are whether:

1. Petitioner lacks the financial ability to pay the civil money penalties of $700 and $250 per day that I decided previously to impose against Petitioner for the periods of January 27 - March 12, 2000, and March 13 - March 26, 2000, respectively; and

2. If that is so, then, what penalty amounts are reasonable?

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law to support my decision in this case. These are set forth below as a single numbered heading (Finding). I discuss this Finding in detail. My original decision in this case had five Findings, numbered 1- 5. In order to avoid confusion, my single Finding in this decision on remand is Finding 6.

6. Petitioner did not prove by a preponderance of the evidence that it lacked the financial ability to pay the non-immediate jeopardy level civil money penalties.

I find that Petitioner failed to establish that it lacked the wherewithal to pay the non-immediate jeopardy level civil money penalties. Therefore, I affirm in their entirety the non-immediate jeopardy level civil money penalties that I decided previously were reasonable.

Petitioner's assertion that it is unable to pay civil money penalties hinges on its contention that changing business conditions made its operations unprofitable in the year 2000. Petitioner's post-hearing brief at 15 - 16. These asserted changes are increases in the cost of providing care to residents and a decrease in Petitioner's overall resident census. Id. But, Petitioner made no effort to show how the losses it allegedly sustained during the year 2000 affected its overall financial health.

The regulation which sets forth the factors that must be considered in deciding the amounts of civil money penalties to be imposed lists a facility's "financial condition" as a factor. 42 C.F.R. � 488.438(f)(2). The term "financial condition" is not defined in the regulations, but the plain meaning of the term is that a facility's "financial condition" is its overall financial health. The relevant question to be considered in deciding whether a facility's financial condition would permit it to pay civil money penalties is whether the penalty amounts would jeopardize the facility's ability to survive as a business entity. Capitol Hill Community Rehabilitation and Specialty Care Center, DAB CR469 (1997), aff'd, DAB No. 1629 (1997). Profitability of a nursing facility such as Petitioner for any period of time - while it is not necessarily irrelevant to the question of the facility's ability to pay civil money penalties - is not in and of itself dispositive of that question.

Profits or losses alone are not the measure of a facility's ability to pay civil money penalties. A facility's profits or losses may rise and fall over short periods of time depending on business conditions, including reimbursement rates for services that the facility provides, its resident census at any given moment, and a host of other factors. But, those short-term profits and/or losses may not accurately describe the facility's overall financial health.

Profits and losses are not meaningful unless they are considered in the context of other factors, including the facility's financial reserves, its credit-worthiness, and other long-term indicia of its survivability. ⁽¹⁾ In other words, a facility's profits or losses over a relatively short period of time are only one piece of a much larger puzzle.

Petitioner's arguments fail. Its argument that it is unable to pay civil money penalties - which addresses only the issue of its short-term profitability - does not address all of the relevant questions of fact that must be considered in deciding whether a facility is financially capable of paying civil money penalties. Petitioner's assertions about its profits and losses do not make out a case for reduction of civil money penalties even if they are accepted as true.

Not only does Petitioner's argument concerning its ability to pay the civil money penalties fail to take into account all of the criteria that must be considered in determining its financial status but the evidence that it presented to support its argument is similarly unpersuasive. That evidence consists of the testimony of the owner of the corporation that operates Petitioner, David R. Lipson, and a declaration by Donald Burkhardt, C.P.A. Tr. at 188 - 209; 227 - 230; P. Ex. 18. ⁽²⁾

Mr. Lipson testified that Petitioner's ability to pay the civil money penalties that CMS determined to impose against Petitioner - which are about $20,000 more than I have decided are reasonable - was "non-existent." Tr. at 190. He asserted that Petitioner could not pay the penalties due to changing reimbursement criteria and rising labor and utility costs. Id. But, aside from discussing these cost elements, Mr. Lipson shed very little light on Petitioner's actual financial condition. He did not offer proof that Petitioner lacked reserves from which it might be able to pay the civil money penalties. He did not assert that Petitioner's credit status was such that it would be unable to borrow money in order to pay the penalties. He did not contend that Petitioner's long-term prognosis as a nursing facility was poor. Finally, Mr. Lipson did not aver that the penalties that are at issue here would drive Petitioner into bankruptcy.

As I find above, short-term profits and losses are one of only many indicia of a facility's ability to pay civil money penalties. Mr. Lipson's testimony is unpersuasive because it discusses only short-term profits and losses in isolation from all of the other factors that must be considered.

The declaration of Mr. Burkhardt is similarly unhelpful without additional evidence concerning Petitioner's overall financial condition. P. Ex. 18. In his declaration, Mr. Burkhardt - who was Petitioner's accountant at the time that he made the declaration - avers that Petitioner sustained a total loss in 2000 of $253,491. Id. at 2. But, Mr. Burkhardt says nothing in his declaration that addresses Petitioner's overall financial health. In particular, he does not address Petitioner's long-term business prospects or its credit-worthiness. And, he offers no opinion as to whether the penalties at issue here would prevent Petitioner from remaining in operation.

Other evidence in the record only serves to muddy the waters further concerning Petitioner's actual financial state. It does not support and, in key respects, undercuts Petitioner's assertion that its financial condition precludes it from paying the civil money penalties. For example, Petitioner's balance sheet for the period from January 1, 2000 through May 31, 2000, listed as one of Petitioner's assets a sum of $172,607 that was due to it from its owners or officers. HCFA Ex. 116, at 24. ⁽³⁾ Mr. Lipson was unable to explain this asset. Tr. at 198 - 201.

Furthermore, Mr. Lipson gave an explanation for a reduction in cash assets held by Petitioner during the first half of 2000 which is inconsistent with the credible evidence in this case and not persuasive. I find that Mr. Lipson's unpersuasive explanation for Petitioner's reduced cash casts doubt on his overall credibility as a witness and his assertion that Petitioner is unable to pay the civil money penalties. And, it also serves to further cloud the picture of Petitioner's actual financial health.

Evidence offered by CMS establishes that at the beginning of 2000 Petitioner had bank accounts totaling $1,278,450. HCFA Ex. 116, at 24. However, as of May 31, 2000, Petitioner had only $874,560 in the bank. Id. Mr. Lipson's explanation for this reduction in bank assets was that, in the first half of 2000, Petitioner paid back to the Ohio State Medicaid program about $400,000 for overpayments that Petitioner had received from the program. Tr. at 228.

However, Petitioner did not, in fact, begin repaying the State of Ohio for overpayments it had received from that State's Medicaid program until October 2000. CMS Ex. 117, at 3; CMS Ex. 117G. Repayment of Medicaid overpayments cannot explain the disbursement of more than $400,000 from Petitioner's bank account in the first half of 2000. Therefore, the disbursement of this sum remains unexplained and it is impossible to draw an accurate picture of Petitioner's financial health in 2000 given this unexplained disbursement.

In the final analysis, Petitioner failed to meet its burden of proving by a preponderance of the evidence that its financial health is such that it cannot afford to pay the civil money penalties that I have decided are reasonable based on non-financial factors. The evidence that it presented simply did not draw a complete picture of Petitioner's financial condition from which one might draw a conclusion about its ability to pay the penalties. In the absence of such evidence, I conclude that Petitioner's financial condition does not serve as an impediment to its paying the civil money penalties at issue here.

Steven T. Kessel

Administrative Law Judge

1. In its post-hearing reply brief, Petitioner argued that on the record of the hearing I held that a facility's ability to borrow money is of "no benefit to a determination of whether the facility has the ability to pay a civil . . . [money] penalty." Petitioner's post-hearing reply brief at 7, citing Tr. at 226. This is an inaccurate characterization of the record. I did not hold that a facility's credit-worthiness is irrelevant to the issue of its overall financial condition. What Petitioner evidently refers to is my sustaining its objection to the following question asked by CMS counsel on redirect examination of a witness: "Isn't it true that a facility with $993,000 in assets can get a line of - can get a loan from a bank, if necessary?" As is evident from the transcript, I sustained the objection because the question was leading and called for the witness to speculate and not because it was irrelevant. Tr. at 226.

2. Petitioner sought to offer additional documentary evidence as sur-rebuttal to evidence offered by CMS in response to Mr. Lipson's testimony. I excluded that evidence on the ground that Petitioner had been given ample opportunity to present its case earlier and had not availed itself of that opportunity. DAB CR866, at 3. This ruling is not discussed in the Board's decision and I infer that Petitioner either elected not to appeal the ruling or that the Board sustained it. In any event, I do not admit Petitioner's additional evidence now.

3. At the time of the hearing, CMS was known as the "Health Care Financing Administration" (HCFA) and many of its exhibits accordingly are identified with the acronym "HCFA." The exceptions are CMS Ex. 117 and CMS Ex. 117A - 117G.