South Valley Health Care Center,
Petitioner,

The Health Care Financing Administration (HCFA) and the South Valley Health Care Center (South Valley) appealed a March 27, 1998 decision by Administrative Law Judge (ALJ) Stephen J. Ahlgren. South Valley Health Care Center, DAB CR526 (1998)(ALJ Decision). South Valley had sought a hearing before the ALJ challenging HCFA's imposition, pursuant to sections 1819 and 1919 of the Social Security Act (Act), of a civil money penalty for South Valley's failure to comply substantially with requirements for participation in the Medicare and Medicaid programs. Citing findings by state surveyors that South Valley had failed to comply substantially with requirements for participation for skilled nursing facilities, 42 C.F.R. Part 483, HCFA imposed a $1300 per day civil money penalty (CMP) beginning February 29, 1996 (the date of the completion of the survey in which those findings were made) until June 24, 1996 (the date the State survey agency found South Valley was in substantial compliance), i.e., the period during which South Valley was not in substantial compliance with participation requirements.

In his decision, the ALJ made seven findings of fact and conclusions of law (FFCLs) and found that South Valley was not in substantial compliance with 42 C.F.R. � 483.25(c), but also found that the amount of the CMP imposed by HCFA, $1300 per day, was unreasonable. Instead, the ALJ found that a CMP of $400 per day against South Valley, beginning February 29, 1996 through June 23, 1996, was reasonable.

On appeal, HCFA raised three exceptions to the ALJ Decision. South Valley raised three specific exceptions to the ALJ Decision, and further generally alleged that several material findings made by the ALJ were erroneous.

Our standard for review of an ALJ decision on a disputed issue of law is whether the ALJ decision is erroneous. Our standard for review on a disputed issue of fact is whether the ALJ decision as to that fact is supported by substantial evidence on the record as a whole. As discussed below, we reverse the ALJ's finding to which HCFA excepted, that HCFA's imposition of a $1300 per day CMP was unreasonable. We find no merit in South Valley's exceptions. As a result of our analysis, we delete the ALJ's FFCL 7, we modify FFCL 6, and we re-instate a CMP of $1300 per day for the period February 29, 1996 through June 23, 1996.

I. Procedural Background

Civil money penalties are one of a number of remedies implemented in 42 C.F.R. Part 483 that may be available when a facility is found not to comply substantially with the requirements for participation in the Medicare and Medicaid programs. Long-term care facilities, such as South Valley, are surveyed at least every 15 months to determine compliance with the requirements. 42 C.F.R.

�� 488.20(a) and 488.308(a). A long-term care facility must be surveyed more often if necessary to ensure that identified deficiencies are corrected. Section 488.308(c). Based on the survey, the surveyors prepare a report (referred to as a Statement of Deficiencies or the HCFA 2567) that lists the deficiencies found, the regulations to which they relate, the surveyors' findings as to the scope and severity of the deficiencies, and the specific findings that support each deficiency determination. The severity categories range from deficiencies that cause "no actual harm with a potential for minimal harm" to ones that pose "immediate jeopardy to resident health or safety." Section 488.404(b)(1). The scope can be "isolated," "pattern," or "widespread." Section 488.404(b)(2).

Where a deficiency is found to be isolated and involve no actual harm with a potential for minimal harm, the facility is deemed to be in substantial compliance, and no action may be taken against it. Sections 488.301 (definition of "substantial compliance"), 488.402(d)(2) and 488.408(f)(2). However, where there is a deficiency of any other scope and severity, the facility must submit a plan of correction which describes --

1. How corrective action will be accomplished for those residents found to have been affected by the deficient practice; 2. How the facility will identify other residents having the potential to be affected by the same deficient practice; 3. What measures will be put into place or systemic changes made to ensure that the deficient practice will not recur; and 4. How the facility will monitor its corrective actions to ensure the deficient practice is being corrected and will not recur, i.e., what program will be put into place to monitor the continued effectiveness of the systemic changes.

State Operations Manual, section 7304; see also sections 488.401 (definition of "plan of correction"), 488.402(d) and 488.408(f)(1). Even if the plan of correction is accepted, the facility is not regarded as in substantial compliance until HCFA determines, usually through a revisit survey, that the deficiency no longer exists. Section 488.440(b) and (h).⁽¹⁾

For deficiencies of a certain scope and severity, HCFA may impose a CMP, which may start accruing as early as the date that the facility was first out of compliance and may continue until the date the facility achieves substantial compliance. Sections 488.408 and 488.440(a) and (b). A CMP in the $3,050 to $10,000 range must be imposed where a deficiency poses immediate jeopardy, regardless of its scope. Section 488.408(e)(2)(iii) and (d)(3)(ii). Absent immediate jeopardy, a CMP in the $50 to $3,000 range must be imposed where a widespread deficiency causes no actual harm with a potential for harm that is more than minimal or where a deficiency of any scope causes actual harm. Section 488.408(d)(2). A CMP in the same range may be imposed based on any other deficiency except where the facility is in substantial compliance. Section 488.408(d)(3).

On February 29, 1996, the Utah Department of Health (State survey agency) conducted a survey of South Valley. On March 20, 1996, the State survey agency provided South Valley with a HCFA Form 2567, a Statement of Deficiencies, on which 15 substantial deficiencies were noted, including the requirement at Tag F314, the Quality of Care standard set forth at 42 C.F.R. � 483.25(c), the prevention and treatment of pressure sores.⁽²⁾ HCFA Ex. 2. Three of South Valley's 112 residents -- cited as Residents 71, 104, and 2 -- were listed as having pressure sores that were not unavoidable. Id. at 50 - 52. In its March 20, 1996 letter, the State survey agency informed South Valley that, if the deficiencies were not corrected by May 29, 1996, it would recommend to HCFA that the following remedies be imposed on South Valley: a CMP of $2720 per day, beginning February 29, 1996; a directed Plan of Correction (POC); and a termination of South Valley's Medicare agreement effective May 29, 1996. HCFA Ex. 1, at 2.

South Valley then submitted a POC and alleged in an April 18, 1996 letter that it would be in compliance with the Medicare requirements for participation as of May 20, 1996. HCFA Ex. 3. On May 20, 1996, the State survey agency informed South Valley that it was accepting the allegation of compliance. HCFA Ex. 4. Based on this presumed compliance, the State survey agency further declared that it was not forwarding to HCFA its recommendation that remedies be imposed on South Valley, but advised South Valley that it would be conducting a follow-up survey to verify that substantial compliance had been achieved and maintained. Id.

On May 21, 1996, the State survey agency revisited South Valley and began its resurvey. After completion of its resurvey visit on June 10, 1996, the State survey agency on June 19, 1996, notified South Valley that South Valley remained not in substantial compliance with the Medicare condition of participation set forth at Tag F314. HCFA Ex. 5. The State survey agency stated that it was recommending to HCFA the following remedies be imposed on South Valley: a CMP of $1290 per day effective February 29, 1996; a denial of payment for new admissions; a directed POC; and a termination effective August 29, 1996. Id. The reduction in the recommended CMP from the March 20, 1996 letter was "based on the decrease in level of non-compliance and the number of residents who were effected by [South Valley's] non-compliance." Id. One of South Valley's 112 residents -- cited as Resident 23 -- was identified as having developed a new pressure sore while in South Valley's care. HCFA Ex. 8, at 2.

On July 10, 1996, HCFA informed South Valley of its decision to impose a CMP of $1300 per day, effective February 29, 1996, for each day South Valley was not in substantial compliance with Medicare participation requirements. HCFA Ex. 7. The notice further informed South Valley that the additional mandatory remedy of a denial of payment for new admissions would be imposed effective July 25, 1996, unless South Valley made the necessary corrections to achieve and maintain compliance with participation requirements, along with the further warning that if substantial compliance were not achieved by August 29, 1996, South Valley's provider agreement would be terminated on that date. Id. at 2.

On July 23, 1996, South Valley alleged that it had corrected the deficiency and submitted a written, credible allegation of substantial compliance with the Medicare requirements for participation, with the completion date of June 11, 1996, although South Valley maintained that the actual compliance date was May 20, 1996. HCFA Ex. 8. On September 9, 1996, the State survey agency, following a second resurvey on August 6, 1996, determined that South Valley was in substantial compliance, with the deficiency concerning Tag F314 corrected on June 24, 1996. HCFA Ex. 10.

On October 21, 1996, HCFA notified South Valley that, based on the State survey agency's finding that substantial compliance was achieved on June 24, 1996, the CMP imposed on July 10 would total $150,800, computed at a rate of $1300 per day for 116 days (February 29, 1996, through June 23, 1996). HCFA Ex. 11.

II. The Parties' Exceptions

A. HCFA's Exceptions

HCFA filed the following exceptions:

1. The ALJ erred in his prehearing ruling dated June 20, 1997, in which, according to HCFA, the ALJ improperly limited the basis for the imposition of a CMP.

2. The ALJ erred in his FFCLs 6 and 7. (We set out the text of those FFCLS and discuss them in the analysis section of our decision.)

B. South Valley's Exceptions

South Valley filed the following exceptions:

1. The ALJ erred in not finding that South Valley was in substantial compliance with the Quality of Care Standard as of May 20, 1996, in that the only alleged non-compliance related to one of 32 tags under Quality of Care, and only one of South Valley's 112 residents was alleged to have a pressure sore develop under Tag 314.

2. The ALJ erred in not finding that South Valley complied with its POC for Tag 314 from the February survey prior to the completion of the revisit on June 10, 1996. (In this regard South Valley was making an exception to FFCL 2.)

3. The ALJ erred in not finding that South Valley was in substantial compliance with Tag 314 prior to May 20, 1996, and that therefore HCFA could not lawfully impose a penalty of $1200 (sic) per day.

4. The ALJ erred in not finding that Resident 23 did not develop a pressure sore on his knee, but even if one had developed, it was unavoidable. (In this regard, South Valley was making exceptions to FFCLs 2(E) and 3.)

5. The ALJ erred in not finding that the penalty imposed by HCFA was developed without and in excess of the jurisdiction of the State survey agency and HCFA in that the State survey agency used improper and unauthorized methods of calculation.

6. The ALJ erred in adopting Hillman Rehabilitation Center, DAB No. 1611 (1997), as precedent for setting the burden of proof in this case.

7. The ALJ erred in finding the testimony of HCFA's expert witness credible and in not finding that the testimony of the expert witness supported South Valley's position.

Neither party made exceptions to FFCLs 1, 2(A), 2(B), 2(C), 2(D), 4, and 5. Accordingly, we sustain those FFCLs without further discussion. In the discussion that follows, we delete FFCL 7, and we modify FFCL 6.

A. Analysis of HCFA's Exceptions

HCFA's allegations of error centered on what HCFA considered to be an improper narrowing by the ALJ, as set forth in a prehearing ruling, of the issues to be considered at a hearing. The ALJ ruled that the sole question with respect to the imposition of a CMP was whether South Valley failed to comply with the participation requirement set forth at 42 C.F.R.

� 483.25(c) concerning the prevention and treatment of pressure sores. The consequence of this ruling, according to HCFA, was an unfounded finding by the ALJ that the amount of HCFA's CMP was unreasonable and a subsequent improper reduction of the amount of the CMP by the ALJ. In HCFA's view, the ALJ, by limiting his inquiry to the issue of South Valley's compliance with 42 C.F.R. � 483.25(c), ignored South Valley's widespread failure to comply with other participation requirements at the time of the initial survey. Consequently, according to HCFA, a CMP which reflected South Valley's substantial noncompliance with numerous participation requirements was improperly reduced by the ALJ in contravention of regulatory limitations on the authority of an ALJ to review the amount of a CMP.

1. The ALJ erred in his prehearing ruling by limiting the basis for the imposition of a CMP to South Valley's alleged noncompliance with 42 C.F.R. � 483.25(c).

Over the objections of HCFA, the ALJ issued a prehearing ruling setting forth the issues to be resolved at a hearing ("RULING DEFINING ISSUES TO BE RESOLVED AT HEARING AND ESTABLISHING BURDEN OF PROOF," dated June 20, 1997). The ALJ specifically referred to this ruling in his decision, stating that, due to the specific language used by HCFA in its notice of imposition of the CMP in this case, the sole issue before him was South Valley's compliance with 42 C.F.R. � 483.25(c). ALJ Decision at 6.

In this ruling, the ALJ stated that the threshold question in dispute between the parties was what exactly was the determination of noncompliance that was the basis for the imposition of a CMP. In his ruling, the ALJ detailed the correspondence the State survey agency sent South Valley concerning the results and ramifications of its survey and revisit of South Valley. From this correspondence, the ALJ stated that it was clear to him that if, on the June 10, 1996 revisit, no deficiencies had been found, the State survey agency would not have recommended that a CMP be imposed. The ALJ accordingly reasoned that the sole basis for the imposition of a CMP was the finding that South Valley was not in substantial compliance with 42 C.F.R. � 483.25(c). The ALJ specifically rejected HCFA's position that its basis for imposing the CMP was not only the deficiency found on the revisit survey, but also the finding of substantial noncompliance based upon the multitude of deficiencies found during the first survey. The ALJ found that, if HCFA were attempting to base its imposition of a CMP on both the initial survey and the revisit, HCFA's attempt must fail because HCFA had not given adequate notice to South Valley of the "nature of the noncompliance," as required by 42 C.F.R. � 488.434(a)(2)(I). The ALJ stated that this regulation requires something more than a statement that a provider is not in substantial compliance with participation requirements; the notice must set forth with some specificity those deficiencies which HCFA relied upon in finding the provider was not in substantial compliance.

The ALJ focused on the following language from HCFA's July 10, 1996 notice of the imposition of a CMP:

On June 10, 1996, the state survey agency conducted a revisit to verify that your facility had achieved and maintained compliance. Based on that revisit, the surveyors found that your facility is not in substantial compliance with participation requirements specified at 42 ... CAR � 483.25(c) - Quality of Care, Pressure Sores (Tag F314, Scope/Severity Level G).

HCFA Ex. 7.

The ALJ reasoned that a reasonable mind, after having read the initial March 20, 1996 letter from the State survey agency that remedies would not be imposed if deficiencies were corrected and then getting a later letter stating that all the deficiencies were found to have been corrected save one, would necessarily conclude from the latter letter from HCFA, setting forth only the one alleged deficiency with any specificity, that the nature of the alleged noncompliance with program participation requirements, and, therefore the basis for HCFA's imposition of a CMP, was solely South Valley's alleged noncompliance with 42 C.F.R. � 483.25(c). The ALJ noted that South Valley had appealed that issue, as the notice fairly led South Valley to believe that issue was the basis for the imposition of a CMP.

On appeal, HCFA argued that the ALJ's prehearing ruling was wrong because it was inconsistent with the ALJ's recognition and acceptance of the fact that pursuant to the regulation at 42 C.F.R. � 488.430(a), HCFA properly imposed the CMP as of the date of the first survey, February 29, 1996. HCFA contended that all of the deficiencies identified in the first survey and the follow-up survey should have been considered in reviewing the reasonableness of the CMP. In its objection to the ALJ's ruling, HCFA contended that the ruling erroneously presupposed that the certification of noncompliance that led to the imposition of the CMP was based only on Tag F314, when in fact there were many deficiencies that resulted in the finding of substantial noncompliance. HCFA maintained that the State survey agency's determination that South Valley had failed to correct all of the substantial deficiencies listed in the Form 2567 by a "date certain" resulted in HCFA exercising its discretion to impose a CMP, but that no CMP would have been imposed save for the February 29, 1996 survey. HCFA therefore asserted that the deficiency findings identified in that survey were the basis for its imposition of a CMP.

In asserting that all of the deficiencies identified in the first survey and the follow-up survey should have been considered in reviewing the reasonableness of the CMP, HCFA referred to the preamble to the long term care regulations, in which the Secretary stated:

Moving the date when the penalty can accrue to be as early as the date of the noncompliance permits noncompliance to be sanctioned promptly and addresses the concern of the commenters who said that the effective date in the proposed rule implied a "grace period" for providers to correct deficiencies before a civil money penalty was imposed and undermined the States' abilities to use this remedy. We expect that in virtually all cases, the civil money penalty would start accruing from the date of noncompliance.

59 Fed. Reg. 56,116, at 56,206 (November 10, 1994).

We find that the ALJ improperly narrowed the basis for HCFA's imposition of a CMP. We base this finding on our reading of the notice letters. As HCFA's notice of the imposition of a remedy must be considered in its entirety, we supply the text of the notice that immediately preceded the two sentences cited by the ALJ:

This letter constitutes formal notice of the decision to impose a . . . CMP. On February 29, 1996, a survey was conducted at your facility by the . . . state survey agency to determine if your facility was in compliance with the federal participation requirements for nursing homes participating in the Medicare and/or Medicaid programs. The survey found that your facility was not in substantial compliance with the participation requirements.

As a result of the survey findings listed on the Statement of Deficiencies and Plan of Correction (Form HCFA-2567L) which was forwarded to you after the survey, the Bureau of Medicare/Medicaid notified you that they would recommend to the . . . HCFA Regional Office that remedies would be imposed if you did not achieve substantial compliance by May 26, 1996.

 

The Bureau of Medicare/Medicaid received your plan of correction and credible allegation of compliance, and based on the presumption of substantial compliance they suspended their recommendations for enforcement action.

HCFA Ex. 7 (emphasis added).

These paragraphs explicitly referred South Valley to the February 29, 1996 initial survey and the Form 2567 that listed all the deficiencies of substantial noncompliance found during the survey. This letter further states that remedies would be imposed if substantial compliance were not achieved by a date certain, May 26, 1996. South Valley failed to achieve substantial compliance by that date, as evidenced by the results of the June 10, 1996 revisit. The notice further states that recommendations for enforcement action, or remedies including the imposition of a CMP, were "suspended" -- not withdrawn -- based on a presumption of substantial compliance, a presumption which South Valley failed to meet.

The ALJ's narrow focus in reading HCFA's notice completely ignores this context which refers South Valley back to the numerous findings of substantial noncompliance in the February 29, 1996 survey and informs South Valley that the proposed withdrawal of the sanctions originally recommended by the State survey agency after that survey was conditioned on a finding of substantial compliance.

"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.

With the finding on the June 10, 1996 revisit of a deficiency regarding 42 C.F.R. � 483.25(c), i.e., a resident had developed pressure sores while under South Valley's care, substantial compliance was not achieved and the conditional withdrawal of the earlier recommended sanction was rescinded. Thus, contrary to the ALJ's conclusion in his prehearing ruling that a reasonable mind could only conclude from HCFA's notice that the imposition of the CMP was predicated on the sole deficiency regarding pressure sores, a reasonable person upon reading all of HCFA's notice could conclude that the CMP was based on the results of the initial survey because South Valley had failed to achieve substantial compliance at the follow-up survey. In particular, we note that beginning the penalty period on the date of the last day of the February survey clearly indicates that the basis for HCFA's action included those survey results.

Our holding in Desert Hospital, DAB 1623 (1997), also supports this result. In Desert Hospital, the Board reversed an ALJ decision (DAB CR448) that held that HCFA lacked authority to impose the remedy of denial of payment for new admissions where the ALJ found that the facility did not have adequate notice of HCFA's intent to impose the remedy. In remanding the case to the ALJ for further proceedings, the Board concluded that HCFA's notice of the imposition of the remedy must be read in its entirety, and that it adequately informed the facility of the basis for the imposition of the remedy. The Board held that the notice of an imposition of a remedy does not have to specify all the findings on which the remedy is based, but can refer to the survey findings generally.

In his decision, the ALJ attempted to distinguish the present case from Desert Hospital. ALJ Decision at 7. The ALJ noted that the remedy in Desert Hospital did not involve a CMP, but a denial of payment for new admissions, where the facility was not given the opportunity to correct its deficiencies. The ALJ also stated that, unlike South Valley in the present case, the facility in Desert Hospital admitted that it was not in substantial compliance with program requirements. The ALJ further noted a difference in language in HCFA's notice in Desert Hospital from HCFA's notice in this case; in Desert Hospital, HCFA set forth two findings of substandard care and stated that it was basing its remedy upon current and past noncompliance with Medicare requirements. The ALJ stated that in the present case, if HCFA's notice incorporated the notice given by the State survey agency's statement of deficiencies, that statement of deficiencies only gave notice of one deficiency at the time of the resurvey, whereupon HCFA imposed the CMP. Finally, the ALJ gave most importance to his assumption that if, at the time of the follow-up survey of South Valley, the State survey agency had found no deficiencies, no penalty would have been imposed on South Valley, whereas in Desert Hospital, HCFA gave no assurances that it would not have imposed a remedy if no deficiencies were found in the follow-up survey.

We find the ALJ's reasons for distinguishing this case from the Board's holding in Desert Hospital unpersuasive. As we noted above, in this case, the ALJ focused exclusively on two sentences in the third paragraph of HCFA's July 10, 1996 notice, without discussing other parts of the notice's contents. When read as a whole, the notice in this case gives South Valley ample notice that the CMP was based on the deficiencies found at all the surveys, not just the very last one. The other facts used by the ALJ in distinguishing Desert Hospital have no import. The fact that the remedy involved here, the imposition of a CMP, is different from the remedy in Desert Hospital, the denial of payment for new admissions, is of no significance, as both these remedies are included in the Category 2 remedies set forth in 42 C.F.R. � 488.408(d). Furthermore, just as the facility in Desert Hospital admitted that it was not in substantial compliance with program requirements, South Valley here did not dispute the findings of the February 1996 survey.

We therefore conclude that the ALJ improperly limited the scope of his inquiry regarding the basis for the imposition of a CMP to the alleged deficiency reflected in Tag F314, because in fact HCFA based this CMP on all the findings of noncompliance with participation requirements found in the February 29, 1996 survey. Furthermore, a remand of this case to the ALJ for a hearing on all the deficiencies reported in the February 29, 1996 survey, is unnecessary because no prejudice accrued to South Valley as a result of the ALJ's prehearing ruling. At no time before the ALJ did South Valley dispute any findings of noncompliance in the February 29, 1996 survey other than the finding concerning Tag F314. See South Valley's September 10, 1996 hearing request and April 28, 1997 "Issues to Be Resolved and Burden of Proof" (both submitted prior to the issuance of the ALJ's pre-hearing ruling). "See also ALJ Decision at 9-10. There is nothing in the record that indicates that South Valley ever raised the question of any other deficiencies or asserted any defenses to them in the proceedings before the ALJ. South Valley did not take exception to the ALJ's FFCL 1, which stated, "Petitioner was not in compliance with the requirements of 42 C.F.R. � 483.25(c) as of the date of the initial survey, February 29, 1996." ALJ Decision at 9. Accordingly, we conclude that remanding this case to the ALJ would be inappropriate, since South Valley never sought a hearing to contest the deficiencies found in the February 29, 1996 survey.

2. The ALJ erred in finding that a CMP of $1300 per day was not reasonable.

HCFA took exception to FFCL 6 which provides:

Finding 6. The CMP imposed by HCFA in the amount of $1300 per day is not reasonable.

Once the ALJ determined that South Valley was not in substantial compliance with 42 C.F.R. � 483.25(c) from February 29, 1996 through June 23, 1996, and that HCFA thus established the basis for the imposition of a CMP, the ALJ also had to resolve the question of whether the CMP of $1300 per day imposed by HCFA was reasonable. The ALJ noted the factors to be considered in determining a CMP, as set forth in 42 C.F.R. � 488.438(f):

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

(2) The facility's financial condition.

(3) The factors specified in � 488.404 [the seriousness, scope, and number of deficiencies found].

(4) The facility's degree of culpability. Culpability for purposes of this paragraph includes, but is not limited to, neglect, indifference, or disregard for resident care, comfort or safety. The absence of culpability is not a mitigating circumstance in reducing the amount of the penalty.

An employee of the State survey agency testified before the ALJ to explain how the revised and reduced amount of the CMP recommended by the State to HCFA in June 1996 was determined. The employee testified that the State of Utah had developed a chart (HCFA Ex. 33) for the imposition of remedies. The scope and severity of the remaining deficiency found by the State survey agency at that time, Tag F314 for Resident 23, was identified as "G," meaning that it was an isolated deficiency which caused actual harm. Under the chart, this called for a base fine of $100 per day, plus an occupied bed fine of $10 per day, plus an individual resident fine (Resident 23) of $100 per day. As South Valley's census at the time of the deficiency showed 109 occupied beds, the occupied bed fine was $1090 per day. Thus, the total fine under the chart was $1290 per day, which was then "rounded" to $1300 per day.⁽³⁾ Tr. at 449.

The ALJ expressed the following concerns regarding this methodology used by the State survey agency in recommending the CMP to HCFA:

1. Neither the State survey agency nor HCFA offered an explanation why a "base" fine of $100 per day was automatically applied in all cases employing the chart used by the State survey agency, or what factors were considered by the State survey agency and HCFA in determining that "base" fine. The ALJ noted that the regulations at 42 C.F.R. � 488.408(d) call for a penalty ranging from $50 - $3000 per day where there is an isolated deficiency that causes actual harm.

2. No evidence was presented as to the correlation between the number of occupied beds in a facility and the facility's financial condition. The ALJ noted that the mere fact that a facility is fully occupied does not give any indication of profit or loss. The ALJ stated that the formula used by the State survey agency could unfairly penalize larger facilities compared to smaller facilities charged with the same deficiency, as the more occupied beds, the larger the fine.

3. The chart used by the State survey agency does not take into account a facility's history of non-compliance or its degree of culpability, as required by 42 C.F.R. � 488.438(f). The ALJ speculated that under the State survey agency's chart, a small facility, with repeated deficiencies and an established disregard for its residents, could pay a smaller fine than a larger facility which had no previous deficiencies and did care for its residents.

4. There was no evidence offered to justify a separate $100 per day individual resident fine. The ALJ noted that this fine appeared to give no consideration to a facility's financial condition and appeared to be wholly arbitrary in its amount.

The ALJ expressed further concerns that HCFA presented no independent evidence as to what factors, as required by 42 C.F.R. � 488.438, it considered in determining the amount of the CMP.

On appeal, HCFA questioned the ALJ's authority to review the particular process used to establish the amount of the CMP. According to HCFA, two of the factors which the ALJ is authorized to review were not used as factors in determining the amount of the CMP at issue here, the facility's past performance and its culpability, since the regulations were being applied for the first time to this facility. HCFA also asserted that the ALJ ignored the fact that South Valley failed to offer any information concerning its financial condition or to rebut the financial information considered by the State survey agency and HCFA. HCFA further maintained that the ALJ, by erroneously concluding in his prehearing ruling that only the deficiency related to pressure sores could be considered in reviewing the reasonableness of the CMP, ignored the testimony of the State surveyor who testified that non-compliance was at a widespread level at the time of the first survey, affecting nearly all of the residents and causing actual harm. HCFA argued that the ALJ therefore had no basis for finding the amount of the CMP unreasonable.

Under the regulations, the authority of an administrative law judge to review a CMP is specifically limited:

When an administrative law judge or State hearing officer (or higher administrative review authority) finds that the basis for imposing a civil money penalty exists . . . the administrative law judge or State hearing officer (or higher administrative review authority) 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 civil money penalty; and
(3) Consider any factors in reviewing the amount of the penalty other than those specified in paragraph (f) of this section.

42 C.F.R. � 488.438(e). We find that, while the ALJ did list the factors in paragraph (f) to be taken into account in determining the amount of a CMP, the ALJ expanded his review into an additional area -- the methodology of the chart used by the State survey agency to determine the amount of a recommended CMP -- that went beyond his authority.

In Capitol Hill Community Rehabilitation and Speciality Care Center, DAB 1629 (1997), the Board held that 42 C.F.R. � 488.438 (e) and (f) provide that --

an ALJ's review is limited to consideration of whether a basis for imposing [a CMP] exists, and, if so, whether the amount of the CMP is reasonable under the four factors specified in subsection (f). The subsections do not authorize an ALJ to review the particular process which HCFA utilized to establish the amount of the CMP, including what process HCFA utilized to determine the financial condition of the provider.

At 5.

Similarly, in CarePlex of Silver Spring, DAB No. 1683 (1999), the Board stated that --

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 [specified in section 488.438(f)] does not authorize an ALJ to simply substitute his or her judgment as to the amount of CMP to impose or what factors to consider. . . .

[I]n 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 in section 488.438(f) and may not reassess HCFA's evaluation of the level of noncompliance.

At 17.

Here the ALJ's criticisms of the methodology used to calculate the amount of the CMP, as expressed in the chart developed by the State survey agency and sanctioned by HCFA, clearly went beyond what was permitted under 42 C.F.R. � 488.438(e) and (f). We agree with HCFA that the ALJ should not review the process used to reach a recommendation of the CMP amount, but should focus instead on whether that amount is unreasonable. South Valley did not dispute the February 1996 survey findings that noncompliance was at a widespread level and caused actual harm to residents. The ALJ found that South Valley did not implement all of its POC by May 20, 1996 or complete the systemic changes needed to protect residents until June 24, 1996, and that one resident suffered actual harm. The successive recommendations for the amount of CMP made to HCFA by the State survey agency recognized South Valley's improving conditions by reducing the amount of CMP imposed. South Valley did not introduce any evidence about its ability to pay the CMP in the amount imposed. Under these circumstances, the ALJ had no basis to find the CMP imposed unreasonable in amount.

Thus, the State survey agency had the discretion to use its chart to determine the amount of the CMP unless it led to a result that was clearly erroneous. We see no evidence of a clearly erroneous result here by the State survey agency or HCFA.⁽⁴⁾ We discuss in the next section the factors which lead us to conclude that the amount of the CMP recommended by the State survey agency and adopted by HCFA was reasonable.

Accordingly, since we reject the ALJ's reasons for concluding that the CMP was unreasonable in amount, we modify FFCL 6 to delete the word "not" before reasonable, so that it now reads: The CMP imposed by HCFA in the amount of $1300 per day is reasonable.

3. The ALJ erred in reducing the amount of the CMP to $400 per day.

HCFA took exception to FFCL 7 which provides:

Finding 7. A CMP in the amount of $400 per day, effective February 29, 1996, and continuing to and including June 23, 1996, is reasonable, and is in accordance with the evidence in this case, taking into consideration the factors subject to review pursuant to 42 C.F.R. � 488.438.

In his decision the ALJ stated that he had considered remanding this case to HCFA to determine the amount of the CMP in accordance with regulatory requirements.⁽⁵⁾ However, rather than remanding the matter, the ALJ elected to impose a CMP in the amount of $400 per day, based on the following factors:

1. South Valley was in violation of 42 C.F.R. � 483.25(c) at the time of the initial survey, with three residents having developed pressure sores, and an additional resident having developed pressure sores at the time of the follow-up survey. South Valley, however, made a sincere effort to correct its deficiencies, so that only one of 112 residents had developed a pressure sore after the initial survey.
2. The harm that the resident suffered was significant, as the pressure sore was allowed to become infected. There was potential for more than minimal harm to a large number of residents, with the deficiency falling within category 2, as stated in 42 C.F.R. � 488.408(d), with an authorized CMP in the daily amount of $50 to $3000.
3. There was no evidence that South Valley had a history of non-compliance or repeat deficiencies that would justify placing the amount of the CMP at the upper end of the penalty range.
4. There was no allegation of culpability on South Valley's part that would justify placing the amount of the CMP in the upper end of the penalty range.
5. Neither party submitted any evidence with respect to South Valley's financial condition.
6. HCFA has not established any national guidelines for setting CMPs, with wide discretion accordingly being left in the hands of the decision-maker.

HCFA contended that FFCL 7 was erroneous because the ALJ did not consider all the deficiencies identified in the first survey, but rather considered only the deficiency identified as continuing in the follow-up survey, the deficiency relating to pressure sores. HCFA questioned the ALJ's imposition of a CMP at the lower end of the penalty range, when the deficiency was a level G (actual harm) deficiency in severity both at the time of the initial survey and the follow-up survey. HCFA argued that the ALJ, in reducing the amount of the CMP from $1300 to $400, erroneously substituted his judgment for that of HCFA's. According to HCFA, the ALJ should have either remanded the case to HCFA for further action consistent with the regulations or acceded to HCFA's judgment that a penalty of $1300 would accomplish the remedial goal recognized by the ALJ.

Once again, we find that the ALJ, in consequence of his prehearing ruling, did not take into account in setting forth FFCL 7 South Valley's substantial non-compliance with numerous requirements for participation found in the February 29, 1996 survey. Moreover, the ALJ's statement that South Valley made a sincere effort to correct its deficiencies is difficult to reconcile with his earlier finding, FFCL 2(C), that South Valley failed in a timely manner to establish a wound care protocol and a functioning wound team evaluation process as promised in its POC. In addition, the ALJ's reduction of the CMP from $1300 to $400 per day was based on the incorrect assumption that no evidence was presented at the hearing as to South Valley's financial condition when, in fact, the status of South Valley's financial condition was discussed through the citation by the State survey agency of South Valley's high occupancy rate. Tr. at 461. Most importantly, however, the ALJ's reduction of the CMP vitiated, as previously discussed above in regard to FFCL 6, the discretion given the State survey agency and HCFA by the Secretary in the regulations to determine the amount of a CMP.

Accordingly, we delete FFCL 7 in its entirety.

B. Analysis of South Valley's Exceptions

South Valley contended that the ALJ Decision was flawed because the ALJ made several material findings all in favor of HCFA. South Valley first alleged that the ALJ erred in setting the burden of proof in this case. South Valley also argued that the ALJ erred in finding that South Valley was not in substantial compliance with the Quality of Care requirements set forth at 42 C.F.R. � 483.25(c). South Valley maintained that instead, the central issues in this case were whether Resident 23 developed a pressure sore after the initial February survey and before the June follow-up survey, and, if so, whether the development of the pressure sore was unavoidable. Finally, South Valley argued that the ALJ erred in finding the testimony of HCFA's expert witness credible.

Throughout its briefs on appeal, South Valley portrayed its CMP as being based on a single pressure sore on a single resident out of 112 present during the survey, and contended that the State survey agency, HCFA, and the ALJ focused on a "paper trail," rather than actual results, in finding that South Valley was out of compliance with program standards. We disagree with this characterization of this case. The purpose of the ALJ's analysis of South Valley's documentation was to determine whether the system-wide changes promised by South Valley's POC to address its facility's wound prevention and care problems had been implemented. Without a system, the 112 residents of South Valley's facility were not protected. The ALJ's analysis of whether one particular resident, Resident 23, developed a pressure sore and whether that pressure sore was avoidable was directed towards determining what level of harm had occurred due to South Valley's failure to live up to its POC. South Valley's assertion that only one resident out of 112 suffered from this failure requires that one assume that the State survey agency examined the records (which the ALJ found defective in any event) of all 112 residents for the entire period of the CMP; this clearly did not take place. Moreover, as discussed above, the basis for the CMP imposed here includes the deficiencies found in the February 1996 survey.

1. The ALJ correctly set forth the burden of proof in this case.

The ALJ both in his June 20, 1997 Ruling and his decision declared that the Board's holding in Hillman Rehabilitation Center, DAB No. 1611 (1997), was applicable and controlling in this case. In Hillman, the Board held that HCFA had the burden of going forward with evidence to establish a prima facie case that a basis exists for the imposition of a remedy, but once HCFA has established that a facility is not in substantial compliance with participation requirements, the burden then shifts to the facility to show that it was at all times in substantial compliance with the participation requirements. In his decision, the ALJ noted that while South Valley objected and continued to object to the ALJ's ruling on the applicability of Hillman to this case, South Valley presented no convincing authority to the contrary. ALJ Decision at 6. The ALJ applied Hillman and required South Valley to establish its substantial compliance with participation requirements.

Before the ALJ, South Valley had argued that Hillman had no effect on this case in that: 1) Hillman concerned a rehabilitation center and not a nursing home such as South Valley; 2) Hillman was a provider termination case, while this was a CMP case; and 3) the policy considerations behind the reasoning in Hillman, to protect the health and safety of the patients who are the intended beneficiaries of the program, require that an affirmative determination of substantial compliance be made, while a CMP case has no relationship to the health and safety of the patients, except for the fact that the payment of a CMP will diminish the provider's financial capability to provide for the health and safety of its patients. South Valley's April 28, 1997 "Effect of Hillman . . . on This Case." South Valley further characterized Hillman as "clearly result orientated" [sic] and "not well reasoned." Id. at 2.

On appeal, South Valley argued that Hillman was not applicable to this case and, alternatively, that even if Hillman were applicable, the ALJ misapplied its holding to the facts of this case. South Valley contended that it interpreted Hillman to mean that HCFA is required to produce "evidence," not merely hearsay evidence, which addresses each and every disputed factual finding to establish the validity of HCFA's claim of noncompliance. According to South Valley, if HCFA fails to present competent, non-hearsay evidence on a disputed fact, the fact should be decided against HCFA or a motion to dismiss should be granted. South Valley further argued that it interpreted Hillman to mean that in addition to presenting evidence on the facts, HCFA is required to demonstrate that the deficiency (here, one pressure sore for one resident under Tag F314) meets the regulatory standard for a condition-level deficiency.

We find South Valley's arguments regarding the applicability of Hillman to this case unpersuasive. There is no logical basis to distinguish Hillman from this case on either the type of provider involved or the remedy sought. The reasoning in Hillman applies to any remedy arising out of a Statement of Deficiencies, irrespective of the type of Medicare provider involved. See Cross Creek Health Care Center, DAB No. 1665, at 13, n.10 (1998) (imposition of a CMP is but one of several remedies authorized under section 1819(h) of the Act, and treating a CMP remedy differently from other remedies would lead to the anomalous result of having different burdens of proof applied to the same set of facts). Furthermore, as discussed in greater detail below, the finding of a deficiency under Tag F314 that resulted in one pressure sore on one resident is sufficient to meet the regulatory standard in that there was actual harm to the resident.

Moreover, as discussed above, the only finding of noncompliance that South Valley disputed that originated in the February survey was the finding concerning Tag F314. Therefore it was unnecessary for HCFA to present its prima facie case for all the other deficiencies found in the February 29, 1996 survey.

With regard to the one disputed deficiency, we find that the ALJ applied Hillman correctly. HCFA established a prima facie case that Resident 23 developed a pressure which was avoidable. South Valley argued that Hillman required HCFA to present non-hearsay evidence, but produced no examples or explanations of what it meant by "non-hearsay" evidence. Moreover, South Valley's assertion that HCFA produced nothing but incompetent or hearsay evidence before the ALJ is nonsensical, as this case was mainly decided on the basis of expert witness testimony by a physician who examined the resident in question, and medical records, which are inherently reliable and routinely admitted in administrative proceedings.

We also note here that South Valley further claimed that the ALJ violated the Hillman standards by denying it the opportunity to present evidence regarding its successful implementation of its POC. South Valley, however, neglected to give the reason for the ALJ's refusal to allow South Valley to present evidence at the hearing. Because of repeated failures by South Valley to comply with orders issued by the ALJ (and another ALJ previously assigned to this case), the ALJ prohibited South Valley from introducing written exhibits at the hearing. ALJ Ruling dated June 20, 1997. Thus, South Valley's inability to present evidence at the hearing was not due to the ALJ's failure to adhere to Hillman, but rather to South Valley's own dereliction of its responsibilities before the ALJ.

Accordingly, we find that the ALJ properly set forth and applied the burdens of proof as mandated by Hillman in this case.

2. The ALJ correctly determined that South Valley did not implement its POC or come into substantial compliance with 42 C.F.R. � 483.25(c) until June 24, 1996.

South Valley specifically took exception to FFCL 2 which provides:

Finding 2. South Valley did not fully implement its plan of correction or come into substantial compliance with 42 C.F.R. � 483.25(c) as of May 20, 1996.

As discussed earlier, South Valley represented to the State survey agency in an April 16, 1996 letter and a POC that it would be in compliance with Medicare participation requirements as of May 20, 1996. The POC included numerous and specific provisions on how skin care would be promoted and wounds such as pressure sores prevented and treated. HCFA Ex. 2, at 50 - 51. The resurvey of South Valley completed on June 10, 1996, however, revealed that one of South Valley's residents, Resident 23, had developed pressure sores since the initial survey. HCFA Ex. 8. Consequently, the State survey agency found South Valley not in substantial compliance. HCFA Ex. 5.

The ALJ found that while South Valley had stated in its POC developed after the February survey that it would have in effect by May 20 procedures for the prevention and treatment of pressure sores, South Valley did not achieve compliance with the requirements of 42 C.F.R. � 483.25(c) as of that date. The ALJ found that while South Valley did have a skin check program in effect by May 20 as it had stated in its POC, South Valley had failed to meet the following steps it had set in its POC:

1. South Valley had a systemic pressure sore care and documentation problem that was not corrected until June 1996 (FFCL 2(A));
2. South Valley's inservice training requirement on skin care and wound prevention was not satisfactorily met until June 19, 1996 (FFCL 2(B));
3. South Valley did not establish a wound care protocol until June 3, 1996, and did not establish a functioning wound team evaluation process under that protocol until July 19, 1996 (FFCL 2(C)).⁽⁶⁾

South Valley maintained that, contrary to the ALJ's findings, it developed its POC prior to May 20, 1996, and that it was in substantial compliance as of that date. South Valley argued that the State survey team engaged in improper conduct by refusing to determine compliance with the POC implemented after the February survey, using instead the directed POC developed after the resurvey. South Valley contended that the State survey team did not follow up on the three residents mentioned in the POC, but rather sought out another individual, Resident 23, it believed had a pressure sore. According to South Valley, this proved that the State survey agency was more interested in establishing whether a "paper trail" was created than in the care South Valley gave its residents. South Valley argued that the State survey agency, by approving the POC for the initial survey, told South Valley that, if the POC were complied with, there would be no further action taken with regard to Tag F314. South Valley further argued that the State survey agency, however, did not keep its word and ignored the February POC. As to the specific issue of whether a wound care team was functioning, South Valley asserted that such a team was in place in April 1996, that the ALJ improperly found evidence of this fact less than credible, and that the ALJ then prevented South Valley from presenting documentary evidence to support its position. South Valley argued that while evidence was available, the ALJ would not view it. South Valley questioned the ALJ's placing the burden on South Valley to present evidence that there was a wound care team in place when HCFA had not provided any evidence that such a team was not in place.

We find South Valley's arguments meritless. South Valley appears to be laboring under the misconception that during the resurvey the State survey agency was restricted to reviewing only the three residents who were cited in the February survey as having avoidable pressure sores. While South Valley may be correct in its assertion that the State survey team in its resurvey did not focus on the pressure sores experienced by the three residents identified in the February survey, the scope of the resurvey was not limited to only those three residents. The purpose of the resurvey was to determine whether South Valley had implemented the facility-wide corrections it had committed itself to making in the POC developed in response to the February survey, so that South Valley was in compliance with Medicare requirements. That POC stated, with respect to wound care and prevention, that facility-wide improvements, including inservice training and a wound care team, would be in place by May 20, 1996. HCFA Ex. 2, at 51; HCFA Ex. 3. Thus, contrary to South Valley's argument, the State survey team in its resurvey was applying the POC developed in response to the February survey, and not some later POC. South Valley had acknowledged in its POC that facility-wide changes were needed to bring its systems for wound prevention and care into compliance with participation standards. Thus, the State survey agency properly reviewed the facility's systems, as evidenced by its documentation, to determine whether South Valley in fact was giving the care it represented in its POC.

The ALJ found that there was substantial evidence that those POC provisions for wound care and prevention had not been implemented by the promised date. We see no basis for overturning those findings as the record contains more than ample evidence that the improvements in care promised in the POC were not in place at the time of the resurvey. To cite one example, the POC stated that weekly skin checks would be done by South Valley's staff, with any skin excoriation or beginning of breakdown noted. HCFA Ex. 2, at 50. In his decision, the ALJ examined in great detail the skin assessments made for Resident 23. ALJ Decision at 13. The skin assessment forms in the record for Resident 23 reveal, however, that assessments were done for the most part only every two weeks. HCFA Ex. 23. Thus, we concur with the ALJ's finding that South Valley failed to implement the procedure stated in the POC.

If there is substantial evidence in the record to support the ALJ's findings, we will not disturb those findings. See Bernard L. Burke, DAB No. 1576 (1996). We find that there is ample evidence in the record to support the ALJ's FFCL 2, and we accordingly uphold it.

Finally, regarding South Valley's claim that the ALJ improperly prevented South Valley from introducing evidence that it did have a wound care team in place as of April 1996, we note, as we have discussed in the previous section, that the ALJ's refusal to allow South Valley to introduce evidence at the hearing stemmed directly from South Valley's repeated failures to comply with the ALJ's pre-hearing orders. ALJ Ruling dated June 20, 1997. Petitioner did not demonstrate that the ALJ's rulings were in error. We will not allow South Valley to blame the ALJ for the consequences of its own failure to adhere to reasonable procedures.

3. The ALJ correctly found that Resident 23 had developed a pressure sore between the time of the initial survey and the resurvey and that this pressure sore was avoidable.

South Valley specifically took exception to the following FFCLs which provide:

Finding 2(E). Resident 23 did develop a new pressure sore between the time of the initial survey and the revisit.

Finding 3. The pressure sore which Resident 23 developed could have been avoided, i.e., it was not unavoidable. The facility did not provide the necessary services to promote healing and to prevent the development of infection. The facility failed to meet the requirements of 42 C.F.R. � 483.25(c)(1) and (2), as of May 20, 1996. HCFA has established a basis for imposition of a CMP.

When Resident 23 was admitted to South Valley's facility on February 25, 1996, he had two pressure sores, one on the left buttock, the other on the left hip. HCFA Ex. 15, at 2. Nurses' notes from April 15, 1996 indicate that Resident 23 had a new pressure sore on the inside of his right knee. HCFA Ex. 20, at 5. A pressure sore record form describes a pressure sore on Resident 23's inside right knee first observed on April 22, 1996. HCFA Ex. 16. South Valley's Medical Director, Dr. Dan Purser, on April 29, 1996, issued a telephone order directing that a dressing be applied to Resident 23's right medial knee pressure sore. HCFA Ex. 25, at 3. Following the resurvey, Dr. Purser wrote a letter to the State survey agency stating that Resident 23 did not have a pressure sore, but cellulitis that had abscessed. South Valley Ex. 1.

At the hearing, Dr. Purser testified that nurses actually wrote the telephone orders and that he did not have any idea how Resident 23's wound was diagnosed as a pressure sore. Dr. Purser further testified that Resident 23 wore a leg brace over his right knee and the slippage of this brace caused an abrasion. The ALJ found this testimony of Dr. Purser "both disturbing and less than credible," in that his testimony was "inherently contradictory" concerning the leg brace Resident 23 wore. ALJ Decision at 19. The ALJ compared the testimony of Dr. Purser to that of HCFA's expert witness, Dr. John Hylen, who had examined Resident 23 on June 10, 1996. Dr. Hylen, Board Certified in internal medicine, cardiovascular medicine, and geriatric medicine, with 25 years of experience of treating residents of nursing homes, testified that Resident 23's medical records described the area on Resident 23's right knee as a pressure sore and that his personal examination of Resident 23 revealed no cellulitis or abscess, but what appeared to be a pressure sore. Based on the comparative qualifications of Dr. Purser and Dr. Hylen, the ALJ concluded that Dr. Hylen's testimony should be accorded greater weight, especially in consideration of the credibility problems with Dr. Purser's testimony. The ALJ accordingly found that Resident 23 did develop a pressure sore while he was a resident at the facility.

The ALJ then found that the development of this pressure sore was avoidable. The ALJ based this conclusion primarily on the testimony of Dr. Hylen. The ALJ contrasted that testimony with the testimony of Dr. Michael Jensen, who was an attending physician at the facility and who provided treatment to Resident 23. The ALJ found Dr. Jensen's testimony "evasive and non-responsive," with his credibility "severely undermined by his demeanor." ALJ Decision at 22.

The ALJ acknowledged that Resident 23 was at high risk for developing pressure sores, but the issue was whether the pressure sore on his right knee could have been prevented. The ALJ stated that the burden of proof was on South Valley to establish that the pressure sore was unavoidable, but that, based on the evidence before the ALJ, South Valley failed to sustain that burden. The ALJ found that the preponderance of the evidence led him to conclude that South Valley could have, and should have, done more to prevent the pressure sore from developing. The ALJ noted the Resident 23's weight and nutrition were not carefully monitored, steps were not taken to prevent his knees from pressing on one another, and South Valley did an extremely poor job in tracking and monitoring the development of the pressure sore, with the result that the wound went on to develop a serious infection. ALJ Decision at 24.

South Valley argued that the finding that Resident 23 developed a new pressure sore between the initial survey and the resurvey was not supported by competent and substantial evidence. South Valley called into question the ALJ's reliance on nurses' notes establishing the pressure sore, arguing that nurses are not authorized to make such diagnoses. South Valley contended that the ALJ wrongfully discounted the diagnoses developed by Resident 23's treating physicians that the wound was cellulitis and accepted uncritically the testimony of HCFA's expert witness that Resident 23 did develop a new pressure sore. South Valley further argued that, even if Resident 23 did develop a new pressure sore, that pressure sore was unavoidable. According to South Valley, Resident 23 was an eighty-year-old man with at least eight major system failures in his body, including anemia, muscle wasting, severe Alzheimer's disease, and chronic pulmonary disease, with the result that pressures sores were an unavoidable occurrence for such an individual.

It is uncontested that the characterization of the wound on Resident 23's right knee as a pressure sore originally came from records produced by South Valley's staff. The records were consistent in this regard. Yet South Valley has attempted to disavow its own records. We consider it is worth noting that while South Valley vigorously challenged the use of nurses' notes to support the existence of the pressure sore, arguing that nurses are not authorized to make such diagnoses, the very form developed by South Valley for making skin assessments called for a registered nurse, not a physician, to check a box "yes" or "no" for pressure sores. HCFA Ex. 23. The ALJ heard the testimony of Resident 23's treating physicians and found their testimony less than credible regarding the development of a pressure sore and whether it was avoidable. South Valley's argument that the fact that Resident 23 later developed other pressure sores due to multi-systems failures showed that pressure sores were unavoidable in this resident does not the address the issue of the particular pressure sore which is the basis for the finding of actual harm resulting from a deficiency. Conditions in Resident 23's status may have changed, resulting in more pressure sores, but the pressure sore on his right knee that developed between his admission and the time of the resurvey could have been prevented according to the expert testimony of Dr. Hylen. South Valley is incorrect when it states that Dr. Hylen had to address these multi-system failures, as Dr. Hylen's testimony was restricted to the development of the one particular pressure sore and South Valley's failure to take such preventative measures as proper nutrition and the placement of a pillow between the knees of Resident 23. That this resident subsequently developed other pressure sores does not refute the substantial evidence in the record before the ALJ that established that South Valley did a poor job of monitoring for and failed to take the specific preventive measures indicated for a person with his physical problems.

There is substantial evidence in the record supporting the ALJ's conclusions; we therefore see no basis for disturbing the ALJ's findings in these matters.

4. The ALJ properly gave credence to the testimony of HCFA's expert witness.

In support of his findings that Resident 23 had developed a new pressure sore between the time of the initial survey and the resurvey and that this pressure sore was avoidable, the ALJ relied on the testimony of HCFA's expert witness, Dr. John Hylen.

On appeal, South Valley argued that the testimony of Dr. Hylen was either not credible or supported South Valley's position. South Valley argued that the lack of credibility in Dr. Hylen's testimony was demonstrated by his unfamiliarity with Tag 314, which showed, according to South Valley, Dr. Hylen's lack of knowledge about the standards to be applied in determining whether South Valley was in substantial compliance. South Valley contended that the lack of credibility in Dr. Hylen's testimony relating to the role nutrition plays in the prevention and treatment of pressure sores was further shown by Dr. Hylen's lack of knowledge concerning the particular nutritional supplements South Valley provided Resident 23. Alternatively, South Valley argued that Dr. Hylen's testimony about the weight gain Resident 23 experienced supported South Valley's position that it strove to prevent the development of pressure sores in its residents.

South Valley's arguments are unpersuasive. First, Dr. Hylen was not called to testify concerning the survey process and whether South Valley was in compliance with program requirements such as Tag 314. His knowledge or lack of knowledge concerning Tag 314 was not relevant to his testimony. Dr. Hylen was requested to examine Resident 23 by the State survey agency after both Drs. Purser and Jensen expressed opinions that Resident 23 did not have a pressure sore on his right knee, even though his medical records plainly stated that he did. Dr. Hylen's testimony was restricted to his examination of Resident 23, his conclusion that Resident 23 did have a pressure sore on the inside of his right knee, his review of the medical records concerning Resident 23 and the care South Valley provided him, and the resulting opinion that the pressure sore could have been avoided. Dr. Hylen testified that the most important measures that could have been taken to prevent the development of Resident's 23 pressure sore were proper nutrition to ensure that Resident 23 maintained an ideal body weight, turning him every one or two hours, and placing pillows between Resident 23's thighs to prevent his knees from pressing together. Dr. Hylen's lack of knowledge about the particular nutritional supplements, health shakes, South Valley gave to Resident 23 does not discredit his general knowledge and testimony concerning preventing pressure sores. Moreover, the fact that Dr. Hylen inferred from Resident 23's weight gain that a nutritional intervention was successful does not support South Valley's position, as Dr. Hylen stated that the nutritional intervention should have been started earlier to prevent the development of the pressure sore.

A reviewing panel does not have the opportunity to evaluate the credibility of a witness by listening in person to the witness's testimony or observing the witness's demeanor. The evaluation of the credibility of a witness is properly left to the hearing officer. Here it is unquestionable that Dr. Hylen's credentials qualified him as an expert to give testimony in this case. His testimony was based on his contemporaneous physical examination of Resident 23 and on South Valley's medical records for that resident. The ALJ found Dr. Hylen's testimony, in contrast to that of Drs. Purser and Jensen, credible and convincing. South Valley has not provided us with any persuasive argument that the ALJ's reliance on Dr. Hylen's testimony was misplaced. Thus, we defer to the ALJ's evaluations of the credibility of the witnesses who appeared before him in this matter.

For the reasons discussed above, we uphold all the ALJ's findings of fact and conclusions of law except for FFCL 7, which we delete, and FFCL 6, which we modify to read as follows:

Finding 6. The CMP imposed by HCFA in the amount of $1300 per day is reasonable.

Accordingly, we uphold the imposition of a CMP on South Valley of $1300 per day for the period beginning on February 29, 1996, and ending on June 23, 1996.

1. The regulations also provide HCFA can determine that a facility has achieved substantial compliance "after an examination of credible written evidence that it can verify without an on-site visit." Section 488.454(a)(1).

2. The Quality of Care regulation at 42 C.F.R. � 483.25 states --

(c) Pressure sores. Based on the comprehensive assessment of a resident, the facility must ensure that --

(1) A resident who enters the facility without pressure sores does not develop pressure sores unless the individual's clinical condition demonstrates that they were unavoidable; and

(2) A resident having pressure sores receives necessary treatment and services to promote healing, prevent infection and prevent new sores from developing.

3. HCFA's State Operations Manual provides that CMPs can only be imposed in increments of $50. HCFA therefore here rounded the State survey agency's recommendation of a $1290 CMP to the closest $50 increment, $1300. HCFA Ex. 10, at 3. South Valley made no objection to this rounding of the CMP.

4. On appeal, South Valley too challenged the formula used by the State survey agency to determine the CMP. South Valley urged us to strike the penalty adopted by HCFA and replace it with a penalty of no more than $10 per day, as the deficiency at issue was no more than what South Valley labeled a category 1 deficiency. As we have discussed above, the State survey agency's use of a chart or formula to determine the amount of the CMP was permissible under the regulations. Furthermore, there is no provision in the regulations for a CMP of $10 per day; the lowest amount of a CMP is a penalty of $50 per day. 42 C.F.R. � 488.408(d)(1)(iii). More importantly, however, South Valley's suggestion that this dispute involves no more than a "category 1 deficiency" ignores the fact that one of its residents suffered actual harm, which calls for a Category 2 remedy, with a CMP of $50 - $3000 per day. 42 C.F.R. � 488.408(d)(2)(ii).

5. HCFA contended that, "This case should have been remanded to HCFA for further action consistent with the regulations . . . ." HCFA notice of appeal at 6-7. The ALJ recognized that he had discretion to remand the case and provided a reasonable explanation for why he chose not to do so. ALJ decision at 29. As HCFA does not provide any explanation whatsoever for its argument that he should have remanded, we limit our discussion to the ALJ's determination that the appropriate course of action was for him to consider the evidence before him to decide the reasonable amount for the CMP.

6. The ALJ found that HCFA had erroneously found that South Valley was in substantial compliance as of June 24, 1996, when, according to the ALJ, South Valley did not have a functioning wound evaluation team process, as promised by South Valley in its initial POC, in place until July 19, 1996. ALJ Decision at 26. The ALJ stated that, because HCFA's finding that South Valley was in compliance as of June 24, 1996, was advantageous to South Valley and because he had due process concerns about extending the duration of a CMP beyond what was the subject of the hearing before him, he would not disturb HCFA's finding that South Valley was in substantial compliance as of June 24, 1996. Id. HCFA did not take exception to this FFCL.