SUBJECT:

The Springs at the Fountain,

Petitioner,

Centers for Medicare & Medicaid Services

DECISION

I grant the motion for summary disposition made by the Centers for Medicare & Medicaid Services (CMS). I find that CMS was authorized to impose the following civil money penalties (CMP) against The Springs at the Fountain (Petitioner, or facility): $3500 per day from July 11, 2000 through July 30, 2000, and $2000 per day from July 31, 2000 through September 18, 2000. I find this CMP to be reasonable. The total amount of CMP that I sustain in this case is $170,000.

I. Background

This case came before me pursuant to a request for hearing filed by Petitioner on September 19, 2000, in accordance with section 1128A(c)(2) of the Social Security Act (Act) and 42 C.F.R. �� 488.408(g) and 498.40.

Petitioner is a skilled nursing facility located in Philadelphia, Pennsylvania. The Pennsylvania Department of Health (State survey agency) conducted a survey at the facility that was completed on July 11, 2000. The State survey agency concluded that the facility was not in substantial compliance with Medicare participation requirements and declared that there was immediate jeopardy to resident health and safety. CMS accepted the State survey agency's recommendations. In a notice letter dated July 21, 2000, CMS advised Petitioner that it was imposing the following remedies: (1) termination of Petitioner's Medicare provider agreement effective August 3, 2000, if the immediate jeopardy to resident health or safety was not removed; (2) denial of payment for new admissions effective July 23, 2000; and (3) a CMP in the amount of $5000 per day effective July 11, 2000. On July 25, 2000, CMS advised Petitioner that the State survey agency had reduced the scope and severity of a deficiency and, as a result, CMS had revised the CMP amount to $3500 per day, effective July 11, 2000. In a notice letter dated August 17, 2000, CMS informed Petitioner that a July 31, 2000 revisit by the State survey agency found that the immediate jeopardy to resident health and safety had been removed. As a result, CMS reduced the CMP to $2000 per day effective July 31, 2000. CMS extended the termination date to January 11, 2001, and continued the denial of payment for new admissions.

CMS sent Petitioner a notice letter in which it advised Petitioner that a September 21, 2000 revisit survey found that all deficiencies had been corrected as of September 19, 2000. (The notice letter (CMS Ex. 15) is undated, but CMS represents it to have been sent on or about October 11, 2000.) CMS stated that the denial of payment for new admissions therefore ended September 19, 2000. CMS calculated the total amount of CMP for the 70 days of noncompliance to be $170,000 ($3500 per day from July 11, 2000 through July 30, 2000; and $2000 per day from July 31, 2000 through September 18, 2000.)

In its request for a hearing, Petitioner "acknowledges the immediate jeopardy alleged by the Department of Health," but contends that the CMP should be reduced to $3050 per day for the period of July 11, 2000 through July 30, 2000, and to $50 per day for the period of July 31, 2000 through the date of substantial compliance, based on its history of compliance and its financial condition.

On September 29, 2000, the case was assigned to Administrative Law Judge (ALJ) Jill S. Clifton for a hearing and decision. On April 24, 2001, the case was reassigned to me for a hearing and decision. The parties filed a Joint Notice of Issues for Summary Disposition and proposed a briefing schedule. I adopted the parties' proposed briefing schedule.

CMS moved for summary disposition and submitted 18 exhibits (CMS Ex. 1 - CMS Ex. 18) and a Statement by Timothy J. Hock with its initial brief (CMS Brief). Petitioner filed a response (P. Br.) and cross-moved for summary disposition. With its brief, Petitioner submitted six exhibits (P. Ex. 1 - P. Ex. 6). CMS filed a reply (CMS Reply Br.), which was accompanied by another exhibit, CMS Ex. 19. Petitioner filed a surreply (P. Surreply). Neither party has objected to my receiving any of these exhibits into the record. I have relabeled the Statement by Timothy J. Hock as CMS Ex. 20. I have admitted into the record CMS Ex. 1 - CMS Ex. 20, and P. Ex. 1 - P. Ex. 6.

II. Issue

The issue in this case is whether the CMP imposed by CMS in the amount of $3500 per day from July 11, 2000 through July 30, 2000; and $2000 per day from July 31, 2000 through September 18, 2000, is reasonable.

III. Applicable Law and Regulations

The Social Security Act (Act) sets forth requirements for nursing facility participation in the Medicare and Medicaid programs, and authorizes the Secretary of Health and Human Services to promulgate regulations implementing the statutory provisions. Act, sections 1819 and 1919. The Secretary's regulations governing nursing facility participation in the Medicare program are found at 42 C.F.R. Part 483.

To participate in the Medicare program, a nursing facility must maintain substantial compliance with program requirements. To be in substantial compliance, a facility's deficiencies may pose no greater risk to resident health or safety than "the potential for causing minimal harm." 42 C.F.R. � 488.301. A facility's noncompliance constitutes immediate jeopardy if it has caused or is likely to cause "serious injury, harm, impairment, or death to a resident." Id. Immediate jeopardy can exist regardless of the scope and severity of the deficiency, so long as the deficiency involves a potential for more than minimal harm. Lake City Extended Care Center, DAB No. 1658, at 17 (1998).

If a facility is not in substantial compliance with program requirements, CMS has the authority to impose one or more of the enforcement remedies listed in 42 C.F.R. � 488.406, which include imposing a CMP. See Act, section 1819(h). CMS may impose a CMP for the number of days that the facility is not in substantial compliance with one or more program requirements or for each instance that a facility is not in substantial compliance. 42 C.F.R. �� 488.430(a); 488.440.

In situations where the deficiencies do not constitute immediate jeopardy, but have caused actual harm or have the potential for causing more than minimal harm, CMS may impose a CMP in the lower range of $50 to $3,000 per day. Penalties in the range of $3,050 to $10,000 per day are imposed for deficiencies constituting immediate jeopardy. When penalties are imposed for an instance of noncompliance, the penalties will be in the range of $1,000 to $10,000 per instance. CMS increases the per day penalty amount for any repeated deficiencies for which a lower level penalty amount was previously imposed. 42 C.F.R. � 488.438.

In setting the amount of the CMP, CMS considers the following factors: 1) the facility's history of noncompliance, including repeated deficiencies; 2) the facility's financial condition; 3) the factors specified in 42 C.F.R. � 488.404; and 4) the facility's degree of culpability, which includes neglect, indifference, or disregard for resident care, comfort, or safety. The absence of culpability is not a mitigating factor. 42 C.F.R. � 488.438(f). The section 488.404 factors include: 1) the scope and severity of the deficiency; 2) the relationship of the deficiency to other deficiencies resulting in noncompliance; and 3) the facility's prior history of noncompliance in general and specifically with reference to the cited deficiencies.

IV. Findings and Discussion

1. Petitioner has not contested CMS's finding that it was not in substantial compliance with federal participation requirements from July 11, 2000 through September 18, 2000.

2. Petitioner has not contested CMS's finding that Petitioner's level of noncompliance constituted immediate jeopardy to resident health and safety for the period of July 11, 2000 through July 30, 2000.

Petitioner, in its hearing request, did not challenge any of the deficiency findings cited by the State survey agency at the July 11, 2000 survey. It simply conceded that it "acknowledges the immediate jeopardy alleged by the Department of Health." In the Joint Notice of Issues, Petitioner again did not contest any of the cited deficiencies from the July 11, 2000 survey. In both of these documents, the only issue raised by Petitioner was whether the CMP amount was reasonable, with Petitioner maintaining that its compliance history and financial condition warranted reducing the amount to $63,500. Inasmuch as Petitioner did not challenge any of the deficiency citations made by the State survey agency, or the finding of immediate jeopardy, those findings remain uncontested. Petitioner has thus not placed at issue CMS's finding that it was not in substantial compliance with federal participation requirements from July 11, 2000 through September 18, 2000. Furthermore, Petitioner has not challenged CMS's finding that the level of noncompliance constituted immediate jeopardy to resident health and safety for the period of July 11, 2000 through July 30, 2000.

Petitioner, moreover, has not contested the basis for the CMP. Petitioner concedes this issue with its assertion in its surreply brief that it "is not arguing that [CMS] does not have a basis to impose the CMP . . . ." P. Surreply at 3. I therefore conclude that CMS had a basis for imposing a CMP against Petitioner for each day of the July 11 - September 18, 2000 period.

3. The amount of the CMP imposed, $3500 per day from July 11, 2000 through July 30, 2000; and $2000 per day from July 31, 2000 through September 18, 2000, is reasonable.

Having found that a basis exists for CMS to impose a CMP, I now consider whether the amount imposed is reasonable, applying the factors listed in 42 C.F.R. � 488.438(f). I may not look into CMS's internal decision-making processes. My "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." CarePlex of Silver Spring, DAB No. 1683, at 8 (1999).

As stated above, CMS imposed a penalty of $3500 per day from July 11, 2000 through July 30, 2000, based on the finding of immediate jeopardy; and $2000 per day from July 31, 2000 through September 18, 2000, based on the deficiencies, including those which caused actual harm. Petitioner contends that CMS failed to consider its past history of compliance and its financial condition, two of the 42 C.F.R. 488.438(f) factors, in setting the amount of the CMP. Petitioner argues that the $170,000 CMP should be reduced to $63,500, using the minimum CMP amounts permitted under the regulations.

Before addressing Petitioner's arguments concerning financial condition and compliance history, I will first discuss the other two factors listed in 42 C.F.R. � 488.438(f) - the seriousness of the deficiencies and the facility's culpability. As discussed above, Petitioner has conceded the basis for the deficiencies resulting from the July 11, 2000 survey and admitted that they were of the scope and severity charged. Thus, the undisputed findings of immediate jeopardy and actual harm speak for themselves. Based on the seriousness of Petitioner's deficiencies, the civil money penalty must fall within the $3,050 - $10,000 per day range (immediate jeopardy level) and the lower range of $50 to $3000 per day (actual harm, or having the potential for more than minimal harm). 42 C.F.R. �� 488.408(e)(2)(ii); 488.438.

With respect to the facility's culpability, CMS states in its brief that "the conditions at the facility occurred due to neglect by the management company hired by the facility, but that any culpability that might have increased the CMP was offset" by the owner's corrective actions. CMS Brief at 14. As a result, states CMS, it "did not increase the CMP based on culpability." Id. With its assertion that "this factor is not at play in this case (Id.)," CMS thus disavows any reliance on Petitioner's culpability as a basis for the penalties that it determined to impose. Id. Therefore, this factor, which is listed at 42 C.F.R. � 488.438(f)(4), is removed from my consideration. ⁽¹⁾

With respect to its prior history of noncompliance, the factor set out at 42 C.F.R. � 488.438(f)(3), Petitioner contends that CMS failed to take into account the fact that it had a good compliance history. In response, however, CMS asserts that its July 21, 2000 notice advised Petitioner that it had taken Petitioner's compliance history into account. I have reviewed CMS's notice letter, which states the following:

In arriving at the stated amount, we considered the facility's financial situation, the scope and severity of the deficiencies, the facility's past record of non-compliance, and the degree of culpability of the facility in the present situation.

CMS Ex. 2.

CMS asserts that the type of notice above has been found by the Departmental Appeals Board (Board) to be adequate under the regulations. See Careplex of Silver Spring, DAB No. 1627, at 21 (1997). In Careplex, the petitioner argued that HCFA (CMS)'s notice was procedurally inadequate because the recitation of factors considered was merely boilerplate. However, the Board concluded that HCFA (CMS) was not required to provide more detailed notice of how it weighed the factors considered in arriving at the CMP. Id.

Based on the rationale of the Board in Careplex, the legal standard of review to be applied with respect to the contents of CMS's notice letter is whether CMS did, in fact, review and consider Petitioner's prior history of compliance. CMS submitted a Statement by Timothy Hock, a CMS official, who stated that CMS officials "noted that the facility had a good history under the previous and current ownership, which had undergone one survey previously." CMS Ex. 20, at 2. I conclude that CMS, through its notice letter and Mr. Hock's statement, has demonstrated that it did consider Petitioner's past compliance history.

I next examine whether CMS gave proper consideration to Petitioner's financial condition as required by 42 C.F.R. � 488.438(f)(2). Petitioner argues that the amount of the CMP is punitive and that it would be a hardship to pay the CMP. In its hearing request, Petitioner argues that CMS "did not consider its financial statements or condition, and did not have appropriate financial information for use in calculating the CMP . . . ." Petitioner's hearing request, at 3. Petitioner asserts that it submitted financial documents which demonstrated that "the facility was losing over a million dollars in year 2000, debt was over 25 million and climbing because of the renovations, and there was a denial of payment on all new admissions imposed from July 23, 2000 through September 19, 2000." See P. Exs. 1, 6; CMS Exs. 15 - 17. Petitioner states that its year to date actual net operating income, as reflected on its December 31, 2000 Functional Income Statement, was "- 247,814.33," and that the year to date loss was $ 1,219,424. P. Br. at 5, 9; See P. Ex. 6; CMS Ex. 17, at 9.

In response to Petitioner's arguments, CMS asserts that its July 21, 2000 notice letter had expressly stated that CMS had considered "the facility's financial situation." Moreover, CMS contends that it contacted Petitioner's fiscal intermediary seeking information about Petitioner's financial status. According to CMS Ex. 20, "[t]he [CMS enforcement] group . . . had no information indicating any financial problems after checking with the fiscal intermediary." CMS Ex. 20, at 3.

Petitioner argues that CMS Ex. 20 fails to indicate what documents were considered by Mr. Hock or the fiscal intermediary, and questions CMS's reliance on the document. CMS responds by stating that "the facility availed itself of the opportunity to provide whatever information it thought appropriate." CMS Reply Br. at 9. CMS states that it "had the benefit of" Petitioner's direct input, and reviewed the documents it submitted. Id.

Moreover, CMS points to balance sheets dated December 31, 2000, provided by the facility, which show that its owner's total assets are over $60 million and that its assets exceed its liabilities by $8.9 million in total equity. CMS Ex. 17, at 3 - 4. CMS notes that the documents show that the facility owed $25.5 million in inter-company debt. Id. at 4. CMS contends that Petitioner has not offered any financial reason that would prevent it from restructuring this loan with the parent company or deferring interest payments or management fees to permit the payment of the CMP. CMS characterizes as unconvincing Petitioner's claim that restructuring the $25.5 million loan was not an option because of its "commitment to renovate" the facility, asserting that Petitioner has made no showing that payment of the CMP would prevent the renovation from going forward.

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 CMPs 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).

Here, accepting Petitioner's statement as to the amount of its operating loss for one year does not render unreasonable a $170,000 CMP. Even severe financial losses are not sufficient to establish a provider's inability to pay. Wellington Specialty Care & Rehabilitation Center, DAB CR548 (1998). In a careful analysis, Judge Kessel recently observed that a facility's profits or losses may rise and fall over short periods of time depending on 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 must be considered in the context of other factors, including the facility's financial reserves, its credit-worthiness, and other long-term indicia of its survivability. Ridge Terrace, DAB CR938, at 4 - 5 (2002).

I conclude that CMS has demonstrated that it made an appropriate inquiry regarding Petitioner's financial condition. By contacting the fiscal intermediary, and reviewing the financial documents submitted by Petitioner, CMS satisfied the regulatory requirement. Under the regulations, CMS is required to consider Petitioner's financial situation, but is not obliged to reach the particular result Petitioner wants.

Finally, Petitioner's contention that its corrective actions warrant a reduction of the CMP must fail. The regulations preclude an ALJ from considering factors beyond those identified or referred to in 42 C.F.R. � 488.438(f) in reviewing the amount of a CMP. 42 C.F.R. � 488.438(e)(3); CarePlex of Silver Spring, DAB No. 1683, at 12 (1999). As the Board stated in Careplex, "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." Id. at 15. Because the factors set forth at 42 C.F.R. � 488.438(f) do not identify or reference a facility's corrective measures, I am barred from considering any such corrective actions in reviewing the CMP amount.

Because Petitioner conceded the deficiencies, which were at the immediate jeopardy and actual harm levels, and has not demonstrated that it is in such financial straits as to be unable to pay the CMP, I am not able to find unreasonable the imposition of a $170,000 CMP.

V. Conclusion

I conclude that CMS considered all of the regulatory factors set forth in 42 C.F.R. � 488.438(f) in setting the amount of the CMP. For the reasons discussed above, I find that the amount of the CMP imposed - $170,000 - is reasonable.

Richard J. Smith

Administrative Law Judge

1. Under the regulations, the absence of culpability cannot serve as a basis for reducing the amount of a CMP. 42 C.F.R. � 488.438(f)(4).