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Many of the country’s 15,400 skilled nursing facilities live in almost mortal fear of a survey that results in enforcement actions by the Centers for Medicare & Medicaid Services. When surveyors determine that noncompliance exists, CMS has a veritable quiver of arrows at its disposal to target the allegedly offending SNF. CMS is authorized by the statute (the Social Security Act) and its implementing regulations at 42 CFR Part 498 to impose one or more “sanctions” (euphemistically referred to as “remedies” but more accurately described as “enforcement actions”) when a SNF is not in “substantial compliance” with Medicare’s Requirements for Participation (ROP) found at 42 CFR Part 483. Substantial compliance is defined by the applicable federal regulation as “an isolated instance of the potential for more than minimal harm” (42 CFR 488.301). On the corresponding “scope and severity grid” (CMS, “Nursing Home Enforcement Reports Through December 31, 2014,” June 3, 2016, https://go.cms.gov/3svOEoY) such an allegation would be a D-level deficiency. At the other end of the scope and severity grid is widespread “immediate jeopardy,” which would be the equivalent of an L-level deficiency.
CMS may impose sanctions for any deficiency from levels D to L. And, generally, the higher the level of deficiency, the more severe the sanctions. For example, it is not unusual for CMS to impose a civil money penalty (CMP) in excess of $1 million for allegations of immediate jeopardy. Among the remedies CMS may impose for SNFs determined to be noncompliant with the ROP are the following: CMPs either per day or per instance, including up to $23,000-plus per day; a denial of payment for new admissions (DPNA); directed in-service; a directed plan of correction; temporary management; and, of course, the dreaded termination from the Medicare and Medicaid programs. Few, if any providers can survive a termination action because their revenue stream would essentially be extinguished.
Some enforcement actions by CMS are discretionary while others are mandatory. For example, when a provider is alleged to be out of substantial compliance for 90 days, CMS must impose a DPNA. Likewise, when a provider is alleged to be out of compliance for 180 days, CMS must terminate the facility from the Medicare program.
What If the Surveyors and CMS Got it Wrong?
When a provider receives a CMS “Imposition Notice” informing it of one or more sanctions, the clock starts ticking. The provider has only 60 calendar days (not 61 or more) to take one of two possible actions: it must either waive its right to an appeal (in writing) and receive the mandatory 35% discount on the CMP, or file a formal appeal with the Health and Human Services Departmental Appeals Board (DAB). An appeal merely stating “We disagree with CMS’s allegations” will not be heard and is not worth the paper it is written on; at a minimum, an appeal must satisfy the regulation’s requirements, which means it must articulate the reason it disagrees with the CMS findings for each and every challenged deficiency and state the basis for such disagreement.
The formal appeal is the first time a federal Administrative Law Judge (ALJ) sees a glimpse of what the case is all about, and as the old adage goes, it’s hard to get a second chance at a first impression. So the initial appeal, or the “Request for Hearing” as it is also referred to, must be comprehensive, cogent, and legally persuasive. It must lay out a road map of the defense and succinctly explain why the CMS allegations are factually and/or legally insufficient as a basis to impose one or more sanctions. More specifically, a provider must describe the findings of fact and conclusions of law with which it disagrees, and the basis for such disagreement.
Notably, not every action CMS takes is subject to an appeal. For example, when CMS designates a nursing facility as a “Special Focus Facility” (SFF), that action may not be appealed. CMS defines a Special Focus Facility as one that has serious deficiencies constituting substandard care and a “yo-yo” history of compliance. CMS allows each state to designate a set number of facilities as Special Focus Facilities, which among other things means (1) those facilities will have full on-site annual surveys twice a year, and (2) if they do not “graduate” from the SFF program, typically within 18 months, they will be terminated from Medicare.
Likewise, if CMS imposes a sanction and then rescinds it, a provider may not appeal even if the Statement of Deficiencies remains uncorrected and the alleged deficiencies are not removed from the Statement of Deficiencies. A provider’s right to appeal is nullified once CMS rescinds a sanction, even if CMS refuses to correct the Statement of Deficiencies; this raises a question of fundamental fairness and due process because those alleged deficiencies will adversely affect a provider’s CMS Five-Star Quality Rating and likely damage its reputation. Nevertheless, under the current regulatory scheme, being designated a SFF or having a sanction removed — but not the underlying alleged deficiencies on the Statement of Deficiencies — are not appealable actions. Under the current federal regulations, only “initial determinations” (e.g., CMPs, DPNA, terminations, etc.) may be appealed.
There are three levels of appeal for CMS enforcement actions. The first two move with the speed of a turtle stuck in molasses.
As a threshold matter, the legal standard is that CMS must first establish a prima facie case that its enforcement actions are predicated on violations of one or more federal regulations at 42 CFR Part 483 (ROP for SNFs). Most ALJs simply accept the Statement of Deficiencies as sufficient for CMS to meet its burden. Once CMS has met that burden of establishing its prima facie case, the burden then shifts to the provider to establish by a preponderance of the evidence that CMS is incorrect.
Here is the discouraging aspect of appeals: out of literally hundreds of CMS enforcement actions that have gone to appeal, there has not been a successful provider appeal at the ALJ level or DAB level in years. It would take a certain level of naiveté to believe that surveyors — and, by extension, CMS — get it right 100% of the time while providers get it wrong 100% of the time concerning the factual and legal basis of a deficiency. Having virtually no provider victories in years at the ALJ level seems to suggest that at best, it is an uphill battle for providers.
It takes more than a little time and effort as well as considerable financial resources to prove that a facility was not out of substantial compliance. Most experienced health care attorneys who represent SNFs believe that they will not get a fair and impartial hearing until they appeal to the third level, the U.S. Court of Appeals.
After an Appeal to the ALJ
When one of the roughly half-dozen ALJs who decide all nursing home cases finally renders an opinion, the side that did not prevail has 60 calendar days to appeal to the DAB. I say “finally” because it is not uncommon for it to take two years or longer from the date an appeal is filed to the decision by the ALJ. That is not to impugn the ALJs in any manner. They hear myriad cases beyond just dozens of nursing home enforcement actions, and there are simply not enough ALJs to allow the system to function effectively and timely. It is as if a gallon of water — or, more likely, a thick syrup — is being poured through a very narrow funnel; the backlog is inevitable.
Currently, I am waiting on the first level of appeal — the ALJ decision — for appeals that were filed more than two years ago. In a typical example, I filed an appeal challenging a CMS CMP based on an April 5, 2013, survey. After an evidentiary hearing, the ALJ issued his opinion on September 16, 2016 — more than three years after the disputed survey. The matter was further appealed to the DAB, which rendered a decision on May 17, 2017. Thus, the appeal of a CMS enforcement action based on a survey from April 2013 was not decided by the DAB until more than four years later.
Again, the inordinate delay in getting a decision is not entirely the fault of the ALJs who hear all the appeals of CMS enforcement actions. They have many other types of cases to deal with, and the timeline for an appeal allows months for CMS and a provider to submit their proposed exhibits and witness statements before the actual hearing. Moreover, after the hearing, each side has an opportunity to file a post-hearing brief, which is typically 30 days after the hearing. Then the long wait for the ALJ’s decision is usually more than a year.
Another example of the time involved in an appeal is found in the case of Golden Living – Mountainview v. HHS (6th Cir. No. 19-3755) (October 27, 2020). That appeal began with a survey on March 31, 2014, and a CMS enforcement notice in April 2014. CMS alleged immediate jeopardy-level deficiencies and imposed a CMP of $621,250. The provider filed a timely appeal to the ALJ. The ALJ upheld the CMS determination. The provider next appealed to the DAB, which affirmed the ALJ decision. Undaunted, the provider then appealed to the U.S. Court of Appeals for the Sixth Circuit. After reviewing the evidence in the administrative record (i.e., the ALJ and DAB hearings and all related documents) on October 27, 2020, the court reversed the DAB decision (and, by extension, the ALJ) and remanded the case. Thus, the CMS enforcement action from 2014 is still being appealed in 2021. Whoever said justice moves swiftly must not be familiar with appeals of CMS enforcement actions: sadly, the Mountainview case is the rule rather than the exception.
As has been said, “Justice delayed is justice denied.” As currently constituted, the appeals process is in need of reform, at least regarding the years it takes to have a final resolution. If HHS had the budget to hire more ALJs, it would certainly help this sluggish process, but that ball is in the hands of Congress.
After an Appeal to the DAB
Either side can appeal the ALJ’s decision to the HHS DAB. The appeal is limited to the administrative record, and the DAB generally will not admit any new evidence. Nor will the DAB second guess an ALJ’s determination of witness credibility. If an ALJ believes a witness — no matter how inconsistent or questionable his/her sworn testimony might be — the DAB is not likely to question the ALJ’s finding of credibility. From a legal perspective, in order for a provider to prevail at the DAB level, it would have to demonstrate that an ALJ’s decision was not supported by the record as a whole.
The DAB is the final stop for CMS: it cannot appeal a decision that is favorable to a provider, so the DAB is considered the secretary’s “final determination.” However, as in the previously mentioned Mountainview case, a provider may appeal an adverse DAB decision concerning a CMP directly to the U.S. Court of Appeals in its jurisdiction. (For technical reasons, appeals of termination actions go directly to federal district courts before a court of appeals.)
Reasons for Appealing
Years ago, when I was representing CMS, a provider appealed a case that was truly a slam-dunk for CMS. It was not even a close call; there were no nuanced shades of gray. The deficiency was rock solid, and there was virtually no way the provider was going to get a favorable decision. The attorney for the facility, who was a highly qualified health care attorney and a named partner in a law firm, told me, “You know, Alan, my client is facing a wrongful death action, and they are concerned that if they do not appeal, the unchallenged Statement of Deficiencies will be used against them in collateral civil litigation.” (Each state has its own laws of evidence and determines whether it will allow the Statement of Deficiencies to be admitted into evidence.)
Another reason for appealing notwithstanding the time and costs is the desire to be vindicated, especially when CMS has no factual and/or legal basis for an enforcement action and the ALJ and DAB have erroneously decided the case. Again, as with the Mountainview case, the Circuit Court reversed and remanded the DAB decision.
Other reasons for appealing include, but are not limited to, restoring a provider’s reputation, bolstering staff morale, decreasing a likely increase in insurance premiums, or being able to participate in accountable care organizations. Moreover, to collect the CMP — with interest — that CMS has been holding for years is yet another incentive for appealing. Further, an appeal may prompt CMS to settle the case on mutually acceptable terms.
Sometimes, it really is a matter of principle. In the case of Elgin Nursing & Rehabilitation Center v. HHS [5th Cir. No. 12-60086 (2013)], CMS imposed an unusually low CMP of $5,000. The provider appealed to the ALJ and lost. It then appealed to the DAB and lost. Finally, it appealed to the Court of Appeals for the 5th Circuit, which not only reversed the ALJ and DAB’s decision but slammed the entire process, noting that to allow otherwise would be to allow “the agency [CMS] to be judge, jury and executioner.” It surely would have been less expensive not to appeal the Elgin case and take the 35% discount on the $5,000 CMP, but for some people the principle matters.
The Silver Lining
There is a silver lining to the glacial speed of appeals to an ALJ, the DAB, or the Court of Appeals. CMS virtually always escrows the CMP amount, even though the relevant portion of the statute states that CMS “may” (not “shall”) escrow the CMP, which makes escrowing CMPs for alleged deficiencies entirely discretionary. The CMS practice seems to be escrowing all CMPs, even if it would have a devastating financial impact on a facility — as is often the case when a CMP imposed on a relatively small company is well over $1 million.
The often-overlooked benefit of this practice comes with successful appeals. If a provider prevails at an appeal, CMS must refund the escrowed CMP funds plus interest. (Even a partial victory will result in CMS paying interest on a pro rata basis.) About four years ago after I prevailed in a case, CMS had to return more than $600,000 it had escrowed in addition to $53,000 in interest it was forced to pay the provider
Residents deserve the best and highest quality care possible. Clearly, when the deficiencies are factually accurate, the best course of action is to pay the CMP (less the 35% discount) and, more importantly, learn what went wrong so that future adverse incidents can be avoided. On the other hand, if, as I often see, there is no factual and/or legal basis for the alleged deficiencies, providers may wish to appeal. Patience is necessary waiting for an ALJ decision to be rendered; currently it takes more than two years.
Each case and every fact pattern is unique, and an aggrieved provider will have to carefully consider the pros and cons of filing an appeal. Just do not expect a quick resolution, unless the counsel for CMS sees how strong a provider’s case is and how weak the government’s case is. Such an epiphany by CMS counsel can lead to CMS withdrawing a CMP or termination from Medicare action — or at least agreeing to a favorable negotiated settlement.
Mr. Horowitz is a partner at Arnall Golden Gregory LLP. His practice involves regulatory compliance concerning skilled nursing facilities, hospices, and home health agencies. Prior to joining the firm, he served as Assistant Regional Counsel at the U.S. Department of Health and Human Services and represented the Centers for Medicare & Medicaid Services. Mr. Horowitz also has extensive experience as health care provider.