Danielle M. Faux and Formula Physical Therapy Corp., DAB CR5637 (2020)

DECISION

National Government Services (NGS), an administrative contractor for the Centers for Medicare & Medicaid Services (CMS), revoked the Medicare enrollment and billing privileges of Petitioners, Danielle M. Faux and Formula Physical Therapy Corp., pursuant to 42 C.F.R. §§ 424.535(a)(3) and 424.535(a)(9).  NGS premised its revocation actions on the felony conviction of Petitioner and owner, Danielle M. Faux.  Petitioners requested hearings before an administrative law judge (ALJ) to dispute the revocations.  Because Petitioner Faux’s felony conviction is a financial crime that is detrimental to the best interest of the Medicare program and its beneficiaries, and Faux is an owner of Petitioner Formula Physical Therapy Corp., I affirm CMS’s revocation actions.

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I.  Background and Procedural History

Danielle M. Faux (Faux or Petitioner Faux) is a physical therapist who enrolled in the Medicare program in 2007 and reassigned her Medicare billing privileges to Formula Physical Therapy Corp. (Formula PT or Petitioner Formula PT) in 2011.  CMS Exhibit (Ex.) 3; CMS Ex. 4 at 5.  Formula PT was enrolled in Medicare as a group practice, for which Petitioner Faux is identified as President and Authorized Official having a 5% or more ownership interest effective March 18, 2011.  CMS Ex. 4 at 5-6.

On or around August 12, 2009, NGS contacted Faux and informed her that it intended to perform an audit of Formula PT’s billing records.  CMS Ex. 5 at 11.  NGS requested records relating to services rendered to 15 patients on 40 occasions.  Id.  These included physical therapy progress notes, physical therapy flow sheet/activity sheets, and additional documentation verifying medical necessity for the billed procedures.  Id.  From about August 12, 2009 to about September 14, 2009, Faux created, or instructed a physical therapist who worked for her to create, detailed notes in the patient files that NGS requested.  Specifically:

[Faux] and her employee created patient progress notes detailing patient treatments, physical therapy flow sheets, and records falsely indicating correspondence with the referring providers, in an attempt to substantiate physical therapy services for which claims had been submitted without the entry of a contemporaneous progress note at the time of service.

Id. at 11-12.

During most of the 2010 calendar year, Faux diverted certain proceeds from her physical therapy practice to make payments on her personal credit accounts and loans.  Id. at 12.  These funds were not deposited into Faux’s business checking account and thus were not accounted for as business income or reported as taxable income on Schedule C of her United States (U.S.) Individual Income Tax Return.  Id.  Faux engaged in similar conduct for tax years 2008, 2009, and 2011 resulting in a loss of tax revenue of $77,640.  Id. at 13.

On September 22, 2016, Faux entered into a plea agreement with the U.S. Attorney’s Office for the District of Connecticut in which she agreed to plead guilty to a charge of obstruction of a federal audit in violation of 18 U.S.C. § 1516, and to making a false statement on a federal income tax return in violation of 26 U.S.C. § 7206(1).  CMS Ex. 5 at 1.  On the same day, the U.S. District Court for the District of Connecticut (District Court) accepted Faux’s guilty pleas on the charges and entered judgment of conviction against her.  CMS Ex. 9.  On June 5, 2017, the District Court sentenced Faux to two years

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of probation for each count, to run concurrently, and assessed civil monetary penalties, including a fine and restitution.  CMS Ex. 3.

On July 26, 2017, NGS issued notice letters revoking Medicare billing privileges for both Faux and Formula PT retroactively to September 22, 2016, pursuant to 42 C.F.R. §§ 424.535(a)(3) (Felonies) and 424.535(a)(9) (Failure to Report).  CMS Exs. 1 and 2.  In its notice to Faux, NGS explained it revoked her billing privileges because of her felony convictions, as well as her failure to report those convictions.  CMS Ex. 1.  In its notice to Formula PT, NGS explained it revoked Formula’s billing privileges because Faux was listed as the “Managing Employee, Director, Authorized Official and as having a 5% or more Ownership Interest” in the entity.  CMS Ex. 2.  NGS imposed a three‑year enrollment bar on both Petitioners, effective 30 days after the postmark of the notice letters.  CMS Ex. 1 at 2; CMS Ex. 2 at 2.

Petitioners requested reconsideration of NGS’s revocation determinations, arguing that Faux’s convictions did not rise to a level to place the Medicare program at risk, that her actions were “outside the scope of Medicare” because the claims did not relate to Medicare beneficiaries, and that government officials involved in the program led her to believe she could continue to practice and participate in the Medicare program.  CMS Ex. 7 at 1-2.  Faux emphasized that officials from the U.S. Department of Health & Human Services were involved in the plea agreement and thus her reporting should be “‘deemed’ as performed.”  Id.

On November 27, 2017, CMS’s Provider Enrollment & Oversight Group issued two reconsidered determinations1 upholding the revocation determinations for Petitioner Faux and her practice.  CMS Ex. 8; DAB E-file Dkt. No. C-18-515, Doc. No. 1a (Doc. No. 1a).  CMS found Petitioner Faux’s convictions for obstruction of a federal audit and making a false statement on a federal tax form were per se detrimental to the Medicare program.  CMS Ex. 8 at 5; Doc. No. 1a at 13.  CMS also concluded that even if Petitioner Faux’s convictions were not per se detrimental, her underlying conduct forming the basis for her convictions was detrimental to the Medicare program and its beneficiaries.  CMS Ex. 8 at 5-6; Doc. No. 1a at 13-14.  In addition, CMS found that Faux did not report her adverse legal action within 30 days after she entered her guilty plea on September 22, 2016, nor when she was convicted on June 5, 2017.  CMS Ex. 8 at 6; Doc. No. 1a at 14.

Petitioners timely requested hearing before an administrative law judge (ALJ), and I was designated to hear and decide this case.  On February 12, 2018, I issued an Acknowledgment and Pre‑hearing Order (Pre‑hearing Order) setting forth a briefing

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schedule.  CMS submitted a brief and motion for summary judgment (CMS Br.) and Exs. 1-9 on March 19, 2018.

Petitioners filed a brief with a cross-motion for summary judgment (P. Br.) on April 18, 2018.  They also filed a Motion for Testimony asking me to compel CMS to provide written direct testimony from the individual who signed the original revocation notices and the individual who signed the reconsidered determinations.  On May 2, 2018, CMS responded to Petitioners’ Motion for Testimony and brief (CMS Resp.).  On May 8, 2018, Petitioners filed a reply to CMS’s Response (P. Reply).

As Petitioners did not object to CMS’s Exs. 1-9, I admit them into the record.

II.  Petitioners’ Motion for Testimony is Denied.

Petitioners request that I compel CMS to provide written direct testimony for Provider Enrollment Specialist Barbara Dougherty and CMS Hearing Officer Minisha Hicks, the signatories to the unfavorable initial and reconsidered determinations at issue here.  Motion for Testimony at 1.  Petitioners argue their testimony is necessary to “ascertain [the signatories’] background, tenure, training, and documented guidelines which give them the ‘experience’ to make such a serious and impactful decision.”  Id. at 2.  In their motion, Petitioners provided a list of questions to be directed to Ms. Dougherty and Ms. Hicks.  Id. at 2-4.

Given that 42 C.F.R. Part 498 provides no mechanism for discovery in this proceeding, Petitioners’ attempt to compel witnesses to provide responses to their questions is best understood as a constructive request for me to issue a subpoena to compel the appearance of Ms. Hicks and Ms. Dougherty at a hearing.  CMS’s response to Petitioners’ motion frames it in this manner and states issuance of such a subpoena would be improper because Petitioners have failed to demonstrate the facts they are seeking to prove can only be established through testimony of the identified individuals.  CMS Resp. at 2.

In their reply, Petitioners maintain the testimony they seek from these two witnesses is pertinent because “not everyone within CMS adheres to guidelines” in making decisions.  P. Reply at 2.

Ultimately, Petitioners did not correctly seek testimony for adverse witnesses by requesting a subpoena under the regulations.  But putting aside the absence of a formal request, their constructive request remains defective.  A subpoena request must:

(1) identify the witnesses or documents to be produced;

(2) describe the addresses or location of the witnesses with particularity to permit them to be found; and

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(3) specify the pertinent fact the party expects to establish by the witnesses or documents, and indicate why those facts could not be established without use of a subpoena.

42 C.F.R. § 498.58(c) (emphasis added). 

Here, Petitioners failed to identify pertinent factsthat would be established through testimony of these two CMS employees.  Instead, Petitioners sought to pose plainly irrelevant questions to them, including the number of decisions they signed over certain periods of time, the type of communication they have had with individuals not party to this decision, what documents each reviewed in determining to revoke Petitioners, the type of training each has received, and information about their educational and professional backgrounds.  P. Motion for Testimony at 2-4.  Petitioners have made no arguments as to why this information is relevant to my decision here, and thus cannot make a showing of the pertinent facts they expect to adduce at hearing from either individual.

The testimony of these signatories is not relevant to my review of the revocation in this matter because my review is limited to whether a regulatory basis exists to revoke the supplier’s billing privileges; I may not consider whether CMS properly exercised its discretion in making a determination to revoke a supplier’s billing privileges.  42 C.F.R. § 498.3(b)(17); Letantia Bussell, M.D., DAB No. 2196 at 12‑13 (2008) (concluding that an ALJ review of revocation of enrollment for felony offenses under section 1842(h) of the Social Security Act is “limited to whether CMS had established a legal basis for its actions.”).

The only pertinent facts I can consider are those related to the determination of whether CMS had a legal basis to revoke Petitioners’ Medicare billing privileges.  See Horace Bledsoe, M.D. & Bledsoe Family Medicine, DAB No. 2753 at 4-6, 12 (2016) (concluding the ALJ did not err in rejecting Petitioner’s subpoena request because the subpoena did not seek documents for the purpose of developing a case on the controlling legal issue).  Petitioners’ proposed questions make clear they seek to elicit testimony concerning why CMS’s employees exercised discretion when issuing and upholding a revocation decision.  Because I have no authority to review whether they exercised their discretion properly, these facts are not pertinent.  Therefore, I decline to issue subpoenas and deny Petitioners’ Motion for Testimony.

III.  Decision on the Record

My Pre-hearing Order required the parties to submit written direct testimony for each proposed witness and advised an in‑person hearing would only be necessary if the opposing party requested an opportunity to cross‑examine a witness.  Pre‑hearing Order

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¶¶ 8, 10; Civ. Remedies Div. P. §§ 16(b), 19(b); Pacific Regency Arvin, DAB No. 1823 at 8 (2002).

Here, neither CMS nor Petitioner submitted any direct written testimony for witnesses.  Consequently, I will not hold an in‑person hearing in this matter, and I issue this decision based on the written record.  Civ. Remedies Div. P. § 19(b).  The parties’ cross-motions for summary judgment are accordingly denied as moot.

IV.  Issue

Whether CMS had a legitimate basis to revoke Petitioners’ Medicare enrollment and billing privileges pursuant to 42 C.F.R. §§ 424.535(a)(3), 424.535(a)(9).

V.  Jurisdiction

I have jurisdiction to decide this case.  42 C.F.R. §§ 493.3(b)(17), 498.5(l)(2).

VI.  Findings of Fact, Conclusions of Law, and Analysis2

A. Applicable Law.

The Social Security Act authorizes the Secretary of Health and Human Services (Secretary) to create regulations governing the enrollment of suppliers in the Medicare program and to discontinue the enrollment of a physician or other supplier who “has been convicted of a felony under Federal or State law for an offense which the Secretary determines is detrimental to the best interests of the [Medicare] program or program beneficiaries.”  42 U.S.C. §§ 1395u(h)(8), 1395cc(j).  By regulation, CMS may revoke a currently enrolled provider or supplier’s Medicare billing privileges if:

The provider, supplier, or any owner or managing employee of the provider or supplier was, within the preceding 10 years convicted . . . of a Federal or State felony offense that CMS determines is detrimental to the best interests of the Medicare program and its beneficiaries.

42 C.F.R. § 424.435(a)(3)(i).

Section 424.502 defines an “owner” as “any individual or entity that has any partnership interest in, or that has 5 percent or more direct or indirect ownership of the provider or supplier.”  The regulations specify several criminal offenses that the Secretary deems to be per se detrimental to the Medicare program and its beneficiaries, including “[f]inancial crimes, such as extortion, embezzlement, income tax evasion, insurance fraud and other

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similar crimes for which the individual was convicted . . . ” as being offenses that form a basis for CMS to revoke a provider’s or supplier’s enrollment.  42 C.F.R. § 424.535(a)(3)(ii).  CMS may also revoke the billing privileges of a supplier for failing to timely inform CMS of any adverse legal action taken against the supplier.  42 C.F.R. § 424.535(a)(9).

B. CMS had a valid basis to revoke billing privileges of both Petitioner Faux and Petitioner Formula PT as of September 22, 2016.

1. Faux was convicted of a felony offense within the ten years preceding the revocations.

On September 22, 2016, the U.S. District Court for the District of Connecticut entered judgment again Danielle M. Faux and convicted her for violation of 18 U.S.C. § 1516, Obstruction of a Federal Audit, and 26 U.S.C. § 7206(1), Making of a False Statement on a Federal Income Tax Return.  The record before me therefore demonstrates Petitioner Faux was convicted of a felony offense within the ten years preceding Petitioners’ revocations.

2. Petitioner Faux is an owner of Formula PT as that term is defined at 42 C.F.R § 424.502.

CMS regulations define an “owner” as “any individual or entity that has any partnership interest in, or that has 5 percent or more direct or indirect ownership of the provider or supplier.”  42 C.F.R. § 424.502.  Formula PT’s Medicare enrollment application lists Petitioner Faux as the sole President, Authorized Official, and Managing Employee with a 5% or more ownership interest as of March 18, 2011.  CMS Ex. 4 at 5-6.  Petitioner Faux does not dispute her ownership interest in Formula PT as of that date.  I therefore conclude Faux’s ownership interest made her an owner of Formula PT, as that term is defined at 42 C.F.R. § 424.502.

3. CMS had a legitimate basis to conclude Faux’s offenses of conviction were detrimental to the best interests of the Medicare program and its beneficiaries.

4. CMS had a legal basis to revoke Petitioner Faux’s and Petitioner Formula PT’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. § 424.535(a)(3).

Petitioners contest CMS’s determination that Faux’s offenses were detrimental to the best interests of the Medicare program and its beneficiaries.  P. Br. at 7-8.  The level of deference I show to CMS’s determination depends on the offense in question.  Felony

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offenses specifically enumerated3 in the regulations enjoy the greatest level of deference, because the Secretary has determined these offenses to be per se detrimental, and my authority does not extend to disregarding validly promulgated regulations.  Letantia Bussell, M.D., DAB No. 2196 at 13 n.13 (2008) (“Once the Secretary . . . has exercised that authority by regulation as to a class of felonies, an ALJ cannot revisit that determination . . . .”).

I accord less deference where CMS relies on felony offenses which do not appear in the regulations, but are similar to them in terms of offense elements.4   The regulations prescribe no method or criteria for judging whether an offense is similar to one of the financial crimes named in section 424.535(a)(3)(ii)(B).  Abdul Razzaque Ahmed, M.D., DAB No. 2261 at 11 (2009), aff’d Ahmed v. Sebelius, 710 F.Supp. 2d 167 (D. Mass. 2010) (“Absent explicit regulatory guidance to the contrary . . . it is reasonable to conclude that a supplier’s offense of conviction is similar to a financial crime when the facts and circumstances that are admitted to be the basis for the conviction would appear to satisfy one or more elements of a named financial crime.”).

Here, CMS argues that Faux’s felony conviction for obstruction of a federal audit is “comparable to a conviction for insurance fraud,” one of the enumerated crimes listed in 42 C.F.R. § 424.535(a)(3)(ii)(B).  CMS Br. at 9-10.  CMS also argues that her conviction for making a false statement on a federal income tax return is “similar in nature to income tax evasion,” which is also listed as an enumerated crime under the regulations.  Id. at 10.

CMS further contends that even if these crimes are not listed in the regulations, the conduct underlying Faux’s convictions is per se detrimental to the interests of the Medicare program.  Id. at 10-12.  CMS argues that Petitioner Faux’s obstruction conviction stemmed from her efforts to falsify records for Medicare beneficiaries in instances where she failed to keep contemporaneous written records of the treatment she and her staff provided.  CMS contends this effort to cure shoddy record-keeping after the fact would put all Medicare beneficiaries at risk.  Id. at 12.  CMS similarly argues that Faux’s willingness to make false statements to the IRS “calls into question the veracity of the claims and statements that she submits to Medicare,” which would also put beneficiaries at risk.  Id. at 12-13.

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Petitioners argue that Faux’s convictions were not “financial crimes” as those are enumerated in the regulations and that even if they were, “her crimes did not put Medicare or [its] beneficiaries in ‘immediate risk.’”  Id. at 4.  Petitioners explain that Petitioner Faux kept minimal notes on treatments provided to beneficiaries and that she simply forgot to properly date the notes that were submitted as part of the federal audit, which ultimately led to her conviction for obstruction.  Id. at 6-7.  Further, Petitioners argue that CMS overlooked the timing of the offenses in determining whether Faux’s conduct was detrimental.  Id. at 7.  Given Faux’s convictions relate to conduct occurring between seven to 10 years prior to the revocation actions, Petitioners argue that there was little risk to the Medicare program.  Id.

Based on the record before me, I conclude that Faux’s convictions are financial crimes within the meaning of 42 C.F.R. § 424.535(a)(3)(ii).  As part of her plea agreement, Faux admitted that when confronted with an audit by the Medicare program of her billing records, she and a staff member falsified the records of patients who were program beneficiaries, thus ensuring she profited from her efforts, which is insurance fraud.  CMS Ex. 5 at 11-12.  She also admitted to evading payment of federal income taxes over a number of years by failing to account for business income as part of her gross receipts, thereby avoiding payment of taxes on that income.  CMS Ex. 5 at 13.  As a result, she was ordered to pay $77,640 in back taxes to the IRS.  CMS Ex. 6 at 3.  This is the very definition of tax evasion.  Both of these crimes resulted in ill-gotten monetary gains to Petitioner Faux, and are therefore clearly “financial crimes.”

Even if I found Petitioner Faux’s convictions were not enumerated in the regulations as “financial crimes,” I find her offense conduct was detrimental and that her continued enrollment would pose a risk to the Medicare program.  Faux falsified records in response to a Medicare claims audit and made false statements on her income tax returns related, at least in part, to payments from Medicare claims over approximately four years.  It is difficult to imagine that these actions – in which Faux profited by deceiving Medicare – were not detrimental to the program.  As CMS correctly points out, Faux’s actions call into question the veracity of submissions to Medicare by herself and her practice.  Faux’s actions also posed at least the potential of direct harm to Medicare beneficiaries, as their health records were neither complete nor accurate at the time of treatment.

Petitioners contest CMS’s decision to revoke their billing privileges for conduct that took place years before her conviction, arguing the lack of recency demonstrates Faux no longer poses a risk to the Medicare program.  P. Br. at 8.  However, CMS may revoke a supplier’s billing privileges if the supplier or the owner or managing employee of a supplier has been convicted of a crime within the past 10 years.  42 C.F.R. § 424.535(a)(3)(i).  Petitioners do not deny Petitioner Faux’s crimes occurred within that 10-year timeframe.  P. Br. at 8.

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Petitioners also argue that CMS did not consider mitigating actions that Faux took after her convictions to ensure that she did not make the same mistakes again, and claim that when Faux entered her plea before the District Court, she received assurances from the prosecution and from the sentencing judge that her Medicare billing privileges would not be revoked.  Id. at 13.  However, I may not consider these arguments, as my review is limited to whether CMS had a legitimate basis to revoke, and I may not substitute my discretion for CMS’s in making a revocation determination.  Fady Fayad, M.D., DAB No. 2266 at 8 (2009).

Accordingly, I conclude CMS had a valid basis to determine Petitioner Faux was convicted of financial crimes detrimental to the Medicare program and its beneficiaries that necessitated revocation of Petitioner Faux’s and Petitioner Formula PT’s billing privileges pursuant to 42 C.F.R. § 424.535(a)(3).

5. I need not decide whether Petitioners violated 42 C.F.R. § 424.535(a)(9).

NGS’s initial determinations also stated that Petitioners’ enrollment and billing privileges were revoked pursuant to 42 C.F.R. § 424.535(a)(9).  However, because I have concluded that CMS had a legal basis to revoke their enrollment and billing privileges under 42 C.F.R. § 424.535(a)(3), I do not need to decide whether it had a basis to do so under 42 C.F.R. § 424.535(a)(9) as well.  See 1866ICPayday.com, L.L.C., DAB No. 2289 at 13 (2009).  A legal basis to revoke under 42 C.F.R. § 424.535(a)(3) is sufficient to uphold the revocation of Petitioners’ Medicare enrollment and billing privileges.

6. The effective date of Petitioners’ revocations is September 22, 2016, when Faux was convicted of a felony offense.  42 C.F.R. § 424.535(g).

CMS regulations state that when a revocation is based on a felony conviction, the revocation of the supplier’s billing privileges is effective as of the date of the felony conviction.  42 C.F.R. § 424.535(g).  Here, NGS notified Petitioners that their billing privileges were being revoked effective September 22, 2016, which is also the date upon which the District Court accepted Faux’s guilty plea and entered judgment of conviction.  CMS Ex. 1 at 1; Doc. 1a at 1; CMS Exs. 5, 9.  I therefore find the effective date of Faux’s and Formula PT’s revocations to be September 22, 2016.

7. I do not have the authority under the regulations to review the length of the re-enrollment bar because it is not an appealable initial determination.

Petitioners argue that the three-year re-enrollment bar imposed by CMS is unreasonable.  P. Br. at 14.  However, I have no authority to review CMS’s exercise of discretion in setting a re-enrollment bar.  42 C.F.R. § 498.3(b) (setting forth initial determinations reviewable by an administrative law judge).  The duration of a revoked supplier’s

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re‑enrollment bar is not identified as an appealable determination and therefore is not subject to review.  42 C.F.R. § 498.3(b); Vijendra Dave, M.D., DAB No. 2672 at 10-11 (2016).

VII.  Conclusion

For the foregoing reasons, I affirm CMS’s revocation of Petitioners’ Medicare enrollment and billing privileges.

1. CMS submitted a copy of the reconsidered determination issued to Faux as CMS Ex. 8.  CMS did not provide a copy of the reconsidered determination issued to Formula PT, but Faux included the reconsidered determinations for both herself and Formula PT when she filed her request for hearing.  DAB E-file Dkt. No. C-18-515, Doc. No. 1a.  Given its burden to show a basis for its revocation action before me, CMS should take better care to supply all documents necessary for it to meet its burden.
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2. My findings of fact and conclusions of law are set forth in italics and bold font.
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3. Section 424.535(a)(3)(ii) sets forth four categories of felony offenses that can serve as a basis for revocation: felony crimes against persons; any felony that placed the Medicare program or its beneficiaries at immediate risk; any felonies that would result in mandatory exclusion under section 1128(a) of the Social Security Act; and applicable here, financial crimes.
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4. The use of the words “include” or “including” in 42 C.F.R. § 424.535(a)(3)(ii) signifies that the list of proscribed financial crimes is not intended to be exhaustive but illustrative.  42 C.F.R. § 424.535(a)(3)(ii)(B); see Fady Fayad, M.D., DAB No. 2266 at 8 (2009).
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