Seerour LLC, DAB CR6379 (2023)

DECISION

The Centers for Medicare & Medicaid Services (CMS), through its administrative contractor, the National Supplier Clearinghouse (NSC) of Palmetto GBA, revoked the Medicare billing privileges of Petitioner, Seerour, LLC, based on a failure to comply with the standards applicable to durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) suppliers.  Petitioner requested a hearing to dispute the revocation.  For the reasons stated below, I conclude that Petitioner was not in compliance with DMEPOS supplier standards and affirm the revocation.

I.  Background and Procedural History

In a June 10, 2020 notice, NSC approved Petitioner’s application to enroll as a supplier in the Medicare program.  CMS Ex. 3 at 2.  However, in a September 27, 2022 notice of initial determination, NSC revoked Petitioner’s DMEPOS supplier number/Medicare billing privileges effective September 13, 2021, and established a two-year re-enrollment bar.  CMS Ex. 11 at 1.  As a basis for its action, NSC alleged that Petitioner violated the following four DMEPOS standards:

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• 42 C.F.R. § 424.57(c)(2) – Petitioner “failed to disclose accurate information [on its enrollment application] concerning the products and services [Petitioner] provide[s] to Medicare beneficiaries, including but not limited to, Ostomy Supplies and Diabetic Supplies. . . .”  CMS Ex. 11 at 1.
• 42 C.F.R. § 424.57(c)(10) – Petitioner’s “comprehensive liability insurance policy on file with NSC has expired.  [Petitioner] failed to maintain a current certificate of liability insurance on [Petitioner’s] provider file with NSC.”  CMS Ex. 11 at 1.
• 42 C.F.R. § 424.57(c)(22) – “A review of [Petitioner’s] billing history shows [Petitioner is] submitting claims to Medicare for Ostomy Supplies and Diabetic Supplies for which [Petitioner is] not accredited. . . .”  CMS Ex. 11 at 2.
• 42 C.F.R. § 424.57(c)(26) – “A surety bond cancellation notice was received from RLI Insurance Company effective September 13, 2021.  [Petitioner] failed to maintain a valid surety bond as required by law.  Therefore, pursuant to 424.57(d)(11) the revocation is effective the date the surety bond lapsed.”  CMS Ex. 11 at 2.

In December 2022, Petitioner requested that NSC reconsider the revocation and filed a corrective action plan (CAP) with NSC.  Petitioner provided documentation in support of its reconsideration request and CAP.  CMS Ex. 16.

On February 7, 2023, an NSC hearing officer issued a reconsidered determination upholding the revocation of Petitioner’s Medicare billing privileges.  CMS Ex. 17.  Although the hearing officer found Petitioner in compliance with 42 C.F.R. § 424.57(c)(10), the hearing officer also found Petitioner not to be in compliance with 42 C.F.R. § 424.57(c)(2), (22), and (26).  CMS Ex. 17 at 6-7.

Petitioner timely request a hearing to challenge the revocation.  On April 10, 2023, the Civil Remedies Division acknowledged the hearing request and issued my Standing Prehearing Order (SPO).  Based on the SPO, CMS filed a motion for summary judgment and supporting brief as well as 19 proposed exhibits (CMS Exs. 1-19), one of which was a declaration from a witness authenticating the other proposed exhibits.  Petitioner filed a brief opposing summary judgment (P. Br.) and three proposed exhibits (P. Exs. 1-3).  CMS objected to the admission of Petitioner’s proposed exhibits and filed a reply brief.

II.  Evidentiary Rulings and Decision on the Record

I admit CMS Exhibits 1 through 19, without objection.  See SPO ¶ 10.

CMS objected to Petitioner’s proposed exhibits because Petitioner did not submit them with its reconsideration request and did not establish good cause for their late filing.

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CMS also argued that the proposed exhibits were irrelevant.  I overrule CMS’s objections because Petitioner provided good cause on its exhibit list (i.e., none of the proposed exhibits existed at the time of the reconsideration request).  While the proposed exhibits do not change the outcome of the decision, I admit them into the record because they relate to Petitioner’s efforts to show compliance with the DMEPOS standards.

The SPO advised the parties that an in-person hearing would only be necessary if a party submitted the written direct testimony of a proposed witness, and the opposing party requested an opportunity to cross-examine a witness.  SPO ¶¶ 11-13; Civil Remedies Division Procedures § 16(b); see Vandalia Park, DAB No. 1940 (2004); Pac. Regency Arvin, DAB No. 1823 at 8 (2002) (holding that the use of written direct testimony for witnesses is permissible so long as the opposing party has the opportunity to cross-examine those witnesses).  Petitioner did not submit any written direct testimony.  CMS submitted written direct testimony, but Petitioner did not request to cross-examine the witness.  Therefore, I do not need to hold a hearing in this case, and I decide this case based on the written record.  SPO ¶ 14; CRDP § 19(b), (d).

III.  Issue

Whether CMS had a legitimate basis to revoke Petitioner’s Medicare billing privileges.

IV.  Jurisdiction

I have jurisdiction to decide this case.  42 C.F.R. §§ 498.1(g), 498.3(b)(17), 498.5(l)(2); see also 42 U.S.C. § 1395cc(j)(8).

V.  Findings of Fact, Conclusions of Law, and Analysis

The Social Security Act (Act) authorizes the Secretary of Health and Human Services (Secretary) to establish regulations for enrolling providers and suppliers in the Medicare program and establishing requirements for DMEPOS suppliers to obtain a supplier number.  42 U.S.C. §§ 1395m(j)(1)(B), 1395cc(j)(1)(A).  DMEPOS suppliers must enroll in the Medicare program and receive a supplier number to obtain payment for items and services provided to Medicare beneficiaries.  42 U.S.C. § 1395m(j)(1)(A); 42 C.F.R. §§ 424.57(b)-(c), 424.505.  The Secretary established DMEPOS supplier standards that must be met to enroll and remain enrolled in the Medicare program.  42 C.F.R. § 424.57(b)-(c).  CMS revokes a DMEPOS supplier’s billing privileges if the supplier fails to meet the supplier standards.  42 C.F.R. § 424.57(e)(1).

1. Petitioner does not dispute that it filed Medicare claims for reimbursement for DMEPOS items that required accreditation when Petitioner was not accredited to sell those items.  Therefore, Petitioner was not compliant with 42 C.F.R. § 424.57(c)(22).

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The Act requires DMEPOS suppliers to submit to the Secretary evidence of accreditation by an approved accreditation organization.  42 U.S.C. § 1395m(a)(20)(F)(i).  DMEPOS supplies requiring accreditation include “ostomy bags, and supplies related to ostomy care” and “blood-testing strips and blood glucose monitors for individuals with diabetes without regard to whether the individual has Type I or Type II diabetes or to the individual’s use of insulin.”  42 U.S.C. § 1395x(m)(5), (n); see also 42 U.S.C. § 1395m(a)(13), (20)(D)(i).  Under limited circumstances, pharmacies may not need to receive accreditation.  42 U.S.C. § 1395m(a)(20)(G).

In May 2020, Petitioner filed an application (CMS-855S) to enroll in the Medicare program as a DMEPOS supplier.  CMS Ex. 2.  Petitioner indicated that it was a pharmacy and exempt from accreditation requirements and that Petitioner did not sell any of the products listed on the enrollment application requiring accreditation.  CMS Ex. 2 at 3-4, 9-10.  Two of the products on the list requiring accreditation were blood glucose monitors and ostomy supplies.  CMS Ex. 2 at 10.

NSC enrolled Petitioner in the Medicare program effective May 22, 2020.  CMS Ex. 3 at 2.  From December 1, 2020 through June 30, 2021, Petitioner submitted Medicare claims for 15 glucose monitors and six ostomy supplies.  CMS Ex. 7 at 2.

As part of the initial determination to revoke Petitioner’s DMEPOS supplier number/billing privileges, NSC asserted the following in support of its conclusion that Petitioner failed to comply with 42 C.F.R. § 424.57(c)(22):

A review of [Petitioner’s] billing history shows [Petitioner is] submitting claims to Medicare for Ostomy Supplies and Diabetic Supplies for which [Petitioner is] not accredited. . . .”

CMS Ex. 11 at 2.

In a supplemental filing to Petitioner’s reconsideration request, Petitioner admitted that it filed Medicare claims for the glucose monitors and the ostomy supplies but stated that it mistakenly did so.  Petitioner also stated that it ceased to bill Medicare for those items.  CMS Ex. 16 at 27.

In the reconsidered determination, the NSC hearing officer found Petitioner noncompliant with 42 C.F.R. § 424.57(c)(22) because “[Petitioner] did not respond to the allegations in this standard.  For this reason, the NSC is unable to find the supplier in compliance.”  CMS Ex. 7 at 6.

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In this proceeding, Petitioner argues that the reconsidered determination erroneously asserted that Petitioner failed to respond to the allegations related to 42 C.F.R. § 424.57(c)(22).  Petitioner quotes its previous response, i.e., that it mistakenly billed for the items in question and that it would not bill for those items in the future.  Petitioner further states that, to demonstrate its efforts to compliantly operate, it has obtained accreditation to sell blood glucose monitors and ostomy supplies.  P. Br. at 4-5; P. Ex. 3.

The regulations state that:

All suppliers of DMEPOS and other items and services must be accredited by a CMS-approved accreditation organization in order to receive and retain a supplier billing number.  The accreditation must indicate the specific products and services, for which the supplier is accredited in order for the supplier to receive payment for those specific products and services.

42 C.F.R. § 424.57(c)(22).

Petitioner does not dispute that it failed to comply with 42 C.F.R. § 424.57(c)(22), just that it would comply in the future.  Therefore, I conclude Petitioner was not in compliance with this DMEPOS standard.

2. Petitioner’s DMEPOS surety bond terminated on September 13, 2021, and Petitioner did not obtain another surety bond until November 4, 2022.  Because Petitioner failed to continuously maintain a surety bond, Petitioner was not compliant with 42 C.F.R. § 424.57(c)(26).

When seeking to enroll in the Medicare program, a DMEPOS supplier must submit a surety bond from an authorized surety that is for no less than $50,000.  42 U.S.C. § 1395m(a)(16)(B); 42 C.F.R. § 424.57(d)(2)(i).  The purpose of the surety bond is to “guarantee that the surety will, within 30 days of receiving written notice from CMS containing sufficient evidence to establish the surety’s liability under the bond of unpaid claims, [civil money penalties (CMPs)], or assessments, pay CMS a total of up to the full penalty amount of the bond. . . .”  42 C.F.R. § 424.57(d)(5)(i).

When Petitioner filed its Medicare enrollment application in 2020, Petitioner complied with the surety bond requirement and submitted a $50,000 surety bond for Medicare DMEPOS suppliers executed on May 22, 2020.  The surety for the bond was the RLI Insurance Company.  CMS Ex. 2 at 27.

In an August 11, 2021 letter to NSC, RLI Insurance Company stated that it was terminating Petitioner’s surety bond and that NSC is “hereby notified that RLI Insurance Company or Contractors Bonding and Insurance Company shall, on 09/13/2021, consider

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itself released from all liability by reason of any default committed thereafter by [Petitioner.]”  CMS Ex. 9.

As part of the initial determination to revoke Petitioner’s Medicare enrollment, NSC asserted the following in support of its conclusion that Petitioner failed to comply with 42 C.F.R. § 424.57(c)(26):

A surety bond cancellation notice was received from RLI Insurance Company effective September 13, 2021.  [Petitioner] failed to maintain a valid surety bond as required by law.  Therefore, pursuant to 424.57(d)(11) the revocation is effective the date the surety bond lapsed.

CMS Ex. 11 at 2.

Petitioner submitted with its reconsideration request/CAP a $50,000 surety bond for Medicare DMEPOS suppliers.  The surety for the bond was again the RLI Insurance Company.  The bond was executed on November 4, 2022, with a retroactive effective date of September 5, 2022.  CMS Ex. 14 at 1; CMS Ex. 16 at 2, 16.

Petitioner also submitted with the reconsideration request/CAP a $100,000 surety bond for Medicare DMEPOS suppliers.  The surety for this bond was the Philadelphia Indemnity Insurance Company.  The bond was executed on December 20, 2022.  CMS Ex. 16 at 29-30.  This surety bond expires on December 19, 2023.  P. Ex. 2; P. Br. at 3.

The NSC hearing officer concluded that Petitioner’s submission on reconsideration was not sufficient to show compliance with 42 C.F.R. § 424.57(c)(26).  The hearing officer explained:

[Petitioner] did submit a copy of their new surety bond with RLI Insurance Company . . . effective September 4, 2022. . . . However, the NSC found that there was no error in the initial determination, as their surety bond did lapse and there is now a gap from the cancellation date of the bond . . . of September 13, 2021 to the issue date of the new bond . . . Due to the gap in the surety bond effective dates, the NSC is not able to find the supplier in compliance with this standard.

CMS Ex. 17 at 7.

In this proceeding, Petitioner argues that, despite the fact that Petitioner’s surety bond was terminated as of September 13, 2021, and Petitioner did not again have an effective

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surety bond until November 2022, that there was no gap in surety bond coverage.  P. Br. at 2.  Petitioner based this argument on the following provision in the May 22, 2020 surety bond:

In the event this Bond is cancelled or expires, and the Principal fails to submit a new bond to the Obligee,¹ the Surety remains liable for unpaid claims, civil money penalties or assessments that were imposed or assessed by CMS or the Office of the Inspector General during the 2 years following the effective date of cancellation or expiration of this Bond.

CMS Ex. 2 at 27; P. Br. at 2.  Based on this provision, Petitioner drew the conclusion that the August 11, 2021 letter from RLI Insurance Company to NSC mischaracterized the coverage because coverage did not end on September 13, 2021, but continued for two more years until September 13, 2023.  P. Br. at 3.  Further, Petitioner submitted evidence of a $50,000 Surety Bond for Medicare DMEPOS suppliers, again with the Philadelphia Indemnity Insurance Company as surety, which was executed on February 13, 2023.  P. Ex. 1 at 2-5.  This Bond was retroactively effective from September 1, 2021 through December 19, 2022.  P. Ex. 1 at 1; P. Br. at 3.  Petitioner asserts that this retroactive coverage is sufficient to show compliance.  P. Br. at 3.

Petitioner misinterprets the clause quoted above from the May 2020 surety bond.  Petitioner asserts that it means the surety essentially provides two years of free coverage.  Therefore, in the scenario presented in this case, Petitioner maintained the surety bond for approximately 16 months, which then entitled Petitioner to two additional free years of coverage.  This interpretation seems unlikely.

A better interpretation of this provision is that the surety bond covers unpaid claims, CMPs, or assessments imposed within two years following the termination of the surety bond related to claims or conduct by Petitioner that occurred during the time when the surety bond was in effect.  This interpretation is borne out in the regulatory provision that is likely the basis for the surety bond provision quoted above.

If the DMEPOS supplier fails to furnish a bond meeting the requirements of paragraph (d) of this section, fails to submit a rider when required, or if the DMEPOS supplier’s billing privileges are revoked, the last bond or rider submitted by the DMEPOS supplier remains in effect until the last day of the surety bond coverage period and the surety remains liable for unpaid claims, CMPs, or assessments that—

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(A)  CMS or the OIG imposes or asserts against the DMEPOS supplier based on overpayments or other events that took place during the term of the bond or rider; and

(B)  Were imposed or assessed by CMS or the OIG during the 2 years following the date that the DMEPOS supplier failed to submit a bond or required rider, or the date the DMEPOS supplier's billing privileges were terminated, whichever is later.

42 C.F.R. § 424.57(d)(5)(iii) (emphasis added).  Therefore, the surety bond’s coverage did not extend beyond September 13, 2021, as stated in the notice from RLI Insurance Company, but merely allowed a two-year window for unpaid claims, CMPs, and assessments that were based on Petitioner’s actions while the surety bond was in effect.

Petitioner’s second argument, that Petitioner obtained retroactive surety bond coverage, also fails.  The Act prohibits the Secretary issuing or renewing a DMEPOS supplier number “unless the supplier provides the Secretary on a continuing basis . . . with a surety bond in a form specified by the Secretary. . . .”  42 U.S.C. § 1395m(a)(16)(B) (emphasis added).  As a result, the Secretary directed, through regulation, that “CMS revokes the DMEPOS supplier’s billing privileges if an enrolled DMEPOS supplier fails to . . . maintain a surety bond as specified in [the regulations and CMS guidance].”  42 C.F.R. § 424.57(d)(11)(i) (emphasis added).  Concluding that DMEPOS suppliers must continuously maintain a surety bond, an administrative appellate decision rejected a surety bond with a retroactive effective date as sufficient to show compliance.  Pepper Hill Nursing & Rehab. Ctr., LLC, DAB No. 2395 at 5-7 (2011).  After September 13, 2021, Petitioner was no longer covered by a surety bond and was, therefore, not in compliance with 42 C.F.R. § 424.57(c)(26).

3. CMS had a legitimate basis to revoke Petitioner’s DMEPOS supplier number/Medicare billing privileges based on Petitioner’s failure to comply with two DMEPOS standards.

When CMS finds that a DMEPOS supplier is not compliant with a DMEPOS standard, CMS revokes the supplier’s billing privileges.  42 C.F.R. § 424.57(e)(1); see also Experts Are Us, Inc., DAB No. 2452 at 5 (2012) (A “failure to comply with one supplier standard is a sufficient basis for denying the enrollment application.”).

I have concluded that Petitioner failed to comply with two DMESPOS standards.  Therefore, CMS had a legitimate basis to revoke Petitioner’s Medicare billing privileges.²

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Unless there is an exception in the regulations, the revocation is effective 30 days after a notice of the initial determination to revoke is sent to the DMEPOS supplier.  42 C.F.R. § 424.57(e)(1).  One such exception applies when CMS revokes a DMEPOS supplier’s billing privileges for failing to maintain a surety bond, in which case, the revocation is effective on the date that the surety bond lapsed.  42 C.F.R. § 424.57(d)(11)(i).  In this case, Petitioner’s surety bond lapsed on September 13, 2021.  CMS Ex. 9.  Therefore, CMS appropriately set September 13, 2021, as the effective date for the revocation.

I note that the record contains Petitioner’s CAP and Petitioner’s arguments concerning its efforts to return to compliance with the DMEPOS standards.  However, my review of this matter is limited to determining whether the record shows that Petitioner was in compliance with the DMEPOS standards at the time of revocation, and not whether Petitioner returned to compliance at some later time.  73 Fed. Reg. 36,448, 36,452 (June 27, 2008).  In any event, NSC’s decision not to accept the CAP is not an appealable initial determination that is subject to administrative law judge review.  42 C.F.R. § 405.809(b)(2); DSM Imaging, Inc., DAB No. 2313 at 8 (2010).

VI.  Conclusion

I affirm the revocation of Petitioner’s Medicare billing privileges.

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Endnotes

¹ The Obligee is CMS.  CMS Ex. 2 at 27; 42 C.F.R. § 424.57(d)(10).

² I decline to decide whether Petitioner complied with 42 C.F.R. § 424.57(c)(2) because I have upheld other violations of the DMEPOS standards.