In-Home Medical Supplies, LLC, DAB CR6423 (2024)

DECISION

Petitioner, In-Home Medical Supplies, LLC., is a supplier of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), located in Upper Marlboro, Maryland.  Until December 13, 2022, Petitioner participated in the Medicare program as a supplier of services.  The Centers for Medicare & Medicaid Services (CMS) revoked its Medicare supplier number, pursuant to 42 C.F.R. § 424.57(c)(26), determining that the supplier’s surety bond had been cancelled.  Petitioner appeals. 

For the reasons discussed below, I find that the supplier’s surety bond remained in full force and effect, with no lapse in coverage, and CMS was therefore not authorized to revoke its supplier number.  

Background

Petitioner participated in the Medicare program as a DMEPOS supplier.  See 42 C.F.R. § 424.57.  In a letter dated January 25, 2023, the Medicare contractor, Novitas Solutions, notified Petitioner that, pursuant to 42 C.F.R. §§ 405.800, 424.57(d)(11), and 424.535(g), its Medicare supplier number was revoked, effective December 13, 2022.  The letter

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alleged that the supplier did not meet two supplier standards:  42 C.F.R. § 424.57(c)(10), which requires suppliers to maintain a comprehensive liability insurance policy, and § 424.57(c)(26), which requires them to meet surety bond requirements.  CMS Ex. 2 at 1. 

Petitioner sought reconsideration.  In a confusing reconsidered determination, dated June 23, 2023, a contractor hearing officer seems to have conflated the two bases cited for the revocation.  CMS Ex. 8 at 1-3.  The concluding section, captioned “Decision,” upheld the revocation based on section 424.57(c)(10), concluding that the supplier had not presented evidence showing that it had comprehensive liability insurance in effect.  The “Decision” section does not mention section 424.57(c)(26).  CMS Ex. 8 at 3. 

In the “Analysis” section, however, the determination indicates that, based on the corrective action plan (CAP) that Petitioner submitted to the contractor, the supplier complied with section 424.57(c)(10).  But, according to the determination, the CAP did not resolve the issue with section 424.57(c)(26).  CMS Ex. 8 at 2.  In its subsequent analysis of section 424.57(c)(26), the determination states that it could not find that the supplier complied with that section.  CMS Ex. 8 at 3. 

Ultimately, the result was an unfavorable determination, and Petitioner now appeals that determination pursuant to 42 C.F.R. § 424.545. 

CMS has moved for summary judgment.  However, neither party proposes any witnesses.  Because there are no witnesses to be examined or cross-examined, an in-person hearing would serve no purpose.  See Acknowledgment and Pre-hearing Order at 5 (¶¶ 8, 9); Civil Remedies Division Procedures § 16(b); Vandalia Park, DAB No. 1940 (2004).  The matter may therefore be decided based on the written record, without considering whether the standards for summary judgment are satisfied.¹

With its motion and brief (CMS Br.), CMS submits eight exhibits (CMS Exs. 1-8).  Petitioner, who is not represented by counsel, submitted a short response (P. Response) with no additional exhibits.  In the absence of any objections, I admit into evidence CMS Exs. 1-8.

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Discussion

To receive Medicare payments for items furnished to a Medicare-eligible beneficiary, a supplier of medical equipment and supplies must have a supplier number issued by the Secretary of Health and Human Services.  Social Security Act (Act) § 1834(j)(1)(A).  To obtain and retain its supplier number, a Medicare supplier must meet the standards set forth in 42 C.F.R. § 424.57(c), and CMS may revoke its billing privileges if it fails to do so.  Act § 1834(j)(1)(B); 42 C.F.R. §§ 424.57(c)(1), (d), (e)(1); 424.535(a)(1). 

With limited exceptions, not applicable here, a currently-enrolled DMEPOS supplier must submit to the CMS contractor a $50,000 surety bond.  Act § 1834(a)(16)(B); 42 C.F.R. § 424.57(c)(26).  If a DMEPOS suppler fails to obtain, maintain, and timely file its surety bond, CMS must revoke that supplier’s billing privileges.  42 C.F.R. § 424.57(d); see 74 Fed. Reg. 198 (Jan. 2, 2009). 

1. Because Petitioner’s surety bond remained in full force and effect, with no lapse in coverage, CMS was not authorized to revoke its Medicare billing privileges pursuant to 42 C.F.R. § 424.57(c)(26).²

The facts here are undisputed.  The supplier’s surety bond premium was mistakenly attributed to its insurance premium (which was then overpaid), and on November 1, 2022, the insurer, CNA Surety, sent the Medicare contractor notice that Petitioner’s surety bond was cancelled, effective December 13, 2022.  CMS Ex. 1 at 2.  When the payment error was discovered, the insurer transferred the payment to the appropriate account and rescinded the letter of cancellation.  CMS Ex. 7 at 3.  The bond remained in full force and effect, with no lapse in coverage.  In another letter dated March 30, 2023, the insurer advised the contractor of the mistake and that it had been corrected.  CMS Ex. 7 at 2.  

CMS nevertheless determined that there had been a lapse in bond coverage and revoked the supplier’s Medicare billing privileges.  CMS argues that “it is undisputed that CMS received a notification of a cancellation of the surety bond,” which justifies the revocation.  CMS Br. at 5.  CMS acknowledges that the insurer rescinded the cancellation but characterizes that fact as an “equitable argument,” which I lack the authority to consider.  CMS Br. at 6.  I disagree. 

That revoking the supplier’s billing privileges under these circumstances would be unfair (and I think it would) does not turn a legal argument into an equitable one.  The question here is whether there has, in fact, been a lapse in bond coverage.  The evidence establishes that there has not.

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I recognize that there can be no lapse in surety bond coverage.  See Global MD Systems, Inc., DAB No. 3103 (2023).  I also recognize that a belated retroactive surety bond does not satisfy statutory and regulatory requirements, since the supplier has allowed the coverage to lapse, and, during the time of its lapse, CMS is not protected.  See Pepper Hill Nursing & Rehab. Center, LLC, DAB No. 2395 at 5-7 (2011).  But this is not a situation in which the supplier failed to obtain and pay for a surety bond in the first instance and subsequently obtained one that was issued retroactively.  Here, the supplier paid for the bond, and the money was always there (albeit in the wrong account) to pay any claims.  The insurer acknowledges that sending the contractor notice that the bond had been cancelled was simply a mistake.  From this admission, I can reasonably infer that the insurer would have honored any claims submitted at the time they were submitted.  CMS Ex. 7 at 2. 

Conclusion

Because the supplier’s surety bond remained in full force and effect, with no lapse in coverage, CMS was not authorized to revoke its supplier number under 42 C.F.R. § 424.57(c)(26).

Endnotes

¹  Deciding a case based on the written record does not mean that it is decided without a hearing.  In reviewing administrative appeals, courts recognize that, by considering the evidence and applying the law, the ALJ has granted the petitioner a hearing, even if that hearing was not an “oral” or “evidentiary” hearing.  See 42 C.F.R. § 498.66(d) (on conducting a hearing without oral testimony); CNG Transmission Corp. v. FERC, 40 F.3d 1289, 1293 (D.C. Cir. 1994) (holding that a “paper hearing” satisfies statutory requirements for “notice and opportunity for hearing.”).

²  I make this one finding of fact/conclusion of law.