Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

October 2008 

OEI-03-07-00540 

 

SOUTH FLORIDA DURABLE 

MEDICAL EQUIPMENT 

SUPPLIERS: RESULTS OF 

APPEALS 
Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors in 

carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations. These assessments help reduce waste, 

abuse, and mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of fraud and misconduct related to HHS programs, operations, and 

beneficiaries. With investigators working in all 50 States and the District of Columbia, OI 

utilizes its resources by actively coordinating with the Department of Justice and other 

Federal, State, and local law enforcement authorities. The investigative efforts of OI often 

lead to criminal convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims 

Act, program exclusion, and civil monetary penalty cases. In connection with these cases, 

OCIG also negotiates and monitors corporate integrity agreements. OCIG renders 

advisory opinions, issues compliance program guidance, publishes fraud alerts, and 

provides other guidance to the health care industry concerning the anti-kickback statute 

and other OIG enforcement authorities. 
 

Δ EXECUTIVE SUMMARY 

OBJECTIVES

1. To determine the number of South Florida durable medical 

equipment suppliers that were removed from the Medicare program 

(as a result of an Office of Inspector General (OIG)-led initiative) 

and later appealed and were reinstated by hearing officers. 

2. To determine the types of evidence that hearing officers reviewed for 

the South Florida suppliers that were reinstated. 

3. To determine the number of reinstated South Florida suppliers that 

were later removed from the Medicare program or indicted for fraud. 

BACKGROUND 

Suppliers of durable medical equipment, prosthetics, orthotics, and 

supplies (hereinafter referred to as suppliers) must enroll in the 

Medicare program to sell or rent medical equipment and supplies to 

Medicare beneficiaries and to submit claims for Medicare 

reimbursement. The Centers for Medicare & Medicaid Services (CMS) 

contracts with the National Supplier Clearinghouse (NSC) to manage 

the enrollment of suppliers in the Medicare program. 

Suppliers must comply with Medicare’s supplier standards. If a 

supplier fails to comply with all supplier standards, CMS may deny or 

revoke the supplier’s billing privileges. A supplier whose Medicare 

billing privileges have been denied or revoked may appeal the 

determination. A supplier’s billing privileges can also be inactivated at 

any time for several reasons, such as failure to submit Medicare claims 

for four consecutive quarters. 

A significant amount of supplier fraud and abuse has recently been 

identified in South Florida. The Department of Health and Human 

Services and the Department of Justice formed a Medicare Fraud Strike 

Force (Strike Force) comprised of Federal, State, and local investigators 

to combat fraud through the use of real-time analysis of Medicare 

billing data. Over a 3-month period in 2007, 56 individuals were 

charged in South Florida with fraudulently billing Medicare more than 

$258 million. As of March 2008, the Strike Force had brought charges 

against 120 defendants, resulting in 101 convictions. According to CMS, 

as of April 2007, over three-quarters of all supplier revocations (734 of 

938) nationwide during fiscal year 2007 occurred in Miami-Dade, 

Broward, and Palm Beach Counties. 

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EXECUTIVE SUMMARY 

In March 2007, OIG issued a report about South Florida suppliers. OIG 

staff, along with CMS and its contractor staff, conducted unannounced 

site visits to 1,581 suppliers located in Miami-Dade, Broward, and Palm 

Beach Counties. OIG found 491 suppliers that failed to maintain a 

physical facility or were not open and staffed during the unannounced 

site visits. OIG referred these 491 suppliers to CMS so that CMS could 

consider revocation. CMS revoked these suppliers’ billing privileges. 

For the suppliers that appealed their billing privileges revocations and 

received hearings, we reviewed the appeal files. We determined the 

types of evidence suppliers submitted to appeal the revocations of their 

billing privileges. We also reviewed CMS policies, procedures, and 

written responses to our questions regarding the supplier hearing 

process and hearing officer criteria. 

NSC conducted a follow-up project to review suppliers that were 

reinstated as a result of appeals. We used NSC data as of March 2008 

to identify the status of reinstated suppliers. We obtained information 

on indictments and convictions from our Office of Investigations as of 

April 2008. 

FINDINGS 

Nearly half of the 491 revoked South Florida suppliers appealed and 

received hearings; hearing officers reinstated the billing privileges 

for 91 percent of these suppliers. After our prior study, hearing 

officers conducted hearings for 243 of the 491 revoked South Florida 

suppliers. Billing privileges were reinstated for 91 percent of these 

suppliers (222 of 243). 

Because there are no criteria regarding the types of evidence 

necessary to reinstate supplier billing privileges, hearing officers 

reinstated billing privileges based on a variety of evidence. 

Although CMS has developed procedural guidelines for hearings, it has 

not provided hearing officers with criteria regarding the types of 

evidence revoked suppliers must submit to have their billing privileges 

reinstated. Therefore, hearing officers reviewed various types of 

evidence to reinstate the revoked South Florida suppliers’ billing 

privileges. Examples of evidence that suppliers provided include 

photographs, affidavits, utility bills, and leases.

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EXECUTIVE SUMMARY 

Two-thirds of suppliers whose billing privileges were reinstated 

have subsequently had their privileges revoked or inactivated, and 

some individuals connected to reinstated suppliers have been 

indicted. Half of suppliers whose billing privileges were reinstated 

(111 of 222) have subsequently had their privileges revoked. An 

additional 17 percent of suppliers (37 of 222) have had their billing 

privileges inactivated. As a result, two-thirds of suppliers whose billing 

privileges were reinstated by hearing officers (148 of 222) had their 

privileges revoked again or inactivated. 

In addition, between April and September 2007, the U.S. Attorney’s 

Office indicted 18 individuals connected to 15 of the 222 reinstated 

suppliers. As of April 2008, 10 of the 18 defendants had been convicted 

and were each ordered to pay between $90,000 and $11 million in 

restitution. These 10 defendants were also sentenced to jail terms 

ranging from 1 to 4 years. 

RECOMMENDATION 

To protect beneficiaries and the integrity of Medicare payments, CMS 

has developed standards that suppliers must meet to enroll in Medicare. 

CMS has also taken steps to ensure suppliers’ compliance with these 

standards. For example, CMS has announced a 2-year demonstration 

project designed to identify noncompliant suppliers and detect 

potentially fraudulent supplier behavior. These efforts may result in 

CMS denying or revoking billing privileges for suppliers that do not 

meet all Medicare enrollment standards. 

All suppliers whose billing privileges have been denied or revoked may 

appeal and request a hearing. However, there are no criteria for 

hearing officers regarding the types of evidence required to reinstate a 

supplier’s billing privileges. Hearing officers generally accept all 

documentation submitted by suppliers as legitimate, unless they have 

reason to believe otherwise. Our findings suggest that a more critical 

review of the types of evidence submitted by suppliers is warranted to 

ensure that fraudulent suppliers are not reinstated. 

Therefore, we recommend that CMS: 

Strengthen the appeal process by developing criteria regarding the types of 

evidence required for hearing officers to reinstate suppliers’ billing 

privileges. 

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 O E I - 0 3 - 0 7 - 0 0 5 4 0 S OUTH F LORIDA DURABLE MEDICAL E QUIPMENT S UPPLIERS : RESULTS OF APPEALS iv 

EXECUTIVE SUMMARY 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In responding to our report, CMS stated that it has been taking 

aggressive steps to prevent fraud and abuse in the Medicare program. 

For example, CMS points out that all suppliers will need to become 

accredited by October 1, 2009, which CMS believes will ensure that only 

legitimate suppliers serve Medicare beneficiaries. 

CMS agreed that it should consider establishing guidelines regarding 

the evaluation of evidence that a hearing officer will review. CMS 

believes that it would be useful for OIG to provide specific suggestions 

regarding appropriate criteria for hearing officers. However, CMS 

stated that any guidance provided should not impinge on a hearing 

officer’s ability to make an independent determination or with a 

supplier’s ability to submit any evidence that it believes will support the 

reversal of a revocation or denial decision. 

We agree that CMS should develop criteria that maintain the 

independence of hearing officers and suppliers’ ability to submit any 

evidence they wish to send. We suggest that CMS develop a list of 

evidence that it believes would support a decision to overturn various 

reasons for revocation and that such evidence should be germane to the 

reason for revocation. For example, if CMS revokes a supplier’s billing 

privileges because staff was not present at the supplier’s facility after 

multiple site visit attempts during reasonable business hours, the 

supplier should not be reinstated based on the submission of cell phone 

bills, leases, driver’s licenses, or photographs. Instead, reinstatement 

should be based on evidence that the supplier met the Medicare 

standard requiring it to maintain a physical facility that is accessible to 

beneficiaries and CMS during reasonable business hours. CMS should 

also develop criteria that enable hearing officers to verify the legitimacy 

and credibility of documents submitted by suppliers as evidence during 

appeals. 
Δ TABLE OF CONTENTS 

EXECUTIVE SUMMARY .....................................i

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

FINDINGS .................................................7 

Hearing officers reinstated 91 percent of suppliers that 

received hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

With no criteria regarding the types of evidence necessary 

to reinstate supplier billing privileges, hearing officers 

accepted various types of evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 7 

 Two-thirds of suppliers whose billing privileges were 

reinstated have subsequently been revoked or inactivated, 

and some individuals have been indicted. . . . . . . . . . . . . . . . . . . . . 8 

 

RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

 Agency Comments and Office of Inspector General Response. . . . 11 

 

 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 A: Medicare Supplier Standards . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 B: Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 

 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
 

Δ INTRODUCTION 

OBJECTIVES 

1. To determine the number of South Florida durable medical 

equipment suppliers that were removed from the Medicare program 

(as a result of an Office of Inspector General (OIG)-led initiative) 

and later appealed and were reinstated by hearing officers. 

2. To determine the types of evidence that hearing officers reviewed for 

the South Florida suppliers that were reinstated. 

3. To determine the number of reinstated South Florida suppliers that 

were later removed from the Medicare program or indicted for fraud. 

BACKGROUND 

Medical equipment is covered under Medicare Part B and includes 

items such as hospital beds, wheelchairs, respirators, walkers, and 

artificial limbs.1 

A supplier of durable medical equipment, prosthetics, orthotics, and 

supplies (hereinafter referred to as a supplier) is any entity or 

individual that sells or rents Part B-covered items to Medicare 

beneficiaries.2 The Centers for Medicare & Medicaid Services (CMS) 

contracts with the National Supplier Clearinghouse (NSC), operated by 

Palmetto Government Benefits Administrators, to manage the 

enrollment of suppliers into the Medicare program. 

Supplier Enrollment Process 

Suppliers must meet all supplier standards to receive payment for a 

Medicare-covered item.3 Appendix A contains a complete list of the 

Medicare standards. 

Supplier applicants must complete a Medicare enrollment application to 

be considered for enrollment. Applicants must certify in their 

applications that they meet and will continue to meet the Medicare 

1 Social Security Act § 1832(a)(2)(G), 42 U.S.C. § 1395k(a)(2)(G); § 1832(a)(2)(I), 42 U.S.C. 

§ 1395k(a)(2)(I); § 1834(a)(13), 42 U.S.C. § 1395m(a)(13); § 1861(n), 42 U.S.C § 1395x(n). 

2 42 CFR § 424.57(a). 

3 42 CFR §§ 424.57(b) and (c). Four new supplier standards were added to the original 

21 and published in the Federal Register. 71 Fed. Reg. 48354, 48409 (Aug. 18, 2006). The 

additional supplier standards relate to accreditation of suppliers and are provided in 

Appendix A. However, CMS is phasing in the accreditation process, along with its Medicare 

Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive Bidding 

Program. Any supplier that wishes to participate in competitive bidding must be 

accredited. The deadline for all suppliers to obtain accreditation is September 30, 2009. 

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INTRODUCTION 

supplier standards. Once granted billing privileges, suppliers must 

reenroll in the Medicare program every 3 years to continue receiving 

Medicare reimbursement.4 

For most suppliers, the NSC conducts an unannounced site visit before 

approving an applicant and granting Medicare billing privileges. NSC 

can also conduct an unannounced reenrollment site visit every 3 years. 

Unannounced site visits may take place at any other time as deemed 

necessary, but generally site visits occur only when suppliers enroll and 

reenroll in the Medicare program. According to CMS, site visits are an 

important component of successful oversight of supplier enrollment 

because they ensure that CMS conducts business only with legitimate 

suppliers. In many cases, site visits are the only method CMS has to 

ensure that suppliers actually exist and meet the requirements to 

participate in the Medicare program.5 

Revocation of Billing Privileges 

If after a reenrollment site visit, or any other unannounced site visit, 

NSC finds that a supplier no longer meets the supplier standards, NSC 

can revoke the supplier’s billing privileges. When NSC revokes a 

supplier’s billing privileges, NSC sends the supplier a letter that 

explains the reason for revocation, the effective date of the revocation 

(15 days from the date the notice is mailed), and appeal rights and 

procedures. The supplier cannot receive reimbursement from Medicare 

for medical equipment furnished on or after the effective date of the 

revocation. 

Appeal Process 

A supplier whose Medicare enrollment application has been denied or 

whose Medicare billing privileges have been revoked may appeal the 

determination. When NSC denies a supplier’s application or revokes a 

supplier’s billing privileges, the supplier has two options to contest the 

determination: the supplier may submit a corrective action plan or 

request a reconsideration (hereinafter referred to as a hearing). A 

supplier must submit its corrective action plan or request a hearing 

within 90 days from the postmark of the denial or revocation letter. A 

supplier may not submit a corrective action plan and request a hearing 

at the same time. 

2 

4 42 CFR §§ 424.57(c) and (e). 

5 71 Fed. Reg. 20754, 20755 (Apr. 21, 2006). 

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INTRODUCTION 

Corrective Action Plan. If a supplier chooses to submit a corrective action 

plan to NSC, the plan must contain evidence of compliance. The plan 

must also provide sufficient assurance of the supplier’s intent to comply 

with the supplier standards. If CMS and NSC are satisfied that issues of 

noncompliance have been resolved, the supplier’s billing privileges may be 

granted or reinstated. 

Hearing. A hearing is an independent review by a hearing officer of the 

initial determination and the entire body of evidence, including any new 

information submitted by the supplier or NSC. It is the responsibility of 

the supplier to show that its billing privileges were denied or revoked 

erroneously. 6

Once the supplier submits its request for a hearing, NSC has 15 days to 

forward the hearing package to a hearing officer. The hearing officer 

then has 90 days to schedule and conduct a hearing and render a 

decision. 

Fraudulent and Abusive Supplier Activity in South Florida 

The Department of Health and Human Services (HHS), the Department 

of Justice (DOJ), and others have recently identified and documented a 

significant amount of supplier fraud in South Florida. This fraud 

includes suppliers billing for services that are not rendered and billing 

for services that are not medically necessary. NSC reports that Florida 

led the Nation for allegations of supplier noncompliance with Medicare 

standards during the last two quarters of 2006, as a result of allegations 

in Miami-Dade and Broward Counties.7 According to CMS, as of April 

2007, 78 percent of all supplier revocations (734 of 938) nationwide 

during fiscal year 2007 occurred in Miami-Dade, Broward, and Palm 

Beach Counties.8 

Response to Fraud and Abuse in South Florida 

In March 2007, HHS and DOJ formed a Medicare Fraud Strike Force 

(Strike Force) made up of Federal, State, and local investigators to 

combat the fraudulent activities of suppliers in South Florida through 

the use of real-time analysis of Medicare billing data. During a 3-month 

6 CMS, “Medicare Program Integrity Manual,” Pub. No. 100-08, ch. 10, § 19A. 

7 “Supplier Audit and Compliance Unit Intelligence Report.” Palmetto Government 

Benefits Administrators, NSC, pp. 14–15. April 19, 2007. 

8 HHS, “Medicare Provider Enrollment Demonstration Involving Suppliers of DMEPOS 

in High-Risk Areas.” Available online at 

http://www.hhs.gov/news/facts/medicarefraud/index.html. Accessed on December 12, 2007. 

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INTRODUCTION 

period in 2007, 56 individuals were charged in South Florida with 

fraudulently billing Medicare more than $258 million. As of March 

2008, the Strike Force had brought charges against 120 defendants, 

resulting in 101 convictions.9

In June 2007, CMS announced a 2-year demonstration project to 

strengthen its ability to detect and prevent fraudulent activity in South 

Florida.10 The demonstration was designed to detect potential 

fraudulent behavior at both the preenrollment stage as well as after 

suppliers are enrolled in Medicare. Under this demonstration, all 

suppliers in South Florida are required to submit a Medicare 

enrollment application to NSC. A supplier’s Medicare billing privileges 

will be revoked if the supplier fails to meet certain requirements, such 

as reporting a change of ownership or address. Finally, suppliers whose 

billing privileges are not revoked will be subject to an enhanced review 

and will be assigned a fraud-level indicator by NSC. To determine the 

appropriate fraud-level indicator for each supplier, NSC will consider 

factors such as supplier location, fraud potential of products and 

services provided by the supplier, and site visit results. 

Office of Inspector General Site Visits 

In March 2007, OIG issued a report entitled “South Florida Suppliers’ 

Compliance With Medicare Standards: Results From Unannounced 

Site Visits” (OEI-03-07-00150). OIG staff, along with CMS and its 

contractor staff at NSC, conducted unannounced site visits to 

1,581 suppliers located in Miami-Dade, Broward, and Palm Beach 

Counties. OIG conducted these site visits to determine whether each 

supplier was in compliance with two supplier standards, which included 

four specific requirements:11 

• The supplier must maintain a physical facility (Standard 7). 

• The facility must be accessible during business hours 

(Standard 8). 

• The facility must have a visible sign (Standard 8). 

4 

9 DOJ, “Miami Jury Convicts Physician and Three Business Owners of Medicare Fraud.” 

Available online at http://www.usdoj.gov/opa/pr/2008/March/08_crm_183.html. Accessed on 

March 26, 2008. 

10 HHS, “Medicare Provider Enrollment Demonstration Involving Suppliers of DMEPOS 

in High-Risk Areas.” Available online at 

http://www.hhs.gov/news/facts/medicarefraud/index.html. Accessed on December 12, 2007. 

11 42 CFR §§ 424.57(c)(7) and (8). 

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I NTRODUCTION DUCTION 

• The supplier’s hours of operation must be posted (Standard 8). 

If during an onsite review a facility is found closed during business 

hours, this becomes grounds for revocation in that the facility was found 

not in operation. A supplier must be operational upon site inspection to 

verify compliance with the Medicare supplier standards. “Operational” 

means the supplier has a qualified physical practice location; is open to 

the public for the purpose of providing health care related services; is 

prepared to submit valid Medicare claims; and is properly staffed, 

equipped, and stocked.12

If during an onsite review a facility is found closed during business 

hours, this becomes grounds for revocation in that the facility was found 

not in operation. A supplier must be operational upon site inspection to 

verify compliance with the Medicare supplier standards. “Operational” 

means the supplier has a qualified physical practice location; is open to 

the public for the purpose of providing health care related services; is 

prepared to submit valid Medicare claims; and is properly staffed, 

equipped, and stocked.12

Site Visit Results. A total of 491 of 1,581 suppliers (31 percent) failed to 

maintain physical facilities or were not open and staffed during the 

unannounced site visits. These suppliers did not maintain appropriate 

physical facilities, or their facilities were not accessible to beneficiaries 

during reasonable or posted business hours on at least two visits. OIG 

referred these suppliers to CMS so that CMS could consider revocation of 

the suppliers’ Medicare billing privileges. 

Effective January 1, 2007, CMS revoked the billing privileges of these 

491 suppliers. NSC sent letters to the 491 suppliers stating that a recent 

site visit was unsuccessful because the supplier’s “. . . site was either no 

longer at the location on file or not open on multiple attempts. Because 

[NSC] could not complete an inspection of [the supplier’s] facility, [NSC] 

could not verify [the supplier’s] compliance with the standards.” 

Therefore, NSC considered these suppliers to be out of compliance with all 

supplier standards. 

After CMS revoked the suppliers’ billing privileges, hearing officers 

conducted hearings and determined whether to reinstate suppliers that 

appealed the revocations. 

Follow-Up Site Visit Project 

After hearing officers conducted the supplier hearings, NSC began a 

follow-up project to determine suppliers’ compliance with Medicare 

standards. NSC conducted unannounced site visits to suppliers, 

including those whose billing privileges were initially revoked as a 

result of the OIG study and then reinstated by hearing officers. Most of 

the suppliers that NSC visited were located in Miami-Dade County and 

had been in the Medicare program only for a short amount of time. 

NSC conducted most of the site visits between March and July 2007. 

12 42 CFR § 424.502. 

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INTRODUCTION 

Using the standard NSC site visit protocol, NSC determined whether 

the reinstated suppliers were in compliance with the supplier 

standards. 

METHODOLOGY 

Data Collection and Analysis 

We requested appeal files from NSC for any of the 491 suppliers whose 

billing privileges were revoked as a result of OIG’s work in South 

Florida. Between April and September 2007, we received the supplier 

files from NSC. We reviewed the files to determine the number of 

suppliers that received hearings and were reinstated by hearing 

officers. 

We reviewed the documents in the appeal files to determine the number 

and types of evidence submitted by suppliers. We also reviewed CMS 

policies and procedures, including 42 CFR § 424.57, the CMS “Medicare 

Program Integrity Manual,” and NSC’s Statement of Work. 

Additionally, in December 2007, CMS provided written responses to our 

questions regarding hearing officer criteria and the hearing process. 

We requested regular updates from NSC on its follow-up project and the 

status of reinstated suppliers. We used NSC data as of March 2008 to 

identify whether suppliers that were reinstated by hearing officers 

subsequently had their billing privileges revoked or inactivated. We 

obtained information on indictments and convictions from our Office of 

Investigations as of April 2008. 

Limitations 

We requested all appeal files from NSC for the 491 revoked suppliers. 

We relied on NSC to provide us with complete appeal files. Our review 

of the suppliers’ appeal files was based only on the documents NSC 

provided to us in response to our request. 

Because our review was focused on suppliers that appealed and received 

hearings, we did not provide details on suppliers that submitted 

corrective action plans. 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

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Hearing officers conducted 

hearings for 243 of the 

491 South Florida suppliers 

whose billing privileges NSC 

revoked as a result of our prior 

study. These suppliers appealed the revocations of their Medicare 

billing privileges and requested hearings. Based on submitted evidence 

and hearing testimony, hearing officers determined whether to reinstate 

the suppliers’ billing privileges. Hearing officers reinstated the billing 

privileges for 91 percent of the suppliers that appealed and received 

hearings (222 of 243). 

Nearly half of the 491 revoked South Florida 

suppliers appealed and received hearings; 

hearing officers reinstated the billing privileges 

for 91 percent of these suppliers 

Δ FINDINGS 

Three hearing officers conducted all of the hearings for the 243 South 

Florida suppliers. One of these hearing officers conducted 54 supplier 

hearings and reinstated billing privileges for all 54 suppliers. Another 

hearing officer reinstated billing privileges for 87 of 93 suppliers 

(94 percent), and the third hearing officer reinstated billing privileges 

for 81 of 96 suppliers (84 percent). 

Many suppliers were represented by attorneys or consultants during the 

appeal process and at the suppliers’ hearings. Six firms represented 

60 percent of the suppliers that appealed and received hearings 

(145 of 243). An attorney who represented 15 suppliers during the 

appeal process was indicted and pled guilty to Medicare fraud in 

March 2007. As alleged in court documents, the attorney facilitated the 

fraudulent sale of 67 South Florida suppliers to nominee (or “straw”) 

purchasers who acted in place of the true purchasers of the companies. 

The attorney used various legal documents to conceal the true 

purchasers of the companies. 

Information regarding the 

hearing process is found in 

Federal Regulations, CMS’s 

“Medicare Program Integrity 

Manual,” and NSC’s 

Statement of Work.13 These 

Because there are no criteria regarding the types 

of evidence necessary to reinstate supplier billing 

privileges, hearing officers reinstated billing 

privileges based on a variety of evidence 

7 

13 CMS specifically cited the following three authorities as applicable: 42 CFR § 424.57; 

CMS, “Medicare Program Integrity Manual,” Pub. No. 100-08, ch.10, § 19; and Statement of 

Work, NSC. We note that 42 CFR § 405.874 is also a key applicable regulatory section. 

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FINDINGS 

documents include procedural guidelines for hearing officers, such as 

timeframes for conducting hearings and issuing determinations. 

However, these documents do not include criteria regarding the types of 

evidence hearing officers must receive from suppliers to reinstate their 

billing privileges. According to CMS, hearing officers accept all 

documentation submitted by suppliers, unless there is reason to believe 

the information is not legitimate.14 

Because there are no criteria regarding the types of evidence necessary 

to reinstate supplier billing privileges, suppliers reinstated by hearing 

officers submitted various types of evidence to appeal the revocations of 

their billing privileges. For example, at least 75 percent of reinstated 

suppliers submitted photographs, licenses and permits, or evidence 

related to medical equipment. Suppliers also provided affidavits or 

statements from suppliers’ owners stating that their businesses were 

open on the dates of the site visits. Over half of reinstated suppliers 

submitted evidence related to their businesses’ facilities, such as leases 

or utility bills. The types of evidence submitted by suppliers and the 

percentage of reinstated suppliers that submitted each type of evidence 

are presented in Table 1 on the next page. 

The billing privileges of half of the 

suppliers (111 of 222) that were 

reinstated by hearing officers have 

subsequently been revoked as a 

result of NSC’s follow-up project and 

its continuing efforts to identify 

suppliers that do not meet Medicare 

standards. In addition, 17 percent of suppliers (37 of 222) have had 

their billing privileges inactivated. As a result, two-thirds of suppliers 

whose billing privileges were reinstated by hearing officers (148 of 222) 

had their privileges revoked again or inactivated. 

Two-thirds of suppliers whose billing 

privileges were reinstated have subsequently 

had their privileges revoked or inactivated, 

and some individuals connected to reinstated 

suppliers have been indicted 

In addition, the U.S. Attorney’s Office has indicted 18 individuals 

connected to suppliers whose billing privileges were reinstated by 

hearing officers. These 18 people were indicted between April and 

September 2007 and were connected to 15 of the 222 suppliers that 

hearing officers reinstated. As of April 2008, 10 of the 18 defendants 

had been convicted and each was ordered to pay between $90,000 and 

8 

14 CMS written response to OIG questions. December 2007. 

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FINDINGS 

$11 million in restitution. These 10 defendants were also sentenced to 

jail terms ranging from 1 to 4 years. 

Table 1: Types of Evidence Submitted by Suppliers at Hearings

Types of Evidence 

Percentage of Reinstated Suppliers 

That Submitted at Least One 

Document Related to This Type of 

Evidence

Examples of Documents Submitted 

by Suppliers 

Photographs 79% 

Photographs of suppliers’ facilities, 

employees, posted hours, signs, 

medical equipment supplies 

Licenses and permits 78% Occupational license, driver’s license, 

insurance certificate, State permit 

Medical equipment evidence 75% Vendor invoice, delivery slip, 

equipment maintenance agreement 

Affidavits/statements 70% Affidavits/statements from owners, 

employees, neighboring businesses 

Physical facility evidence 57% Lease, electric bill, rent receipt 

Other 51% 

Delivery receipt from bottled water 

company, business cards, “On delivery” 

signs 

Phone evidence 46% Land-line phone bill, cell phone bill 

Banking evidence 41% Bank statement, copy of check 

Claims evidence 35% Summary of claims, Medicare 

remittance notice 

Fax evidence 29% Fax cover sheet, fax confirmation sheet 

Site inspection evidence 28% NSC report on previous site inspection 

Log evidence 13% Visitor log, alarm system log 

Employee evidence 13% Employee timesheet 

Patient evidence 10% Form with patient signature 

 

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Δ RECOMMENDATION 

To protect beneficiaries and the integrity of Medicare payments, CMS 

has developed standards that suppliers must meet to enroll in Medicare. 

CMS has also taken steps to ensure suppliers’ compliance with these 

standards. For example, CMS has announced a 2-year demonstration 

project designed to identify noncompliant suppliers and detect 

potentially fraudulent supplier behavior. These efforts may result in 

CMS denying or revoking billing privileges for suppliers that do not 

meet all Medicare enrollment criteria found in 42 CFR § 424.57. 

All suppliers whose billing privileges have been denied or revoked may 

appeal and request a hearing. This is an important process to ensure 

that only billing privileges for suppliers that fail to meet the supplier 

standards are denied or revoked. 

There are no criteria for hearing officers regarding the types of evidence 

required to reinstate a supplier’s billing privileges. For suppliers that 

request a hearing, hearing officers generally accept all documentation 

submitted as legitimate, unless they have reason to believe otherwise. 

Hearing officers reinstated the billing privileges for 91 percent of the 

South Florida suppliers that were revoked as a result of OIG’s prior 

study and received hearings. These billing privileges were revoked 

based on the results of the OIG-led unannounced site visits, yet were 

reinstated after suppliers submitted a wide variety of evidence to 

hearing officers. Two-thirds of these suppliers’ billing privileges have 

subsequently been revoked or inactivated, and individuals connected to 

some of these suppliers have been indicted. Our findings suggest that a 

more critical review of supplier evidence is warranted to ensure that 

fraudulent suppliers’ billing privileges are not reinstated. 

Therefore, we recommend that CMS: 

Strengthen the Appeal Process by Developing Criteria Regarding the Types 

of Evidence Required for Hearing Officers To Reinstate Suppliers’ Billing 

Privileges 

CMS should develop clear criteria for hearing officers on the types of 

evidence suppliers should submit for hearing officers to reinstate the 

suppliers’ billing privileges. CMS could develop a list of evidence that 

would support the need for overturning various types of revocations. 

CMS or hearing officers could provide this list of documents to suppliers 

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RECOMMENDATION 

before a determination is made. Once suppliers have submitted their 

evidence, hearing officers could also take steps to verify the legitimacy 

of certain types of evidence. CMS could provide standard training to all 

hearing officers regarding the types of evidence required to reinstate 

supplier billing privileges. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In responding to our report, CMS stated that it has been taking 

aggressive steps to prevent fraud and abuse in the Medicare program. 

CMS points out that, most importantly, all suppliers will need to 

become accredited by October 1, 2009, which CMS believes will ensure 

that only legitimate suppliers serve Medicare beneficiaries. 

Additionally, CMS published a final rule in June 2008 which extends 

appeal rights to all providers and suppliers whose enrollment 

applications for Medicare billing privileges are denied or revoked by 

CMS or a Medicare contractor.15 The rule also limits the submission of 

new evidence during an Administrative Law Judge review, requiring 

providers and suppliers to submit evidence and documentation at the 

lower levels of appeal. Finally, CMS stated that in March 2008, it 

established model provider enrollment letters, including letters 

regarding adverse provider enrollment determinations, that will help to 

ensure that applicants and enrolled providers and suppliers will be 

informed about the reason(s) for a denial or revocation and will be 

afforded the appropriate appeal rights. 

CMS agreed that it should consider establishing guidelines regarding 

the evaluation of evidence that a hearing officer will review. CMS 

believes that it would be useful for OIG to provide specific suggestions 

regarding appropriate criteria for hearing officers. However, CMS 

stated that any guidance provided should not impinge on a hearing 

officer’s ability to make an independent determination or with a 

supplier’s ability to submit any evidence that it believes will support the 

reversal of a revocation or denial decision. For the full text of CMS’s 

comments, see Appendix B. 

We agree that CMS should develop criteria that maintain the 

independence of hearing officers and suppliers’ ability to submit any 

15 73 Fed. Reg. 36449 (June 27, 2008). 

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RECOMMENDATION 

evidence they wish to send. We suggest that CMS develop a list of 

evidence that it believes would support a decision to overturn various 

reasons for revocation and that such evidence should be germane to the 

reason for revocation. For example, if CMS revokes a supplier’s billing 

privileges because staff was not present at the supplier’s facility after 

multiple site visit attempts during reasonable business hours, the 

supplier should not be reinstated based on the submission of cell phone 

bills, leases, driver’s licenses, or photographs. Instead, reinstatement 

should be based on evidence that the supplier met the Medicare 

standard requiring it to maintain a physical facility that is accessible to 

beneficiaries and to CMS during reasonable business hours. CMS 

should also develop criteria that enable hearing officers to verify the 

legitimacy and credibility of documents submitted by suppliers as 

evidence during appeals. 

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Δ APPENDIX A 

Medicare Supplier Standards, 42 CFR § 424.57(c) 

(1) Operates its business and furnishes Medicare-covered items in compliance with all 

applicable Federal and State licensure and regulatory requirements; 

(2) Has not made, or caused to be made, any false statement or misrepresentation of a 

material fact on its application for billing privileges. (The supplier must provide complete and 

accurate information in response to questions on its application for billing privileges. The 

supplier must report to CMS any changes in information supplied on the application within 

30 days of the change.); 

(3) Must have the application for billing privileges signed by an individual whose signature 

binds a supplier; 

(4) Fills orders, fabricates, or fits items from its own inventory or by contracting with other 

companies for the purchase of items necessary to fill the order. If it does, it must provide, 

upon request, copies of contracts or other documentation showing compliance with this 

standard. A supplier may not contract with any entity that is currently excluded from the 

Medicare program, any State health care programs, or from any other Federal Government 

Executive Branch procurement or nonprocurement program or activity; 

(5) Advises beneficiaries that they may either rent or purchase inexpensive or routinely 

purchased durable medical equipment, and of the purchase option for capped rental durable 

medical equipment, as defined in Sec. 414.220(a) of this subchapter. (The supplier must 

provide, upon request, documentation that it has provided beneficiaries with this information, 

in the form of copies of letters, logs, or signed notices.); 

(6) Honors all warranties expressed and implied under applicable State law. A supplier must 

not charge the beneficiary or the Medicare program for the repair or replacement of 

Medicare-covered items or for services covered under warranty. This standard applies to all 

purchased and rented items, including capped rental items, as described in Sec. 414.229 of 

this subchapter. The supplier must provide, upon request, documentation that it has 

provided beneficiaries with information about Medicare-covered items covered under 

warranty, in the form of copies of letters, logs, or signed notices; 

(7) Maintains a physical facility on an appropriate site. The physical facility must contain 

space for storing business records including the supplier's delivery, maintenance, and 

beneficiary communication records. For purposes of this standard, a post office box or 

commercial mailbox is not considered a physical facility. In the case of a multisite supplier, 

records may be maintained at a centralized location; 

(8) Permits CMS, or its agents to conduct on-site inspections to ascertain supplier compliance 

with the requirements of this section. The supplier location must be accessible during 

reasonable business hours to beneficiaries and to CMS, and must maintain a visible sign and 

posted hours of operation; 

(9) Maintains a primary business telephone listed under the name of the business locally or 

toll-free for beneficiaries. The supplier must furnish information to beneficiaries at the time 

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APPENDIX~A 

of delivery of items on how the beneficiary can contact the supplier by telephone. The 

exclusive use of a beeper number, answering service, pager, facsimile machine, car phone, or 

an answering machine may not be used as the primary business telephone for purposes of this 

regulation; 

(10) Has a comprehensive liability insurance policy in the amount of at least $300,000 that 

covers both the supplier's place of business and all customers and employees of the supplier. 

In the case of a supplier that manufactures its own items, this insurance must also cover 

product liability and completed operations. Failure to maintain required insurance at all 

times will result in revocation of the supplier’s billing privileges retroactive to the date the 

insurance lapsed; 

(11) Must agree not to contact a beneficiary by telephone when supplying a Medicare-covered 

item unless one of the following applies: 

(i) The individual has given written permission to the supplier to contact them by telephone 

concerning the furnishing of a Medicare-covered item that is to be rented or purchased. 

(ii) The supplier has furnished a Medicare-covered item to the individual and the supplier is 

contacting the individual to coordinate the delivery of the item. 

(iii) If the contact concerns the furnishing of a Medicare-covered item other than a covered 

item already furnished to the individual, the supplier has furnished at least one covered item 

to the individual during the 15-month period preceding the date on which the supplier makes 

such contact. 

(12) Must be responsible for the delivery of Medicare covered items to beneficiaries and 

maintain proof of delivery. (The supplier must document that it or another qualified party 

has at an appropriate time, provided beneficiaries with necessary information and 

instructions on how to use Medicare-covered items safely and effectively); 

(13) Must answer questions and respond to complaints a beneficiary has about the 

Medicare-covered item that was sold or rented. A supplier must refer beneficiaries with 

Medicare questions to the appropriate carrier. A supplier must maintain documentation of 

contacts with beneficiaries regarding complaints or questions; 

(14) Must maintain and replace at no charge or repair directly, or through a service contract 

with another company, Medicare-covered items it has rented to beneficiaries. The item must 

function as required and intended after being repaired or replaced; 

(15) Must accept returns from beneficiaries of substandard (less than full quality for the 

particular item or unsuitable items, inappropriate for the beneficiary at the time it was fitted 

and rented or sold); 

(16) Must disclose these supplier standards to each beneficiary to whom it supplies a 

Medicare-covered item; 

(17) Must comply with the disclosure provisions in Sec. 420.206 of this subchapter; 

(18) Must not convey or reassign a supplier number; 

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APPENDIX~A 

(19) Must have a complaint resolution protocol to address beneficiary complaints that relate to 

supplier standards in paragraph (c) of this section and keep written complaints, related 

correspondence and any notes of actions taken in response to written and oral complaints. 

Failure to maintain such information may be considered evidence that supplier standards 

have not been met. (This information must be kept at its physical facility and made available 

to CMS, upon request.); 

(20) Must maintain the following information on all written and oral beneficiary complaints, 

including telephone complaints, it receives: 

(i) The name, address, telephone number, and health insurance claim number of the 

beneficiary. 

(ii) A summary of the complaint; the date it was received; the name of the person receiving the 

complaint, and a summary of actions taken to resolve the complaint. 

(iii) If an investigation was not conducted, the name of the person making the decision and the 

reason for the decision. 

(21) Provides to CMS, upon request, any information required by the Medicare statute and 

implementing regulations. 

The following items have been added as Medicare supplier standards in the Federal Register 

notice dated August 16, 2006. The additional standards relate to the accreditation of 

suppliers. However, CMS is phasing-in the accreditation process, along with its Medicare 

Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive 

Bidding Program. Any supplier that wishes to participate in competitive bidding must be 

accredited or pending accreditation. The deadline for all suppliers to obtain accreditation is 

September 30, 2009. 

(22) 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. 

(23) All DMEPOS suppliers must notify their accreditation organization when a new 

DMEPOS location is opened. The accreditation organization may accredit the new supplier 

location for 3 months after it is operational without requiring a new site visit. 

(24) All DMEPOS supplier locations, whether owned or subcontracted, must meet the 

DMEPOS quality standards and be separately accredited in order to bill Medicare. An 

accredited supplier may be denied enrollment or their enrollment may be revoked, if CMS 

determines that they are not in compliance with the DMEPOS quality standards. 

(25) All DMEPOS suppliers must disclose upon enrollment all products and services, 

including the addition of new product lines for which they are seeking accreditation. If a new 

product line is added after enrollment, the DMEPOS supplier will be responsible for notifying 

the accrediting body of the new product so that the DMEPOS supplier can be re-surveyed and 

accredited for these new products. 

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Δ APPENDIX B 

Agency Comments 

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APPENDIX ~ B 

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APPENDIX ~ B 

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APPENDIX ~ B 

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Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office, and Linda M. Ragone, Deputy Regional Inspector 

General. 

Emily Dolan Multari served as the project leader for this study. Other 

principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office who contributed to the report include 

Conswelia McCourt; central office staff who contributed include 

Kevin Farber and Scott Manley.