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                              353 Empire Pharmacy Inc. d/b/a Wellpha, Inc., CR6288 (2023)
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353 Empire Pharmacy Inc. d/b/a Wellpha, Inc., CR6288 (2023)








  
  
    

  
      
Department of Health and Human Services 
    DEPARTMENTAL APPEALS BOARD
          Civil Remedies Division





353 Empire Pharmacy Inc. d/b/a Wellpha, Inc.
(NPI: 1871506337 / PTAN: 4537780001),
Petitioner,

v.

Centers for Medicare & Medicaid Services.
Docket No. C-22-312Decision No. CR6288May 19, 2023

        
              
    

      DECISION

The Centers for Medicare & Medicaid Services (CMS), through its Medicare administrative contractor, Palmetto GBA, acting as the National Supplier Clearinghouse (NSC), revoked the Medicare enrollment and billing privileges of 353 Empire Pharmacy Inc. d/b/a Wellpha, Inc. (Petitioner) pursuant to 42 C.F.R. §§ 424.535(a)(1) and 424.57(e).  NSC found that Petitioner did not comply with the supplier standards at 42 C.F.R. § 424.57(c)(22) and (c)(26) (supplier standards 22 and 26) because Petitioner failed to obtain accreditation and failed to maintain a surety bond.  Petitioner asserts that it purchased a surety bond and was exempt from the requirement to be accredited.  As described more fully below, I conclude that CMS had a basis to revoke Petitioner’s Medicare enrollment and billing privileges.  I therefore sustain the revocation.

I.   Background and Procedural History

Petitioner is a supplier of Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) located in Brooklyn, New York.  *See, e.g.*, CMS Exhibit (Ex.) 16 at 1.  By letter dated May 28, 2020 (initial revocation determination), NSC notified Petitioner that its billing privileges were being revoked, effective March 10, 2020, the date Petitioner’s surety bond was canceled.  *Id*.  The initial determination relied on three grounds to revoke Petitioner’s Medicare enrollment:  42 C.F.R. § 424.57(c)(10) (supplier

Page 2

standard 10 ‒ failure to maintain a comprehensive liability insurance policy), 42 C.F.R. § 424.57(c)(22) (supplier standard 22 ‒ failure to be accredited by a CMS-approved accreditation organization), and 42 C.F.R. § 424.57(c)(26) (supplier standard 26 ‒ failure to maintain a valid surety bond).  *Id.*at 1-2.  NSC also informed Petitioner that it was barred from reenrolling in Medicare for two years.  *Id.* at 4.

Petitioner represents that it did not receive the initial revocation determination on or around May 28, 2020, and did not learn of the revocation until sometime in March 2021.  CMS Ex. 17 at 3.  Thereafter, by letter dated July 23, 2021, Petitioner, through counsel, requested reconsideration and asserted that it had good cause for not filing its reconsideration request within 60 days, based on the effects of the COVID-19 public health emergency.  *Id.*  With its reconsideration request, Petitioner enclosed copies of a certificate of liability insurance, effective from May 6, 2021 through May 6, 2022, and a reinstated surety bond with an effective date of February 25, 2021.  *Id.*at 87, 88.

By letter dated September 21, 2021, an NSC hearing officer issued an unfavorable reconsidered determination.  CMS Ex. 19.  The reconsidered determination found good cause for Petitioner’s late filing and accepted Petitioner’s documentation as proof that Petitioner complied with 42 C.F.R. § 424.57(c)(10) and (26) (liability insurance and surety bond).  *Id.*at 2, 6.  However, the hearing officer determined that Petitioner did not prove that it complied with 42 C.F.R. § 424.57(c)(22) (accreditation).  *Id.*at 6-7.

Petitioner timely requested a hearing before an administrative law judge.  The case was docketed as C-22-106 and assigned to me.  CMS moved for remand.  *See*Docket Entry # 7 in the Departmental Appeals Board (DAB) Electronic Filing System (E-File) for Docket No. C-22-106.  Petitioner did not oppose remand.  *Id.* With the parties’ agreement, I remanded the case to CMS in an order issued January 4, 2022.  Docket Entry # 8 in DAB E-File for Docket No. C-22-106.

On remand, NSC reopened and revised the reconsidered determination.  CMS Ex. 21.  In the revised reconsideration, NSC concluded that Petitioner did not comply with 42 C.F.R. § 424.57(c)(26) because it did not maintain a surety bond from March 10, 2020, to February 24, 2021.  *Id.*at 6.  NSC also concluded that Petitioner failed to comply with 42 C.F.R. § 424.57(c)(22) (accreditation).1  *Id.*at 6-7.  Petitioner again requested a hearing and the case was docketed as C-22-312 and assigned to me.

Page 3

On February 11, 2022, my office acknowledged receipt of Petitioner’s hearing request and provided a copy of my Standing Prehearing Order (Prehearing Order).  In accordance with my Prehearing Order, CMS filed a prehearing brief and motion for summary judgment (CMS Br.) and 23 exhibits (CMS Exs. 1-23).  Petitioner filed a prehearing brief in which it opposed CMS’s motion for summary judgment (P. Br.).  With its brief, Petitioner offered 12 exhibits (P. Exs. 1-12).  Petitioner did not object to CMS’s exhibits.  CMS objected to P. Exs. 2, 3, 5, 6, and 10-12 as duplicative of documents already of record.  *See*Docket Entry # 8 in DAB E-File for C-22-312.  In the absence of objection, I admit into the record CMS Exs. 1-23.  I sustain CMS’s objections and do not admit P. Exs. 2, 3, 5, 6, and 10-12.

My Prehearing Order advised the parties that they must submit written direct testimony for each proposed witness and that I would convene an oral hearing only if the opposing party requested an opportunity to cross-examine a witness.  Prehearing Order ¶¶ 8-10; *see* *Vandalia Park*, DAB No. 1940 (2004); *Pacific Regency Arvin*, DAB No. 1823 at 7-8 (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).2  In its brief, Petitioner stated it intended to call as witnesses “at a final hearing” its current owner and two representatives of the pharmacy’s previous owners.  P. Br. at 8.  However, Petitioner failed to offer the written direct testimony of any of the proposed witnesses.3 I therefore decline to convene a hearing, and I decide this case on the written record without considering whether the standard for summary judgment is met.  Prehearing Order ¶¶ 8-10.  I deny CMS’s motion for summary judgment as moot.

II. Issue

The issue in this case is whether CMS had a legal basis to revoke Petitioner’s Medicare enrollment and billing privileges under 42 C.F.R. § 424.535(a)(1).

III. Jurisdiction

I have jurisdiction to hear and decide this case.  42 C.F.R. §§ 498.3(b)(17), 498.5(*l*)(2); *see also* Social Security Act (Act) § 1866(j)(8) (codified at 42 U.S.C. § 1395cc(j)(8)).

Page 4

IV. Discussion

**A. Statutory and Regulatory Background**

Petitioner is a “supplier” for purposes of the Medicare program.  *See*Act § 1861(d) (42 U.S.C. § 1395x(d)); 42 C.F.R. § 400.202 (definition of supplier).  To participate in the Medicare program as a supplier, an individual or entity must meet certain criteria to enroll and receive billing privileges.  42 C.F.R. §§ 424.505, 424.510.  CMS may revoke the enrollment and billing privileges of a supplier for any reason stated in 42 C.F.R. § 424.535.

The Act requires that a DMEPOS supplier obtain a supplier number from the Secretary of Health and Human Services (Secretary) to enroll and establish billing privileges as a Medicare supplier.  Act § 1834(j)(1)(A) (42 U.S.C. § 1395m(j)(1)(A)).  The Act also requires, in relevant part, that DMEPOS suppliers comply with applicable state and federal licensure and regulatory requirements and any other requirements the Secretary may specify.  Act § 1834(j)(1)(B)(ii)(I) and (IV) (42 U.S.C. § 1395m(j)(1)(B)(ii)(I) and (IV)).

The Secretary has promulgated regulations establishing standards for DMEPOS suppliers that wish to enroll in Medicare.  42 C.F.R. § 424.57(c)(1)-(30).  A DMEPOS supplier must certify that it meets and will continue to meet all 30 standards to qualify for a supplier number and billing privileges.  *Main St. Pharmacy, LLC*, DAB No. 2349 at 2 (2010).  If a DMEPOS supplier already enrolled in the Medicare program fails to comply with any of the requirements set forth in section 424.57(c), CMS will revoke that supplier’s billing privileges.  42 C.F.R. § 424.57(e); *see also 1866ICPayday.com, L.L.C.*, DAB No. 2289 at 13 (2009) (“failure to comply with even one supplier standard is a sufficient basis for revoking a supplier’s billing privileges.”).

Section 1834(a)(16)(B) of the Act (42 U.S.C. § 1395m(a)(16)(B)) states that the Secretary “shall not provide for the issuance (or renewal) of a provider number for a supplier of durable medical equipment, for purposes of payment . . . for durable medical equipment furnished by the supplier, unless the supplier provides the Secretary *on a continuing basis* . . . with a surety bond in a form specified by the Secretary and in an amount that is not less than $50,000 . . . .” (emphasis added).

CMS’s regulations implement these requirements among the “supplier standards” at 42 C.F.R. § 424.57(c).  As relevant here, section 424.57(c) provides:

(c) *Application certification standards.*The supplier must meet and must certify in its application for billing privileges that it meets and will continue to meet the following standards.

Page 5

* * * *

(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.

* * * *

(26) Must meet the surety bond requirements specified in paragraph (d) of this section.

The surety bond requirements referenced in supplier standard 26 state that “beginning October 2, 2009, each Medicare-enrolled DMEPOS supplier must meet the requirements of paragraph (d),” which include “a bond that is continuous,” which “meet[s] the minimum requirements of liability coverage ($50,000),” and provides that “[t]he surety is liable for unpaid claims, CMPs [civil money penalties], or assessments that occur during the term of the bond.” 42 C.F.R. § 424.57(d)(1)(i), (4), (5).  The regulations provide that failure to maintain a surety bond as required is grounds for revocation of a supplier’s billing privileges.  42 C.F.R. § 424.57(d)(4)(ii)(B); *see also* 42 C.F.R. § 424.57(d)(11)(i) (“CMS revokes the DMEPOS supplier’s billing privileges if an enrolled DMEPOS supplier fails to obtain, file timely, or maintain a surety bond as specified in this subpart and CMS instructions.”).

Section 424.57(d)(6)(i) permits a DMEPOS supplier to cancel its surety bond but requires the supplier to “provide written notice at least 30 days before the effective date of the cancellation to the CMS contractor and the surety.”  However, “[c]ancellation of a surety bond is grounds for revocation of the DMEPOS supplier’s Medicare billing privileges unless the DMEPOS supplier provides a new bond before the effective date of the cancellation.” 42 C.F.R. § 424.57(d)(6)(ii).

**B. Findings of Fact,Conclusions of Law, and Analysis**

***1. CMS was authorized to revoke Petitioner’s Medicare enrollment and billing privileges under 42 C.F.R. §§ 424.535(a)(1) and 424.57(c)(26) because Petitioner failed to continuously maintain a surety bond.***

***a. Petitioner’s surety bond lapsed on March 10, 2020, and Petitioner’s new bond did not become effective until February 25, 2021.***

Page 6

Prior to March 10, 2020, Petitioner maintained a surety bond underwritten by Old Republic Insurance Company in the amount of $50,000, naming CMS as the obligee.  *See*CMS Ex. 14 at 2.  On or around January 30, 2020, Old Republic Insurance Company notified CMS, in care of NSC, that effective March 10, 2020, the bond would be canceled for non-payment of the premium.  *Id*.  Petitioner admits that its surety bond lapsed.4  RFH at 5 (“from March 10, 2020 through February 2021 . . . an inadvertent, easily correctable, administrative oversight occurred with respect to the maintenance of [Petitioner’s] surety bond” due to the COVID-19 public health emergency); *see also*P. Br. at 10-11.Based on Petitioner’s admission, I find that Petitioner had no surety bond in force beginning on March 10, 2020, until February 25, 2021, when the new surety bond became effective.

These facts establish that Petitioner violated 42 C.F.R. § 424.57(c)(26) (supplier standard 26).  As of May 28, 2020, when NSC issued the initial revocation determination, Petitioner lacked a valid surety bond.  Because Petitioner no longer complied with the surety bond requirements in 42 C.F.R. § 424.57(d), NSC was authorized to revoke Petitioner’s Medicare billing privileges.  42 C.F.R. §§ 424.535(a)(1), 424.57(d)(11).

***b. Petitioner’s subsequent purchase of a surety bond did not alter CMS’s authority to revoke Petitioner’s Medicare enrollment and billing privileges.***

The regulations are clear that a DMEPOS supplier is required to *continuously*maintain a surety bond.  42 C.F.R. § 424.57(d); *see also* *Pepper Hill Nursing & Rehab. Ctr.*, DAB No. 2395 at 6-7 (2011) (supplier’s subsequent execution of a surety bond does not demonstrate that it was in compliance with the surety bond requirement at the time NSC revoked the supplier’s Medicare enrollment); *Bentley Pharmacy, Inc.*, DAB CR2235 at 6 (2010) (the issue before the administrative law judge “is not whether [the supplier] intended to be compliant or can belatedly achieve compliance with the surety bond requirements, but whether CMS correctly found that, *at the time of the revocation action*, [the supplier] was not in compliance.”) (emphasis in original).  Petitioner concedes that there was a time during which Petitioner did not have a surety bond in effect.  *See*RFH at 5.  The fact that Petitioner purchased a new surety bond *after* NSC revoked its Medicare enrollment does not establish that Petitioner complied with the Medicare

Page 7

DMEPOS supplier standards.  At most, Petitioner’s purchase of a new bond represents Petitioner’s effort to correct its noncompliance.

In correspondence with NSC, Petitioner itself described its effort to return to compliance with the Medicare supplier standards as a corrective action plan (CAP).  *See* CMS Ex. 17 at 2; *see also*P. Br. at 4.  NSC rejected Petitioner’s CAP in a letter dated January 12, 2022.5  CMS Ex. 20.  However, NSC’s review of Petitioner’s CAP is not before me and cannot form a basis to reverse CMS’s determination to revoke Petitioner’s Medicare enrollment and billing privileges.  Section 405.809 of the regulations explicitly precludes administrative law judge review of CMS’s or its contractor’s rejection of a CAP:  “The refusal of CMS or its contractor to reinstate a provider or supplier’s billing privileges based on a corrective action plan is not an initial determination under part 498 of this chapter.” 42 C.F.R. § 405.809(b)(2).  Several appellate decisions of the DAB confirm that administrative law judges have no authority to review CMS’s (or a contractor’s) decision to reject a proposed CAP.  *See, e.g.*,*Conchita Jackson, M.D.*, DAB No. 2495 at 6 (2013); *DMS Imaging, Inc.*, DAB No. 2313 at 6 (2010).  Thus, to the extent Petitioner contends that NSC should have determined that the actions Petitioner took following revocation cured the noncompliance, I may not consider that argument.

In summary, for the reasons explained above, I conclude that Petitioner failed to continuously maintain a surety bond, as required by supplier standard 26.  Therefore, CMS, acting through NSC, had a legal basis to revoke Petitioner’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. §§ 424.535(a)(1) and 424.57(d)(11).

***2. Petitioner’s equitable arguments are not a basis to reverse the revocation of its Medicare enrollment and billing privileges.***

Petitioner argues, among other things, that its noncompliance was “the result of inadvertence during the extreme strain of the COVID-19 public health emergency.” P. Br. at 12.  Petitioner further avers that its conduct posed no risk to the Medicare program.  *Id.*at 11.  In essence, these arguments invite me to overturn the revocation of Petitioner’s Medicare enrollment on equitable grounds.  However, I cannot grant such relief.  *Arriva Med. LLC*, DAB No. 2934 at 16 (2019) (citing *Cent. Kan. Cancer Inst.*, DAB No. 2749 at 10 (2016)).  As an administrative law judge, I am “authorized to review only whether CMS had a legal basis to revoke [a supplier’s] Medicare billing privileges,

Page 8

not CMS’s exercise of discretion to do so.” *Lorrie Laurel, PT*, DAB No. 2524 at 7 (2013) (citing*Letantia Bussell, M.D.*, DAB No 2196 at 12-13 (2008)).  Thus, once CMS establishes a legal basis on which to proceed with a revocation, as it has done here, then the CMS determination to revoke becomes a permissible exercise of discretion which I am not permitted to review.  *Bussell*, DAB No. 2196 at 10; *Abdul Razzaque Ahmed, M.D.*, DAB No. 2261 at 19 (2009), *aff’d*, *Ahmed v. Sebelius*, 710 F. Supp. 2nd 167 (D. Mass. 2010) (If CMS establishes the regulatory elements necessary for revocation, administrative law judges may not substitute their “discretion for that of CMS in determining whether revocation is appropriate under all the circumstances.”).

***3. I need not decide whether CMS had a basis to revoke Petitioner’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. § 424.57(c)(22).***

Having concluded that CMS had a legal basis to revoke Petitioner’s enrollment and billing privileges pursuant to 42 C.F.R. §§ 424.535(a)(1) and 424.57(c)(26), I need not decide whether CMS also had a basis to revoke Petitioner’s enrollment and billing privileges for failing to comply with 42 C.F.R. § 424.57(c)(22) (supplier standard 22).  It is unnecessary for me to do so because I have found that Petitioner failed to comply with 42 C.F.R. § 424.57(c)(26) (supplier standard 26) and that CMS was authorized to revoke Petitioner’s Medicare enrollment on that basis.  *See, e.g.*,*Daniel Wiltz, M.D. & Fam. Healthcare Clinic, APMC*, DAB No. 2864 at 12 (2018) (if one basis for revocation is established, CMS’s action would be sustained “regardless of the existence of any additional bases for revocation.”); *see also* *1866ICPayday.com*, DAB No. 2289 at 13 (“failure to comply with even one supplier standard is a sufficient basis for revoking a supplier’s billing privileges.”).  For these reasons, I do not decide whether CMS had a legal basis to revoke Petitioner’s enrollment and billing privileges for failing to comply with 42 C.F.R. § 424.57(c)(22).

***4. I have no authority to review Petitioner’s reenrollment bar.***

When a supplier’s billing privileges are revoked, the supplier may not participate in the Medicare program until the end of the reenrollment bar, which must be for a minimum of one year but no more than 10 years (except under circumstances not present here), depending on the severity of the underlying offense.  42 C.F.R. § 424.535(c)(1).  In this case, CMS imposed a two-year reenrollment bar.  Petitioner argues that I have jurisdiction to review the reenrollment bar.  P. Br. at 11.  However, Petitioner is incorrect.  I have no authority to review the reenrollment bar because the imposition of a reenrollment bar is not an initial determination subject to administrative review.  *V**ijendra Dave, M.D.*, DAB No. 2672 at 9-12 (2016); *accord*, *William Garner, M.D.,* DAB No. 3026 at 16 (2020); *Lilia Gorovits, M.D., P.C.*, DAB No. 2985 at 15-16 (2020), *aff’d, Gorovits v. Becerra*, No. 2:20-cv-01850 (E.D. Pa. May 17, 2021) (2021 WL 1962903);

Page 9

*see* 42 C.F.R. § 498.3(b)(17).  I note, however, that the regulations permit a supplier to reapply for enrollment as a Medicare supplier once the reenrollment bar has expired.

V. Conclusion

For the reasons explained above, I decide that CMS had a legal basis to revoke Petitioner’s Medicare enrollment and billing privileges, effective March 10, 2020.

Endnotes

1 The revised reconsidered determination concluded that Petitioner had demonstrated compliance with 42 C.F.R. § 424.57(c)(10) (liability insurance).  CMS Ex. 21 at 6.  In its brief, CMS points out that it does not find evidence that Petitioner complied with 42 C.F.R. § 424.57(c)(10), but CMS does not press that issue before me.  CMS Brief at 10 n.7.

2 Administrative decisions cited in this decision are accessible via the HHS website at:  https://www.hhs.gov/about/agencies/dab/decisions/index.html.

3 Petitioner represents that the prior owners have not been cooperative.  P. Br. at 8.  However, Petitioner did not request that I issue subpoenas for the prior owners.  Nor did Petitioner offer any explanation for its failure to offer the written direct testimony of its current owner.

4 Moreover, when Petitioner allowed the surety bond to lapse, Petitioner did not provide written notice to CMS within 30 days of the cancellation, and Petitioner’s new surety bond did not become effective until February 25, 2021, almost a year after the previous bond was canceled and after NSC revoked its enrollment.  CMS Ex. 15.  The regulations authorize CMS to revoke a supplier’s Medicare billing privileges upon cancellation of its surety bond “unless the DMEPOS supplier provides a new bond before the effective date of the cancellation.” 42 C.F.R. § 424.57(d)(6)(ii).

5 The NSC hearing officer accepted that Petitioner’s CAP demonstrated Petitioner complied with 42 C.F.R. § 424.57(c)(10), but not with 42 C.F.R. § 424.57(c)(22) or (26).  CMS Ex. 20 at 4.  I agree with CMS that the evidence does not appear to support that Petitioner complied with 42 C.F.R. § 424.57(c)(10) at the time NSC revoked Petitioner’s Medicare enrollment.  *See*CMS Br. at 10 n.7.  Nevertheless, for the same reasons discussed in section IV.B.3, below, I do not address Petitioner’s compliance with 42 C.F.R. § 424.57(c)(10) in this decision.
  
          /s/
        Leslie A. Weyn

                      Administrative Law Judge Back to top
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