Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Lora Jean Murray a/k/a Lora Jean Baker,
Petitioner,
Vv.
The Inspector General.
Docket No. C-10-652
Decision No. CR2200

Date: August 3, 2010

DECISION

I sustain the determination of the Inspector General (I.G.) to exclude Petitioner, Lora Jean
Murray a/k/a Lora Jean Baker, from participating in Medicare and other federally
financed health care programs for a period of at least five years.

I. Background

Petitioner is a nurse. The I.G. determined to exclude her from participating in Medicare
and other federally financed health care programs for a five-year minimum period
because he found that she had been convicted of a criminal offense as is described at
section 1128(a)(3) of the Social Security Act (Act). This section mandates the exclusion
of any individual who is convicted of a criminal offense that occurred after August 21,
1996, consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a health care program.

Petitioner requested a hearing and the case was assigned to me for a hearing and a
decision. The parties exchanged briefs and proposed exhibits. The I.G. offered seven
exhibits which he designated as I.G. Ex. | —1.G. Ex. 7. Petitioner offered four exhibits

which she designated as P. Ex. A— P. Ex. D. Neither Petitioner nor the I.G. requested
that I conduct a hearing in person. I am receiving into evidence I.G. Ex. 1 —1.G. Ex. 7
and P. Ex. A—P. Ex. D.

IL. Issues, findings of fact and conclusions of law
A. Issues
The issues are whether:

1. Petitioner was convicted of a felony as is described at section 1128(a)(3)
of the Act;

2. An exclusion of at least five years is mandated by law.
B. Findings of fact and conclusions of law
I make the following findings of fact and conclusions of law.

1. Petitioner was convicted of a felony as is described at section
1128(a)(3) of the Act.

The following facts are undisputed. Respondent was employed at a hospital. I.G. Ex. 2
at 2; 1.G. Ex. 4 at 1. During the course of her employment she diverted drugs from the
hospital’s pharmacy, including the controlled substances Demerol and Oxycodone, for
her own personal use. /d.; 1.G. Ex. 3 at 1. On September 24, 2008, a criminal complaint
was issued against Petitioner in a Colorado State court charging Petitioner with two
felony offenses: unlawful possession of a controlled substance; and possession of a
controlled substance that has been obtained unlawfully. LG. Ex. 5 at 1. Count | of the
criminal complaint alleged specifically that:

Between and including July 13, 2009 and July 14, 2009, . . . [Petitioner]
unlawfully, feloniously, and knowingly possessed one gram or less of a
material, compound, mixture, or preparation that contained Oxycodone, a
schedule II controlled substance, ... .

Id.

Petitioner executed a plea agreement on August 27, 2009. She agreed to plead guilty to
Count | of the criminal complaint in return for which she received a two-year deferred
judgment and sentence. I.G. Ex. 6 at 1. A sentence was imposed against Petitioner as a
consequence of her guilty plea in September 2009. I.G. Ex. 7 at 1.
These facts establish Petitioner to have been convicted of a felony as is described at
section 1128(a)(3) of the Act. First, they establish Petitioner to have been “convicted” of
a felony. Section 1128(i) of the Act defines a conviction of an individual to include that
situation:

When the individual . . . has entered into participation in a first offender,
deferred adjudication, or other arrangement or program where judgment of
conviction has been withheld.

Act, § 1128(i)(4). What plainly happened in Petitioner’s State criminal case is that she
agreed to plead guilty to a felony, Count | of the criminal complaint. Judgment of
conviction was deferred pending her completion of her sentence. That is a “deferred
adjudication” as is described by section 1128(i)(4).

Petitioner argues that she was offered, and accepted, a plea which would lead to the
charges against her being dismissed if she completed the elements of her sentence
including 100 hours of community service. That may be true, but it is not a defense. The
premise of a deferred adjudication is that it is based on the successful performance of
court-ordered activity. Here, Petitioner does no more than state the obvious, that being
that she was ordered to perform various services as an element of her sentence and her
deferred adjudication plea. That agreement does not change the fact that she received a
deferred adjudication that meets the test of a conviction within the meaning of section
1128(i)(4).

Second, the conviction was for an offense relating to theft. The crime to which Petitioner
pled guilty — unlawful possession of a controlled substance — was based on and
inextricably linked to theft of a controlled substance. In other words, Petitioner
unlawfully possessed a controlled substance as a consequence of her stealing that
substance.

Finally, the conviction was for an offense that occurred in connection with the delivery of
a health care item or service. Petitioner stole drugs that were part of a hospital’s
inventory and that had been obtained for the sole purpose of administration to patients.
The crime committed by Petitioner related to the delivery of a health care item or service
because the drugs would not have been available for Petitioner to steal but for her
employment in a hospital and but for her access to drugs that were intended solely for the
use of the hospital’s patients.

2, An exclusion of at least five years is mandatory.
The I.G. is required by law to exclude any individual who is convicted of a felony that is

described at section 1128(a)(3) of the Act. By law, the minimum length of a mandatory
exclusion is at least five years. Act, § 1128(c)(3)(B). The I.G. excluded Petitioner for at
least five years, in other words, for the minimum mandatory exclusion period. That is
reasonable as a matter of law.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Kreg Therapeutics, Inc.,
(PTAN: 1175460001),

Petitioner
Vv.
Centers for Medicare & Medicaid Services.
Docket No. C-10-553
Decision No. CR2197

Date: July 28, 2010

DECISION

For the reasons set forth below, I grant the Centers for Medicare & Medicaid Services’
(CMS’s) motion for summary disposition. The undisputed evidence establishes that
Petitioner, Kreg Therapeutics, Inc., was not in compliance with Medicare program
requirements, and, as a consequence, CMS has the authority to revoke Petitioner’s
Medicare supplier number.

I. Applicable Law and Regulations

Section 1834(a)(16)(B) of the Social Security Act (Act), 42 U.S.C. § 1395m(a)(16)(B),
states that the Secretary of Health and Human Services (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.”

CMS’s regulations implement these requirements among the “supplier standards” at 42
C.F.R. § 424.57(c), which suppliers of durable medical equipment, prosthetics, orthotics,
and supplies (DMEPOS) must meet to maintain Medicare billing privileges. 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. The supplier:

oR RK

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

The surety bond requirements at 42 C.F.R. § 424.57(d), referenced in supplier standard
26, state, as relevant here, 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)(ii), (4), (5). “The term of the initial surety bond must be effective on the
ate that the application is submitted to the NSC [National Supplier Clearinghouse, a
Medicare contractor].” 42 C.F.R. § 424.57(d)(2).

The regulations provide that failure to submit a surety bond as required is grounds for
revocation of a supplier’s billing privileges. See 42 C.F.R. § 424.57(d)(4)(ii)(B); see also
42 C.F.R. § 424.57(d)(11) (“CMS revokes the DMEPOS supplier’s billing privileges if
an enrolled supplier fails to obtain, file timely, or maintain a surety bond as specified in
this subpart and CMS instructions.”). The regulations also provide more generally that
CMS “will revoke a supplier’s billing privileges if it is found not to meet” the supplier
standards or other requirements in section 424.57(c). 42 C.F.R. § 424.57(e) (formerly

§ 424.57(d)).!

A supplier that has had its billing privileges revoked is “barred from participating in the
Medicare program from the effective date of the revocation until the end of the re-
enrollment bar. The re-enrollment bar is a minimum of | year, but not greater than 3
years depending on the severity of the basis for revocation.” 42 C.F.R. § 424.535(c).

CMS may at any time require a DMEPOS supplier to show compliance with the surety
bond requirement. 42 C.F.R. § 424.57(d)(12).

' Paragraph (e) of section 424.57 was previously designated paragraph (d) and was
redesignated by the rulemaking that imposed the surety bond requirements at paragraph
(d); however, the redesignations have not yet been incorporated into the Code of Federal
Regulations. See 42 C.F.R. Ch. IV § 424.57, Editorial Note (Oct. 1, 2009). References
are to the regulation as redesignated.
II. Background

Petitioner, Kreg Therapeutics, Inc., is a Medicare DMEPOS supplier. The CMS
contractor, Palmetto GBA National Supplier Clearinghouse, determined that Petitioner
was not in compliance with 42 C.F.R. § 424.57(c)(26) (supplier standard 26) and revoked
Petitioner’s Medicare supplier number by notice letter dated November 9, 2009.

The notice letter stated that the revocation was effective 30 days from the date of
postmark and that Petitioner was barred from re-enrolling in the Medicare program for
one year from the effective date of the revocation. CMS Ex. 4; see 42 C.F.R.

§ 405.874(b)(2) (revocation effective 30 days after CMS or the CMS contractor mails the
notice of its determination). The letter informed Petitioner that it could appeal the
decision by requesting reconsideration within 60 days of the date of postmark, and/or it
could submit a corrective action plan within 30 days. CMS Ex. 4.

Petitioner submitted to Palmetto both a corrective action plan and a request for
reconsideration and enclosed what it identified as its surety bond.? CMS Ex. 5.

A Medicare hearing officer denied the request for reconsideration in a decision dated
February 11, 2010, on the ground that Petitioner “thas not shown compliance [with]
supplier standard 26.” CMS Ex. 7, at 2. The hearing officer gave the following rationale
for the decision:

[The] reconsideration request of November 17, 2009 stated in pertinent
part, “We failed to meet the October 1, 2009 deadline due to changes in
Medicare personnel. The task of assigning new staff distracted our
attention from administrative duties. As a result we are now submitting the
surety bond along with this request and Corrective Action Plan (CAP).”
Kreg Therapeutics Inc has passed the allotted time to satisfy the
requirement for a surety bond, which was October 2, 2009, and there is no
time extension as noted in the terms set forth for the bond as mandated by
42CFR 424.57(c) and 42CFR 424.57(d). The date of the bond of
November 17, 2009 is after the deadline. The supplier, Kreg Therapeutics,
Inc, failed to obtain their surety bond in the time frame allotted;
consequently the NSC revoked the billing privileges appropriately.

> The disposition of the corrective action plan is not before me. The Departmental
Appeals Board has held that a contractor has discretion as to whether to accept such later
correction and reverse a revocation. DMS Imaging, Inc., DAB No. 2313, at 5 (2010).
During the reconsideration and appeal process, the issue is whether a basis for revocation
legally sufficient to support CMS’s action existed at the time of the revocation notice, not
whether the basis was later eliminated pursuant to a corrective action plan.
Regarding the hearing officer’s (HO) scope of review, according to the
CMS Program Integrity Manual (PIM), it states in pertinent part, “In
reviewing an initial enrollment decision or a revocation, a Medicare
contractor, including the NSC, should limit the scope of its review to the
contractor’s reason for imposing a denial or revocation at the time it issued
the action and whether the contractor made the correct decision (i.e.,
denial/revocation). Ifa provider or supplier provides evidence that
demonstrates or proves that they met or maintained compliance after the
date of denial or revocation, the contractor shall exclude this information
from the scope of the review.”

Id., quoting Medicare PIM, ch. 10, § 19.A (emphasis added).

Petitioner timely requested a hearing before an Administrative Law Judge (ALJ). This
case was assigned to me for hearing and decision pursuant to 42 C.F.R. § 498.44, which
permits designation of a member of the Departmental Appeals Board (Board) to hear
appeals taken under part 498. I issued an initial order on March 25, 2010.

On April 26, 2010, pursuant to the briefing schedule, CMS filed a motion for summary
disposition and supporting memorandum (CMS Br.). CMS accompanied its April 26,
2010 motion and supporting memorandum with CMS Exhibits (Exs.) 1-7, which I admit
into evidence.

Petitioner filed a response to CMS’s motion dated May 25, 2010 (P. Br.). Petitioner
accompanied its response with several documents, which it did not mark with exhibit
numbers. Two of them were duplicates of CMS exhibits, namely CMS Exhibits 4 and 5,
and others included the surety bond and other materials attached to the hearing request. I
have marked the documents with Petitioner’s exhibit numbers for ease of reference as
follows: (1) correspondence from the surety to Petitioner dated November 17, 2009,
indicating the surety bond is enclosed; (2) a copy of the November 17, 2009 surety bond,
(3) copies of the invoices from the surety; (4) a copy of Petitioner’s hearing request letter
dated March 17, 2010; (5) the duplicate copy of CMS Exhibit 4; and (6) the duplicate
copy of CMS Exhibit 5. In its motion, CMS argues that the November 17, 2009 surety
bond materials submitted with Petitioner’s reconsideration request and hearing request
(and with its response brief attachments, which I have marked as Petitioner Exhibits 1-3)
should not be admitted as new evidence, because they are not relevant to determine
whether the initial decision of revocation was correct when made. CMS Br. at 7-8. I
address below CMS’s objection.

III. Issue
The issue in this case is whether CMS is entitled to summary disposition on the ground

that the undisputed facts demonstrate that the revocation of Petitioner’s Medicare billing
privileges was legally authorized.
IV. Applicable Standard

CMS’s motion made clear that the disposition it sought was in the nature of summary
judgment. CMS Br. at 1, 4-5. The Board stated the standard for summary judgment as
follows.

Summary judgment is appropriate when the record shows that there is no
genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. . .. The party moving for summary judgment
bears the initial burden of showing that there are no genuine issues of
material fact for trial and that it is entitled to judgment as a matter of

law. ... To defeat an adequately supported summary judgment motion, the
non-moving party may not rely on the denials in its pleadings or briefs, but
must furnish evidence of a dispute concerning a material fact — a fact that, if
proven, would affect the outcome of the case under governing law. . . . In
determining whether there are genuine issues of material fact for trial, the
reviewer must view the evidence in the light most favorable to the non-
moving party, drawing all reasonable inferences in that party’s favor.

Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted).
The role of an ALJ in deciding a summary judgment motion differs from the ALJ’s role
in resolving a case after a hearing. The ALJ should not assess credibility or evaluate the
weight of conflicting evidence. Holy Cross Vill. at Notre Dame, Inc, DAB No. 2291, at 5
(2009).

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

I make a single finding and conclusion set out below and followed by my supporting
discussion:

CMS was authorized to revoke Petitioner’s billing privileges based on
undisputed evidence that Petitioner had not obtained a surety bond as required
by 42 C.F.R. § 424.57(c)(26) and (d).

As noted above, the statute states that the Secretary shall not issue or renew a DMEPOS
supplier number “unless the supplier provides the Secretary on a continuing basis . . .
with a surety bond... .” 42 U.S.C. § 1395m(a)(16)(B) (emphasis added).

This requirement for continuous compliance is implemented in the regulations that the
Secretary issued. The introductory language of 42 C.F.R. § 424.57(c) states, in pertinent
part, “[t]he supplier must meet and must certify in its application for billing privileges
that it meets and will continue to meet” the supplier standards listed within. (Emphasis
added). Those standards include section 424.57(c)(26) (supplier standard 26), which
states that a supplier “[m]Just meet the surety bond requirements specified in paragraph
(d) of this section.” It follows that a supplier must meet the surety bond requirements
specified in paragraph (d) on a continuing basis.

Consistent with this, the preamble to the final rule on appeals of CMS determinations,
when a provider or supplier fails to meet the requirements for Medicare billing privileges,
states “we believe all providers and suppliers must meet and maintain all Federal and
State requirements for their provider or supplier type to enroll or maintain their
enrollment in the Medicare Program.” 73 Fed. Reg. 36,448, 36,452 (June 27, 2008).

Petitioner admits that it was not in compliance with the surety bond requirement. P. Br.
at 2. However, Petitioner argues that “in accordance with the November 9, 2009 letter
from NSC Supplier Audit and Compliance Unit[, warning Petitioner that its supplier
number will be revoked in 30 days,] Kreg Therapeutics, Inc., has successfully submitted
a Corrective Action Plan providing sufficient evidence that it is in full compliance with
all Medicare requirements with the submission of its Reconsideration Request on
November 17, 2009.” Jd. With its February 11, 2010 reconsideration request, Petitioner
submitted a surety bond dated November 17, 2009. P. Ex. 2.

As noted, CMS objects to the admission of an invoice with the November 17, 2009 surety
bond, which I have marked as Petitioner Exhibit 2 and related documents in Petitioner
Exhibits 1 and 3, on the grounds that this was new evidence that did not bear on the
question of whether the initial decision of revocation was correct when made. CMS Br.
at 7-8. CMS contends that the documents were “presumably to establish that the bond,
although dated November 17, 2009, was considered by the surety to be effective as of
October 2, 2009.” Jd. This presumption is apparently based on the invoice identifying
the “effective date” as October 1, 2009 and the “policy period” as October 1, 2009 to
October 1, 2010. P. Ex. 4, at 4.

The bond itself was presented to the hearing officer and therefore is not “new evidence”
under 42 C.F.R. § 498.56(e) (requiring a showing of good cause for submission of
documentary evidence “for the first time at the ALJ level”). It is not clear whether the
invoice was also submitted to the hearing officer, although it is not included in CMS
Exhibit 5, which CMS describes as “Petitioner’s Reconsideration Request and Corrective
Action Plan (CAP) with supporting documentation, dated November 17, 2009.” The
reconsideration decision, however, states that Petitioner submitted additional surety bond
information in response to the hearing officer’s December 8, 2009 acknowledgment
(without identifying what specific information was submitted or reviewed). Regardless
of whether the November 17, 2009 surety bond and the relating invoice and
correspondence are admissible, however, they are irrelevant.

First, the issue before me is not whether Petitioner has belatedly achieved compliance
with the surety bond requirement, but whether CMS correctly found that, at the time of
the revocation, Petitioner was not in compliance and that CMS therefore had authority to
revoke. Petitioner admits it did not have a compliant surety bond at the time of the

revocation. That a surety was willing to undertake to cover Petitioner’s potential
overpayments after the fact does not mean that CMS was protected at the relevant time
from fraud or billing errors by Petitioner. Furthermore, it is unlikely that a surety would
undertake such retroactive coverage for a supplier had fraud or abuse been discovered
during the past period when no coverage was in place. Therefore, a belated retroactive
surety bond does not satisfy the statutory and regulatory purpose of providing continuous
protection to the Medicare program from the risk of loss due to a supplier’s fraud or
abuse.

Secondly, I must apply the regulations as they are stated. The applicable regulations
clearly required Petitioner to have in place a compliant surety bond by October 2, 2009.
Petitioner points to no source of authority for me to waive the compliance requirement or
grant an exemption on equitable grounds. Moreover, I have no authority to declare the
statute or the regulation invalid or ultra vires. 1866/CPayday.com, L.L.C., DAB No.
2289, at 14 (2009) (“An ALJ is bound by applicable laws and regulations and may not
invalidate either a law or regulation on any ground.”). Even if I did have such authority,
there would be no basis where, as here, the regulation does what the statute grants the
Secretary the authority to do, that is, to require DMEPOS suppliers to demonstrate that
they have obtained a surety bond “in a form specified by the Secretary” and maintain
such coverage “on a continuing basis.” 42 U.S.C. § 1395m(a)(16)(B).

The regulation at 42 C.F.R. § 424.535 plainly authorizes CMS to revoke a supplier’s
Medicare enrollment whenever the supplier fails to maintain compliance with enrollment
requirements. Thus, section 424.535 provides:

Revocation of enrollment and billing privileges in the Medicare
program.

(a) Reasons for revocation. CMS may revoke a currently enrolled provider
or supplier’s Medicare billing privileges and any corresponding provider
agreement or supplier agreement for the following reasons:

(1) Noncompliance. The provider or supplier is determined not to be in
compliance with the enrollment requirements described in this section, or in
the enrollment application applicable for its provider or supplier type, and
has not submitted a plan of corrective action as outlined in part 488 of this
chapter... .

It is an enrollment requirement that “[t]he supplier must meet and must certify in its
application for billing privileges that it meets and will continue to meet” the supplier
standards in 42 C.F.R. § 424.57(c), which includes the surety bond requirement of section
424.57(c)(26). CMS may revoke the supplier’s Medicare billing privileges if the supplier
fails to meet any of these standards. 42 C.F.R. § 424.57(e); 1866/CPayday.com, DAB
No. 2289, at 13 (“[F]ailure to comply with even one supplier standard is a sufficient basis
for revoking a supplier’s billing privileges.”).

Section 424.57(d)(11) further makes abundantly clear the consequences of a failure to
maintain a compliant surety bond:

CMS revokes the DMEPOS supplier’s billing privileges if an enrolled supplier
fails to obtain, file timely, or maintain a surety bond as specified in this subpart
and CMS instructions. Notwithstanding paragraph (e) of this section, the
revocation is effective the date the bond lapsed and any payments for items
furnished on or after that date must be repaid to CMS by the DMEPOS
supplier.

See 42 C.F.R. § 424.57(d)(11); see also 42 C.F.R. § 424.57(c)(26).

The regulatory language is plain. A supplier must comply with all standards, or CMS
will revoke its billing privileges. And I must sustain CMS’s determination where the
facts establish noncompliance with one or more of the regulatory standards.

I therefore conclude that CMS acted within its regulatory authority to revoke Petitioner’s
Medicare supplier number, because Petitioner was not compliant with the surety bond
requirements of 42 C.F.R. § 424.57(c)(26) and (d) by October 2, 2009.

VI. Conclusion

For the reasons explained above, I grant summary judgment in favor of CMS.

/s/
Leslie A. Sussan
Board Member


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Whalen Optical Lab, Inc.,
(NPI: 0148350001)

Petitioner
Vv.
Centers for Medicare & Medicaid Services.
Docket No. C-10-555
Decision No. CR2196

Date: July 26, 2010

DECISION

Petitioner, Whalen Optical Lab, Inc., is an optician’s office, which is considered a
supplier of Medicare durable medical equipment, prosthetics, orthotics, and supplies
(DMEPOS supplier). The Centers for Medicare & Medicaid Services (CMS) determined
that the facility was not in compliance with 42 C.F.R. § 424.57(c)(26) (supplier standard
26) and revoked Petitioner’s Medicare supplier number on November 10, 2009. A
reconsideration decision dated February 17, 2010 upheld the revocation.

Petitioner timely challenged CMS’s determination. CMS sought summary disposition.
After Petitioner failed to respond to CMS’s motion and failed to submit its exchange in
accordance with my pre-hearing order, I ordered the record closed.

For the reasons set forth below, I find that CMS is entitled to summary judgment, and I
deny Petitioner’s cross motion. The undisputed evidence establishes that Petitioner was
not in compliance with Medicare program requirements, and, as a consequence, CMS has
the authority to revoke Petitioner’s Medicare supplier number.
I. Applicable Law and Regulations

Section 1834(a)(16)(B) of the Social Security Act (Act), 42 U.S.C. § 1395m(a)(16)(B),
states that the Secretary of Health and Human Services (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.”

CMS implemented these requirements among the “supplier standards” at 42 C.F.R.
§ 424.57(c), which DMEPOS suppliers must meet to maintain Medicare billing
privileges. 74 Fed. Reg. 166 (Jan. 2. 2009). 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. The supplier:

oR RK

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

The surety bond requirements at 42 C.F.R. § 424.57(d) referenced in supplier standard 26
state, as relevant here, 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)(ii), (4), (5). “The term of the initial surety bond must be effective on the
date that the application is submitted to the NSC [National Supplier Clearinghouse, a
Medicare contractor].” 42 C.F.R. § 424.57(d)(2).

The regulations specify requirements for certain suppliers to be exempt from the surety
bond requirements. 42 C.F.R. § 424.57(d)(15). The categories that may qualify for an
exception are: (1) government-operated DMEPOS suppliers with comparable surety
bonds under state law; (2) “state-licensed orthotic and prosthetic personnel in private
practice making custom made orthotics and prosthetics,” if the business is solely owned
by such personnel and bills only for orthotics, prosthetics, and supplies; (3) physician and
nonphysician practitioners who furnish items only to their own patients as part of their
own practices; and (4) certain physical and occupational therapists. Id.
The regulations provide that failure to submit a surety bond as required is grounds for
revocation of a supplier’s billing privileges:

CMS requires a supplier to submit a bond that on its face reflects the
requirements of this section. CMS revokes or denies a DMEPOS supplier’s
billing privileges based upon the submission of a bond that does not reflect
the requirements of paragraph (d) of this section [42 C.F.R. § 424.57].

See 42 C.F.R. § 424.57(d)(4)(ii)(B); see also 42 C.F.R. § 424.57(d)(11) (“CMS revokes
the DMEPOS supplier’s billing privileges if an enrolled supplier fails to obtain, file
timely, or maintain a surety bond as specified in this subpart and CMS instructions.”).
CMS may at any time require a DMEPOS supplier to show compliance with the surety
bond requirement. 42 C.F.R. § 424.57(d)(12). The regulations also provide more
generally that CMS “will revoke a supplier’s billing privileges if it is found not to meet”
the supplier standards or other requirements in section 424.57(c). 42 C.F.R. § 424.57(e)
(formerly § 424.57(d)).'

A supplier that has had its billing privileges revoked is “barred from participating in the
Medicare program from the effective date of the revocation until the end of the re-
enrollment bar. The re-enrollment bar is a minimum of | year, but not greater than 3
years depending on the severity of the basis for revocation.” 42 C.F.R. § 424.535(c).

II. Background

By letter dated November 10, 2009, the NSC, a Medicare contractor, notified Petitioner
that its Medicare supplier number would be revoked effective 30 days after the letter,
because Petitioner failed to submit a surety bond by October 2, 2009 as NSC required.
CMS Ex. 8, at 1. Petitioner timely requested reconsideration arguing that a Medicare
representative had told them they were exempt from the surety bond requirement. CMS
Ex. 9. On February 17, 2010, the hearing officer issued an unfavorable reconsideration
decision. CMS Ex. 11. The hearing officer explained that “[o]pticians are exempt from
accreditation requirements; however, a surety bond is not exempt for the business type of
Optician.” Jd. at 2. She concluded that, due “to the supplier’s business type, Whalen
Optical Labs, Inc., is not exempted from surety bond requirements.” Jd. Since Petitioner
had not submitted a surety bond by the required date, the hearing officer concluded that
the revocation was proper. Jd.

' Paragraph (e) of section 424.57 was previously designated paragraph (d) and was
redesignated by the rulemaking that imposed the surety bond requirements at paragraph
(d); however, the redesignations have not yet been incorporated in the Code of Federal
Regulations. See 42 C.F.R. Ch. IV § 424.57, Editorial Note (Oct. 1, 2009). References
are to the regulation as redesignated.
By letter dated March 15, 2010, Petitioner requested an ALJ hearing (HR). Petitioner
explained its position as follows:

When CMS notified everyone of the surety bonding process, there was
quite a discrepancy regarding opticians. We in turn called Surety Bonding,
per the number supplied, and were informed by a three way call with a
Medicare representative that we were exempt. Next, we’re notified that we
were no longer able to submit claims for Medicare patients. We appealed
and stated we were ready to be surety bonded but never received a direct
answer. Now we are bonded per the requirements and would appreciate
being reinstated.

HR. Along with its hearing request, Petitioner submitted a surety bond dated March 11,
2010.

On March 25, 2010, I issued an acknowledgment and pre-hearing order (PHO) setting
dates for CMS and Petitioner to exchange evidence, argument, and any motions for
summary disposition. PHO at 2. I explained that time was of the essence in this case and
that I might impose sanction for failure to comply with the order. PHO at 4.

CMS submitted its evidence, pre-hearing brief, and motion for summary judgment (MSJ)
by the required date. Petitioner did not make any further submissions. On July 15, 2010,
I issued an order closing the record. Petitioner did not request that the record be
reopened or otherwise contact my office. I therefore proceed to decision on the record
before me.

With its motion and brief, CMS filed 12 exhibits (CMS Exs. 1-12). Petitioner did not
object to any of CMS’s exhibits, and I admit them into the record. I address below
CMS’s objection to the surety bond attached to the hearing request as “new evidence”
within the meaning of section 498.56(e).

III. Issues
The issues in this case are:

1. Whether Petitioner was exempt from the requirement to submit a valid surety bond
by October 2, 2009; and

2. Ifnot, whether CMS is entitled to summary disposition on the ground that the
undisputed facts demonstrate that the revocation of Petitioner’s Medicare billing
privileges was legally authorized.
IV. Applicable Standard

The Departmental Appeals Board (Board) stated the standard for summary judgment as
follows.

Summary judgment is appropriate when the record shows that there is no
genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. ... The party moving for summary judgment
bears the initial burden of showing that there are no genuine issues of
material fact for trial and that it is entitled to judgment as a matter of
law.... To defeat an adequately supported summary judgment motion,
the non-moving party may not rely on the denials in its pleadings or briefs,
but must furnish evidence of a dispute concerning a material fact - - a fact
that, if proven, would affect the outcome of the case under governing law.
In determining whether there are genuine issues of material fact for trial,
the reviewer must view the evidence in the light most favorable to the non-
moving party, drawing all reasonable inferences in that party’s favor.

Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted).
The role of an ALJ in deciding a summary judgment motion differs from the ALJ’s role
in resolving a case after a hearing. The ALJ should not assess credibility or evaluate the
weight of conflicting evidence when resolving a summary judgment motion. Holy Cross
Vill. at Notre Dame, Inc., DAB No. 2291, at 4-5 (2009).

V. Findings of Fact and Conclusions of Law

My findings and conclusions are set forth in the bold italicized headings and supported by
the discussions in the sections below.

1. Petitioner was not exempt from the surety bond requirements.

The regulatory exceptions to the requirement that existing DMEPOS suppliers obtain a
valid surety bond are limited and quite specific. 42 C.F.R. § 424.57(d)(15). Petitioner
does not identify any of the exceptions under which it claims exemption or explain how it
might qualify for any of them.

Petitioner does not claim to be government-owned or to consist of physical or
occupational therapists. Petitioner does not claim to be a physician or other practitioner
supplying only its own patients, and, indeed, its own application as a Medicare supplier
identifies it as an “optician.” CMS Ex. 1, at 2. Consistent with that identification,
Petitioner described itself in its reconsideration request as “an independent Optical shop
(without a Doctor).” CMS Ex. 9.
The only remaining exception is for “state-licensed orthotic and prosthetic personnel in
private practice making custom made orthotics and prosthetics” if the business is solely
owned by such personnel and bills only for orthotics, prosthetics, and supplies. 42 C.F.R.
§ 424.57(d)(15). Petitioner provides no evidence that it could qualify for this exception,
and the record evidence indicates that it could not. Petitioner’s enrollment application
indicates that it is a corporation and that Ms. Catherine J. Whalen owns five per cent, or
more, of the entity and is its managing employee and authorizing official. CMS Ex. 1, at
6. Ms. Whalen is not identified as either sole owner or as a state-licensed orthoticist or
prostheticist.

I conclude that the record does not establish that Petitioner was qualified for any
exception to the surety bond requirements.

2. CMS was authorized to revoke Petitioner’s billing privileges based on
undisputed evidence that Petitioner had not submitted a surety bond that met the
requirements set forth in 42 C.F.R. § 424.57(c)(26) and (d).

Petitioner does not dispute, and affirmatively admits, that it did not obtain or submit a
surety bond by the required date of October 2, 2009. HR; CMS Ex. 12 (Petitioner’s
January 26, 2010 letter to the hearing officer reiterating that a “Medicare representative”
said they were exempt and that “is why we did not get bonded”). Petitioner does not
assert that it voluntarily terminated its enrollment with Medicare prior to October 2,
2009. Nothing else in the record supports any reasonable inference that Petitioner was in
compliance at the time of revocation. As I explain below, even if Petitioner achieved
compliance some time after its revocation, I could not overturn the revocation on that
basis if it was authorized at the time the contractor took the action. The undisputed facts
thus suffice to establish that Petitioner was out of compliance with the surety bond
requirement at the time that its supplier number was revoked.

Instead of arguing that it was in compliance at the time of its revocation, Petitioner asks
to be reinstated, because it has now obtained a surety bond. Petitioner has identified no
authority for me to reinstate Petitioner based on its later efforts to achieve compliance. *
CMS objects to Petitioner’s submission of a surety bond, dated March 11, 2010, with its
hearing request. CMS Br. at 5-6. CMS argues that the “‘sole issue” before me is whether
the revocation was in error, because Petitioner complied with the requirement to submit a
surety bond by October 2, 2009. Jd. at 5. Furthermore, CMS argues that, under section

> CMS or its contractor has discretion to accept a showing that a supplier has achieved
compliance as demonstrated in a corrective action plan (CAP) submitted within 30 days
of a revocation notice. 42 C.F.R. § 424.535(a)(1). Petitioner was advised of this option
in its revocation notice. CMS Ex. 8, at 2. The record does not reflect whether Petitioner
submitted a CAP; however, in any case, I have no authority to review any CMS decision
not to accept a CAP. See DMS Imaging, Inc., DAB No. 2313 (2010).
498.56(e), I may only consider newly submitted evidence if the provider or supplier can
demonstrate good cause for submitting such evidence for the first time at the ALJ level
instead of on reconsideration. Id. at 6, citing 73 Fed. Reg. 36,448, 36,452 (June 27,
2008).

Petitioner did not attempt to make any good cause showing. On the one hand, Petitioner
obviously could not have submitted the new bond to the hearing officer on
reconsideration, because it was not yet executed. On the other hand, for the same reason,
the 2010 bond cannot be evidence of compliance at the time of the revocation. Even if
the 2010 surety bond were admissible, it would be irrelevant. I thus agree with CMS that
the 2010 bond is not admissible evidence and that NSC erred in revoking Petitioner’s
supplier number.

Petitioner complains that it never received a “direct answer” to its willingness to obtain a
surety bond after its revocation. HR. The only answer that Petitioner could receive from
either the hearing officer on reconsideration or on appeal to an ALJ (and which it has
received) is that it is too late to avoid revocation. As an existing Medicare DMEPOS
supplier, Petitioner had an obligation to become bonded by October 2, 2009. Once
Petitioner became noncompliant, it was subject to revocation regardless of whether it
ater achieved compliance.*

Finally, Petitioner’s failure to realize that it was subject to surety requirement is no
ground for relief. As a Medicare supplier, Petitioner was charged with knowing the
requirements for maintaining enrollment. See Waterfront Terrace, Inc., DAB No. 2320,
at 7 (2010), citing Heckler v. Cmty. Health Servs. of Crawford County, 467 U.S. 51, 63-
64 (1984) (“As a participant in the Medicare program, respondent had a duty to
amiliarize itself with the legal requirements” of the program); see also Manor of Wayne
Skilled Nursing & Rehab., DAB No. 2249, at 10-11 (2009) and Regency on the Lake,
DAB No. 2205, at 5-6 (2008) (noting facilities participating in Medicare had constructive
notice of regulations). The law expressly holds Medicare suppliers responsible for
nowing the regulatory requirements and the information in the accompanying preambles
published in the Federal Register and treats such publication as constructive notice
whether or not the supplier actually was aware of the requirements. 42 C.F.R. §
411.406(e)(2). Petitioner’s vague allusion to a “discrepancy regarding opticians” does not
present a triable issue of fact in the face of the express language of the regulations

> Regulations also provide that a supplier whose number has been revoked is barred from
re-enrolling in Medicare for a period of one to three years. 42 C.F.R. § 424.535(c). NSC
imposed the minimum one-year bar in the present case. CMS Ex. 8, at 1. Petitioner
points to, and I am aware of, no authority that would empower me to grant relief from the
re-enrollment bar. I therefore do not discuss it further.
requiring all DMEPOS suppliers to obtain surety bonds with limited exceptions that
nowhere refer to opticians. HR.

The regulation requiring surety bonds and the explanations of it in the preamble should
have put Petitioner on notice of its obligation to obtain a valid bond timely. CMS Ex. 2.
CMS points out, however, that Petitioner was provided with multiple additional sources
of actual notice (to which Petitioner has not denied having access). CMS Br. at 3-5;
CMS Exs. 3-7. Those sources included a new section 21.7 in chapter 10 of CMS’s
Medicare Program Integrity Manual (CMS Ex. 4) and two articles published on the NSC
website on January 7 and April 29, 2009, which set out the requirements, exceptions, and
deadlines for DMEPOS suppliers to obtain surety bonds. CMS Ex. 3, at 1-2. In addition,
CMS represents that NSC sent a letter on August 21, 2009 to all existing DMEPOS
suppliers believed subject to surety bond requirements reminding them of the deadline.
CMS Br. at 4, citing CMS Ex. 5. Petitioner not only does not deny receiving this letter,
but referred to a time when “CMS notified everyone of the surety bonding process.” HR.
Petitioner thus does not raise a dispute of fact about whether she received actual notice of
the surety bond requirements.

CMS notes that the NSC letter had a chart attached that clearly showed that opticians
were not exempt from surety bond requirements (although they are exempt from the
requirement to obtain accreditation). CMS Br. at 4, citing CMS Ex. 5, at 3. The same
chart was posted on the NSC website on August 28, 2009, along with a list of frequently
asked questions (FAQ) about DMEPOS surety bonds. CMS Br. at 4, citing CMS Ex. 6.
The FAQ makes clear that exemption from accreditation does not equate to exemption
from surety bond requirements, as these are “two completely separate mandates.” CMS
Ex. 6, at 11. The FAQ further addresses the specific situation of an optical center:

An optometrist or ophthalmologist who dispenses eyeglasses can qualify
for the physician exemption if the glasses are furnished only to his/her own
patients as part of his/her own service. .. .

The same general principle applies to an enrolled optical center owned by
an optometrist or ophthalmologist. The center can only qualify for the
physician exemption only if: (1) the shop and the physician’s practice are
under/within the same TIN and business structure (e.g., part of the same
corporation), and (2) the glasses are furnished only to the
optometrist/ophthalmologist’s own patients as part of his/her own
service. ...

CMS Ex. 6, at 12. Since Petitioner expressly asserts, as noted above, the center is
independent and not part of a physician’s practice (HR; CMS Ex. 9), Petitioner should
have been aware that it could not qualify for an exemption from the surety bond
requirement.
I therefore conclude that CMS acted within its regulatory authority to revoke Petitioner’s
Medicare supplier number, because Petitioner was not compliant with the surety bond
requirements of 42 C.F.R. § 424.57(c)(26) and (d) by October 2, 2009.

3. Petitioner’s equitable arguments are unavailing in this forum.

The essence of Petitioner’s appeal is an argument that the impact of the legal
consequences of its failure to obtain a valid surety bond before its revocation is
excessively onerous. Petitioner thus explains that the office has been operating and filing
Medicare claims for over 20 years and that its ability to file claims for its patients is a
“necessity” especially “in these economic times.” HR.

This argument asks me to relieve Petitioner of the legal consequences for equitable
reasons. The Board has long held that applicable statutes and regulations are binding
both on it and on ALJs. See, e.g., Sentinel Med. Labs., Inc., DAB No. 1762, at 9 (2001).
I lack authority to deviate from the law, however sympathetic I may be to Petitioner’s
situation. See Oklahoma Heart Hosp., DAB No. 2183, at 16 (2008).

Petitioner also suggests that it was misled by information provided by an unnamed
“Medicare representative” into believing that it qualified as exempt. HR. The
information that Petitioner provided is too vague as to: the date or time of the “three way
call;” the identity of any of the participants; or the content of the discussion to discern
what questions were asked or what information was provided. In any case, it is well-
established that the government cannot be estopped from applying the law or forced to
expend federal funds based on inaccurate representations by its agents absent, at the least,
a showing of affirmative misconduct about which Petitioner makes no allegations. Office
of Personnel Mgmt. v. Richmond, 496 U.S. 414 (1990); Heckler v. Community Health
Serv. of Crawford City, Inc., 467 U.S. 51 (1984); Schweiker v. Hansen, 450 U.S. 785
(1981); Shenandoah Prof’! Stds. Review Found., DAB No. 652 (1985). I therefore need
not reach CMS’s further arguments that Petitioner could not make out the traditional
elements of estoppel, including reasonable reliance. See CMS Br. at 11-12.

VI. Conclusion

For the reasons explained above, I grant summary judgment in favor of CMS.

/s/
Leslie A. Sussan
Board Member


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
Restwell Mattress Company d/b/a Restwell Mattress Factory,
(PTANs 5783260002, 5783260003)
Petitioner
Vv.
Centers for Medicare & Medicaid Services.
Docket Nos. C-10-490, C-10-491

Decision No. CR2194

Date: July 23, 2010

DECISION

I grant the motion of the Centers for Medicare & Medicaid Services (CMS) for summary
disposition and sustain the revocation of the Medicare supplier numbers of two locations
of Petitioner, Restwell Mattress Company d/b/a Restwell Mattress Factory, based on
Petitioner’s acknowledged failure to comply timely with the requirement that a CMS-
approved accrediting organization accredit them by October 1, 2009.

I. Applicable Law and Regulations

Section 1834(a)(20)(F)(i) of the Social Security Act (Act), 42 U.S.C. § 1395m(a)
(20)(F)(i), states that the Secretary of Health and Human Services “shall require suppliers
furnishing [Medicare supplies] . . . on or after October 1, 2009 . . . to have submitted to
the Secretary evidence of accreditation by an accreditation organization designated . . . as
meeting applicable quality standards... .”

CMS implemented this requirement through “supplier standards” at 42 C.F.R.
§ 424.57(c) that suppliers of “durable medical equipment, prosthetics, orthotics, and
supplies” (DMEPOS) (42 C.F.R. § 424.57(a)) must meet to maintain Medicare billing
2

privileges. As relevant here, supplier standard 22, which took effect October 2, 2006 (71
Fed. Reg. 48,354 (Aug.18, 2006)), provides:

(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.

42 C.F.R. § 424.57(c)(22). CMS “will revoke a supplier’s billing privileges if it is found
not to meet” the supplier standards or other requirements in section 424.57(c). 42 C.F.R.
§ 424.57(e) (formerly § 424.57(d)).'

A supplier that has had its billing privileges revoked is “barred from participating in the
Medicare program from the effective date of the revocation until the end of the re-
enrollment bar. The re-enrollment bar is a minimum of | year, but not greater than 3
years depending on the severity of the basis for revocation.” 42 C.F.R. § 424.535(d).

II. Undisputed Facts and Procedural History

Petitioner appeals two reconsideration decisions by a Medicare hearing officer with the
National Supplier Clearinghouse (NSC), a CMS contractor, dated January 27, 2010. The
hearing officer in both decisions sustained NSC’s October 9, 2009 decision to revoke the
Medicare supplier numbers for two of Petitioner’s locations” and to impose a one-year re-
enrollment bar, on the grounds that a CMS-approved accredited organization had not
accredited Petitioner by October 1, 2009, as section 1834(a)(20)(F)(i) of the Act and 42
C.F.R. § 424.57(c)(22) required. See CMS Ex. 2. The hearing officer found that

' Paragraph (e) of section 424.57 was previously designated paragraph (d) and was
redesignated by the rulemaking that imposed the surety bond requirements at paragraph
(d); however, the redesignations have not yet been incorporated in the Code of Federal
Regulations. See 42 C.F.R. Ch. IV (Oct. 1, 2009) § 424.57, Editorial Note.

> Petitioner has a corporate office in St. Louis Park, Minnesota, and two business
locations that are the subject of the revocation actions, one in St. Louis Park, Minnesota
and one in Bloomington, Minnesota. P. Hearing Request (HR).

> NSC also revoked the supplier numbers on the ground that Petitioner failed to obtain
surety bonds for the two locations by October 2, 2009, as section 1834(a)(16)(B) of the
Act and 42 C.F.R. § 424.57(c)(26) and (d) required. CMS Ex. 1, at 20-21; CMS Ex. 2, at
1-3; P. Ex. 3. The hearing officer sustained that determination, finding that the surety
bonds Petitioner submitted to her were either not signed by Petitioner’s authorized or
(continued...)
3

Petitioner had not initiated the accreditation process until after the October 1, 2009
deadline. Among other things, the hearing officer cited a February 11, 2010 letter from
an accrediting organization, the Healthcare Quality Association on Accreditation
(AQAA) stating that Petitioner was “currently awaiting” site surveys required for
accreditation. CMS Ex. 2, at 10; P. Ex. 3, at 2, 5.

The two appeals were originally assigned to Administrative Law Judge (ALJ) Richard J.
Smith, who ordered them consolidated. ALJ Order in Lieu of Prehearing Conference
(Mar. 25, 2010). He determined that the case could be addressed in summary fashion in
the context of a CMS motion for summary disposition but left open the possibility of
convening an evidentiary hearing if needed. ALJ Smith set a schedule for submission of
CMS’s motion for summary judgment and supporting brief, Petitioner’s answer brief, and
CMS’s reply. The case was transferred to me pursuant to 42 C.F.R. § 498.44, which
permits a Member of the Departmental Appeals Board (Board) to be designated to hear
appeals taken under Part 498. CMS submitted a motion for summary judgment and a
supporting memorandum of law (CMS Br.) and four exhibits. Petitioner filed its answer
brief (P. Resp.) with no exhibits. CMS declined to submit a reply.

With its hearing request, Petitioner submitted 16 pages of documents that were not
designated as exhibits. I assign the following exhibit numbers to these documents: a
letter to Petitioner from the HQAA dated February 11, 2010, and three certificates of
accreditation dated January 26, 2010 (P. Ex. 1; 4 pages); two surety bonds (P.Ex. 2; 6
pages); the two NSC reconsideration decisions, dated January 27, 2010 (P. Ex. 3; 6
pages). Absent any objection to the admission of any exhibits, or any representation by
CMS that Petitioner’s exhibits constitutes new documentary evidence, the admission of
which is limited by 42 C.F.R. § 498.56(e), I admit both parties’ exhibits.

3(.. continued)

delegated official or were submitted after the date of the revocation. P. Ex. 3. Petitioner
has, however, submitted copies of surety bonds that were appropriately signed and
effective October 2, 2009, indicating that Petitioner had compliant surety bonds in place,
and CMS has not objected to their admission. P. Ex. 2. CMS does not allege that this
bond differs from the copy sent to the hearing officer on reconsideration. As Petitioner’s
failure to comply with the accreditation requirement suffices to authorize the revocation,
I base my decision sustaining the revocation solely on that ground and do not further
address the surety bond issue.
4

IIL. Issue, Findings of Fact, Conclusions of Law
A. Issue

The sole issue in this case is whether CMS is entitled to summary disposition on the
ground that the undisputed facts demonstrate that the revocation of Petitioner’s Medicare
billing privileges was legally authorized.

B. Applicable Standard
The Board stated the standard for summary judgment as follows:

Summary judgment is appropriate when the record shows that there is no
genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. . .. The party moving for summary judgment
bears the initial burden of showing that there are no genuine issues of
material fact for trial and that it is entitled to judgment as a matter of

law. ... To defeat an adequately supported summary judgment motion, the
non-moving party may not rely on the denials in its pleadings or briefs, but
must furnish evidence of a dispute concerning a material fact — a fact that, if
proven, would affect the outcome of the case under governing law. . . . In
determining whether there are genuine issues of material fact for trial, the
reviewer must view the evidence in the light most favorable to the non-
moving party, drawing all reasonable inferences in that party’s favor.

Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations

omitted). The role of an ALJ in deciding a summary judgment motion differs from the
ALJ’s role in resolving a case after a hearing. The ALJ should not assess credibility or
evaluate the weight of conflicting evidence. Holy Cross Vill. at Notre Dame, Inc, DAB
No. 2291, at 5 (2009).

C. Analysis

My findings and conclusions are in the italicized headings below supported by the
subsequent discussions.

1. CMS was authorized to revoke Petitioner's billing privileges based on
undisputed evidence that Petitioner was not accredited by October 1, 2009,
as 42 C.F.R. § 424.57(c)(22) required.

Petitioner does not dispute, and indeed concedes, that its two locations were not
accredited on October 1, 2010. Petitioner’s Vice President states the “re accreditation
process was initiated in October, 2009 [and] was completed January 26, 2010.” HR.
This concession is consistent with the record, which includes “three-year accreditation
5

award” certificates for Petitioner’s locations dated January 26, 2010. CMS Ex. 3, at 2-5;
P. Ex. 1. Petitioner’s Vice President attributes the tardy commencement of the
accreditation process to a mistaken belief that the two enrolled locations would not have
to demonstrate compliance with enrollment requirements until their enrollments were to
be renewed in March 2007. P. Resp. at 2. She states that Petitioner “became a Provider
in March, 2007” and that she “understood that there would be a three year renewal
process . . . [my target effort for renewal then would be March 2010." Id.; see 42
C.F.R. § 424.57(f) ([A] supplier “must renew its application for billing privileges every 3
years after the billing privileges are first granted.”). She states that she “had heard about
the Oct 1, 2009 date” but believed that, because “Restwell had been through the process
and expense so recently, it would not be applicable to us, so I thought.” P. Resp. at 2.
Meeting the October 1, 2009 requirement, she states, would have required beginning the
accreditation process some six months earlier. /d. Thus, no dispute exists that Petitioner
was not accredited when NSC revoked its billing privileges.

Petitioner’s showing of accreditation over three months after the revocation is not a
ground to reverse the revocation. The regulations require that a supplier “must meet and
must certify in its application for billing privileges that it meets and will continue to
meet’ the supplier standards. 42 C.F.R. § 424.57(c) (emphasis added). The preamble to
the regulations implementing the reconsideration and appeals process for suppliers whose
billing privileges are revoked explained:

When a Medicare contractor makes an adverse enrollment determination
(for example, enrollment denial or revocation of billing privileges) . . .
appeal rights are limited to provider or supplier eligibility at the time the
Medicare contractor made the adverse determination. . . . Accordingly, a
provider or supplier is required to furnish the evidence that demonstrates
that the Medicare contractor made an error at the time an adverse
determination was made, not that the provider or supplier is now in
compliance.

73 Fed. Reg. 36,448, 36,452 (June 27, 2008). Thus, CMS’s Medicare Provider Integrity
Manual (MPIM) provides that “evidence that demonstrates or proves that [the supplier or
provider] met or maintained compliance after the date of denial or revocation” must be
excluded from the hearing officer’s review. MPIM, ch. 10, § 19.A. Petitioner’s
demonstration that it received accreditation on January 26, 2010 shows no error in the
revocation of its supplier numbers on October 9, 2009. As the Board has explained, the

+ While the vice president describes Petitioner as a provider, Petitioner is a Medicare
supplier. “Supplier means a physician or other practitioner, or an entity other than a
provider, that furnishes health care services under Medicare.” 42 C.F.R. § 400.202. See
42 C.F.R. § 405.802 (A “supplier” includes a supplier of durable medical equipment
Prosthetics, orthotics, or supplies (DMEPOS).).
6

issue before me in a supplier revocation matter is whether the “substantive factual
findings underlying CMS’s revocation determination are incorrect.” A to Z DME, LLC,
DAB No. 2303, at 6 (2010). Given that Petitioner does not dispute that it was not
accredited on October 1, 2009 or at the time of revocation, CMS is entitled to summary
disposition sustaining the revocation on the basis of failure to comply with supplier
standard 22.

Petitioner’s Vice President makes what is essentially an appeal to equity. She states that
the loss of Petitioner’s Medicare business “would basically shut . . . down” a “65-year old
Minnesota small business” that pays all of its employees’ “medical, dental and life
insurance.” P. Resp. at 3. She states that Petitioner has a “crisp track record” in
providing Medicare supplies, such as electric beds, and “hope[s] you find . . . that we do
in fact deserve to continue doing business with Medicare; to serve their patients and
provide a great product.” Jd. While she “understand[s] there are people defrauding the
Medicare system, and . . . can see that the new standards were intended to wash out those
very people,” she states that “Restwell is not one of them” and “take[s] the privilege of
being a Provider of hospital beds very seriously.” Jd.

Given that Petitioner admittedly failed to comply with the requirement that it be
accredited by October 1, 2009, I have no authority to grant the equitable relief it seeks.
The regulations clearly authorize CMS to revoke Petitioner’s supplier numbers for its
ailure to meet the accreditation requirement. Section 424.57(e) states that CMS “will
revoke a supplier’s billing privileges if it is found not to meet” the supplier standards or
other requirements in section 424.57(c). See 18661CPayday.com, DAB No. 22839, at 13
(2009) (“[F]ailure to comply with even one supplier standard is a sufficient basis for
revoking a supplier’s billing privileges.”). One of the requirements that suppliers “must
meet” (section 424.57(c)) is the requirement, which became effective October 2, 2006,
that a CMS-approved accrediting organization accredit the supplier. Petitioner points to
no source of authority for me to waive that compliance requirement or grant an
exemption on equitable grounds, nor am I aware of one. It is well-established that ALJs
are bound by statute and regulations. See, e.g., Sentinel Medical Laboratories, Inc., DAB
No. 1762, at 9 (2001). Where a regulation speaks clearly on its face and applies to the
question before me, I am bound to follow it.

Finally, Petitioner’s reported failure to realize that it was subject to the accreditation
requirement is no ground for relief. As a Medicare supplier, Petitioner was charged with
knowing, and had constructive notice of, the requirements for maintaining enrollment.
See Waterfront Terrace, Inc., DAB No. 2320, at 7 (2010), citing Heckler v. Cmty. Health
Servs. of Crawford County, 467 U.S. 51, 64 (1984) (“As a participant in the Medicare
program, respondent had a duty to familiarize itself with the legal requirements” of the
program.); see also Manor of Wayne Skilled Nursing & Rehab., 2249, at 10-11 (2009)
and Regency on the Lake, DAB No. 2205, at 5-6 (2008) ([F]acilities participating in
7

Medicare had constructive notice of regulations.). Also, as CMS points out, Medicare
suppliers were informed of the accreditation requirement in communications including an
NSC “Dear Supplier” letter dated August 21, 2009. CMS Br. at 4; CMS Ex. 4.

IV. Conclusion

The undisputed facts entitle CMS to summary disposition as a matter of law. I therefore
grant summary judgment in favor of CMS and sustain the revocation of Petitioner’s
supplier numbers.

/s/
Leslie A. Sussan
Board Member


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Greenwood Associates
d/b/a Mainland Manor Nursing and Rehabilitation Center,
(PTAN: 0582480001),

Petitioner
Vv.
Centers for Medicare & Medicaid Services.
Docket No. C-10-442
Decision No. CR2193

Date: July 22, 2010

DECISION

Petitioner, Greenwood Associates d/b/a Mainland Manor Nursing and Rehabilitation
Center (Greenwood), is a long-term care facility located in Pleasantville, New Jersey,
which participates in the Medicare program. Petitioner is also a supplier of Medicare
durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS supplier). The
Centers for Medicare & Medicaid Services (CMS) determined that Greenwood was not in
compliance with 42 C.F.R. § 424.57(c)(26) (supplier standard 26) and has revoked
Petitioner’s Medicare supplier number.

Petitioner timely challenged CMS’s determination. CMS sought summary disposition,
and Petitioner filed a cross motion for summary judgment. For the reasons set forth
below, I find that CMS is entitled to summary judgment, and I deny Petitioner’s cross
motion. The undisputed evidence establishes that Greenwood was not in compliance
with Medicare program requirements, and, as a consequence, CMS has the authority to
revoke Greenwood’s Medicare supplier number.
I. Applicable Law and Regulations

Section 1834(a)(16)(B) of the Social Security Act (Act), 42 U.S.C. § 1395m(a)(16)(B),
states that the Secretary of Health and Human Services (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.”

CMS’s regulations implement these requirements among the “supplier standards” at 42
C.F.R. § 424.57(c), which DMEPOS suppliers must meet to maintain Medicare billing
privileges. 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. The supplier:

oR RK

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

The surety bond requirements at 42 C.F.R. § 424.57(d) referenced in supplier standard 26
state, as relevant here, 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)(ii), (4), (5). “The term of the initial surety bond must be effective on the
date that the application is submitted to the NSC [National Supplier Clearinghouse, a
Medicare contractor].” 42 C.F.R. § 424.57(d)(2).

The regulations provide that failure to submit a surety bond as required is grounds for
revocation of a supplier’s billing privileges:

CMS requires a supplier to submit a bond that on its face reflects the
requirements of this section. CMS revokes or denies a DMEPOS supplier’s
billing privileges based upon the submission of a bond that does not reflect
the requirements of paragraph (d) of this section [42 C.F.R. § 424.57].

42 CFR. § 424.57(d)(4)(ii)(B); see also 42 C.F.R. § 424.57(d)(11) (“CMS revokes the
DMEPOS supplier’s billing privileges if an enrolled supplier fails to obtain, file timely,
or maintain a surety bond as specified in this subpart and CMS instructions.”).
The regulations also provide more generally that CMS “will revoke a supplier’s billing
privileges if it is found not to meet” the supplier standards or other requirements in
section 424.57(c). 42 C.F.R. § 424.57(e) (formerly § 424.57(d)).'

A supplier that has had its billing privileges revoked is “barred from participating in the
Medicare program from the effective date of the revocation until the end of the re-
enrollment bar. The re-enrollment bar is a minimum of | year, but not greater than 3
years depending on the severity of the basis for revocation.” 42 C.F.R. § 424.535(c).

CMS may at any time require a DMEPOS supplier to show compliance with the surety
bond requirement. 42 C.F.R. § 424.57(d)(12).

II. Background

By letter dated February 9, 2010, Petitioner requested a hearing pursuant to section
1866(j)(2) of the Act, 42 U.S.C. § 1395cc(j)(2) and 42 C.F.R. Part 498. Petitioner’s
hearing request (HR) was submitted in response to the January 22, 2010 reconsideration
decision of a Medicare Hearing Officer. CMS Ex. 10. In that decision, the Medicare
Hearing Officer found Petitioner noncompliant with supplier standard 26, which requires
DMEPOS suppliers to meet surety bond requirements.” Jd.

Petitioner acknowledges that the Hearing Officer found noncompliance with the surety
bond requirement but argues:

' Paragraph (e) of section 424.57 was previously designated paragraph (d) and was
redesignated by the rulemaking that imposed the surety bond requirements at paragraph
(d); however, the redesignations have not yet been incorporated in the Code of Federal
Regulations. See 42 C.F.R. Ch. IV § 424.57, Editorial Note (Oct. 1, 2009). References
are to the regulation as redesignated.

> CMS initially revoked Petitioner’s Medicare supplier number, because - -

[iJn accordance with 42 C.F.R. §§ 424.57(c)(22) and 424.57(d), the NSC
has not received proof of accreditation as required by October 1, 2009. In
addition, in accordance with 42 C.F.R. §§ 424.57(c)(26) and 424.57(d),
“All existing DMEPOS suppliers subject to the bonding requirement shall
submit a copy of the required surety bond to the NSC no later than October
2, 2009.” You failed to submit the surety bond to the NSC as required.

CMS Ex. 7 (Revocation Letter Dated Oct. 9, 2009). Upon reconsideration, the Medicare
Hearing Officer found Petitioner was compliant with supplier standard 22 of

42 C.F.R. § 424.57(c), requiring all suppliers to be accredited by a CMS-approved
accreditation organization. CMS Ex. 10, at 1-2. That finding is not at issue on appeal.

We did submit a valid continuation of the Surety Bond which did not
include the signature of our authorized or delegated official as it was a
continuation to the existing bond. Upon speaking with a representative at
National Supplier Clearinghouse, we obtained a Surety Bond for the facility
only, which shows the signature of our authorized or delegated official.

We are hoping that this correction to the Surety Bond will show us in
compliance with Supplier Standard #26, and you will grant us a Favorable
Decision... .

HR. This case was originally assigned to Administrative Law Judge (ALJ) Richard J.
Smith. It was reassigned to me for hearing and decision pursuant to 42 C.F.R. § 498.44,
which permits designation of a Member of the Departmental Appeals Board (Board) to
ear appeals taken under part 498.

ALJ Smith convened a prehearing conference by telephone on March 25, 2010, which he
summarized in an Order issued that same day. Based on ALJ Smith’s review of the file,
e determined the case could be addressed in summary fashion in the context of a motion
‘or summary disposition. Order Following Prehearing Conference at 3 (Mar. 25, 2010).
ALJ Smith set a briefing schedule accordingly. Jd. at 3-4.

CMS argues in support of summary disposition that Petitioner did not meet the surety
bond requirements as of October 2, 2009. Specifically, CMS argues that Petitioner
submitted a “Continuation Certificate” relating to a “Patient Trust Fund for Skilled
Nursing Facility Bond,” as evidence that it met the surety bond requirement, and that the
submission on its face is not in compliance with 42 C.F.R. § 424.57(c)(26) and (d). CMS
Br. at 13-14; see Reconsideration Decision Letter Dated Jan. 22, 2010, at 2; CMS Ex. 11,
at 1 (continuation certificate). For example, CMS points out that the obligee listed on the
continuation certificate is the State of New Jersey, whereas section 424.57(d)(10)
requires that the obligee be CMS. CMS Br. at 14; see CMS Ex. 11, at 1.

CMS objects to Petitioner’s filing of additional evidence of a surety bond, dated February
5, 2010, with its hearing request. CMS Br. at 15. CMS argues that “the provider is
precluded from introducing new evidence at ‘higher levels of the appeals process’” and
“{rjegulations governing ALJ hearings further provide that the ALJ will only consider
newly submitted evidence if the provider or supplier can demonstrate good cause for
submitting such evidence for the first time at the ALJ level.” Jd., citing 42 C.F.R. §§
405.874(c)(5) and 498.56(e).

With its motion and brief, CMS filed 15 exhibits (CMS Exs. 1-15). Petitioner opposed
CMS’s motion and also filed a cross motion for summary disposition (P. Br.). CMS
submitted a reply to Petitioner’s cross motion.
Petitioner did not object to any of CMS’s exhibits, and I admit them into the record. I
address below CMS’s objection to the documents attached to the hearing request as “new
evidence” within the meaning of section 498.56(e).

III. Issues
The issues in this case are:

1. Whether CMS has the authority to require existing DMEPOS suppliers, such as
Petitioner, to submit a surety bond in compliance with 42 C.F.R. § 424.57(c)(26)
and (d) by October 2, 2009, at a time when Petitioner allegedly was not making a
change of ownership or responding to a revalidation or reenrollment request;

2. Ifso, whether CMS is entitled to summary disposition on the ground that the
undisputed facts demonstrate that the revocation of Petitioner’s Medicare billing
privileges was legally authorized; and

3. Whether Petitioner is entitled to summary disposition on the grounds that the
undisputed facts demonstrate that it was in compliance with the surety bond
requirements.

IV. Applicable Standard

Both parties have moved for summary disposition in the nature of summary judgment.
Neither alleges that any material facts are in dispute. The parties debate whether: (1) the
regulation authorizes CMS to request Petitioner to submit a surety bond at the time that it
did; and (2) undisputed facts authorize the revocation of Petitioner’s Medicare supplier
number under the applicable regulation.

The Board stated the standard for summary judgment as follows.

Summary judgment is appropriate when the record shows that there is no
genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. ... The party moving for summary judgment
bears the initial burden of showing that there are no genuine issues of
material fact for trial and that it is entitled to judgment as a matter of

law .... To defeat an adequately supported summary judgment motion, the
non-moving party may not rely on the denials in its pleadings or briefs, but
must furnish evidence of a dispute concerning a material fact - - a fact that,
if proven, would affect the outcome of the case under governing law. In
determining whether there are genuine issues of material fact for trial, the
reviewer must view the evidence in the light most favorable to the non-
moving party, drawing all reasonable inferences in that party’s favor.

Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300, at 3 (2010) (citations omitted).
The role of an ALJ in deciding a summary judgment motion differs from the ALJ’s role
in resolving a case after a hearing. The ALJ should assess credibility or evaluate the
weight of conflicting evidence when resolving a summary judgment motion. Holy Cross
Vill. at Notre Dame, Inc., DAB No. 2291, at 4-5 (2009).

V. Findings of Fact and Conclusions of Law

Petitioner essentially argues throughout its brief that CMS acted outside of its statutory
and regulatory authority by requiring Petitioner to submit a surety bond in compliance
with 42 C.F.R. § 424.57(d) by October 2, 2009. Petitioner maintains that only limited
times exist at which CMS is authorized to make such a requirement, specifically at
enrollment, renewal, or when making a change of ownership, and Petitioner was outside
of those limited times. P. Br. at 4-6. I address this argument first.

Petitioner subsequently argues that, even if CMS had the authority to require the
submission of a surety bond when it did, Petitioner was in compliance with the surety
bond requirement, because the surety bond in effect at that time satisfies the surety bond
requirement’s purpose. P. Br. at 8. Petitioner maintains that to permit revocation of its
supplier number for the shortcomings that CMS identified “elevates form over substance,
places the letter of the law over the spirit of the law and defies common sense.” Jd. CMS
contends that the undisputed facts demonstrate Petitioner’s failure to timely comply with
applicable surety bond requirements. CMS Br. at 1-2. I address the evidence relating to
Petitioner’s compliance second.

My findings and conclusions are set forth in the bold italicized headings and supported by
the discussions in the sections below.

1. CMS acted within its authority when it required Petitioner to submit a surety
bond in compliance with 42 C.F.R. § 424.57(d) by October 2, 2009.

Petitioner argues that the Secretary’s statutory and regulatory authority to require existing
DMEPOS suppliers to submit a surety bond is limited to certain enumerated times.
Petitioner relies on the language of the authorizing statute, 42 U.S.C. § 1395m(a)(16)(B),
which prohibits the Secretary from providing for the “issuance (or renewal)” of a
provider number, unless the supplier of durable medical equipment furnishes the
Secretary with a surety bond in a form that the Secretary specified in an amount not less
than $50,000. Petitioner interprets the use of the words “issuance” and “renewal” to limit
when the Secretary can refuse to allow a supplier billing privileges. Petitioner argues that
CMS’s authority is limited to refusing “to issue a Medicare Supplier Number at the time
of a supplier’s application to become a participating Medicare DMEPOS supplier or. . .
to renew a current supplier’s number at the time of renewal.” P. Br. at 5.
Petitioner’s narrow interpretation of “issuance” and “renewal” is without merit. The
statutory language does not constrain how the Secretary is to avoid issuing or renewing a
Medicare number to a supplier lacking a valid surety bond. Nothing in the statute
suggests that the Secretary could not reasonably meet that requirement by ensuring that
all suppliers having Medicare numbers obtain and maintain the required surety bonds.

In fact, the statute states that the Secretary shall not issue or renew a DMEPOS supplier
number “unless the supplier provides the Secretary on a continuing basis . . . with a
surety bond... .” 42 U.S.C. § 1395m(a)(16)(B) (emphasis added).

This requirement for continuous compliance is implemented in the regulations that the
Secretary issued. Thus, the introductory language of 42 C.F.R. § 424.57(c) states, in
pertinent part, “[t]he supplier must meet and must certify in its application for billing
privileges that it meets and will continue to meet” the supplier standards listed within.
(Emphasis added). Those standards include section 424.57(c)(26) (supplier standard 26),
which states that a supplier “[m]Just meet the surety bond requirements specified in
paragraph (d) of this section.” It follows that a supplier must meet the surety bond
requirements specified in paragraph (d) on a continuing basis.

Consistent with this, the preamble to the final rule on appeals of CMS determinations,
when a provider or supplier fails to meet the requirements for Medicare billing privileges,
states “we believe all providers and suppliers must meet and maintain all Federal and
State requirements for their provider or supplier type to enroll or maintain their
enrollment in the Medicare Program.” 73 Fed. Reg. 36,448, 36,452 (June 27, 2008)
(emphasis added).

To ensure that a supplier maintains compliance with the surety bond requirement, section
424.57(d)(12) permits “CMS . . . at any time [to] require a DMEPOS supplier to show
compliance with the requirements of paragraph (d) of this section.” (Emphasis added).

I conclude that these regulations are directly applicable, are unambiguous, and in no way
conflict with the statute.

Petitioner, however, points to section 424.57(d)(2), which sets out “minimum
requirements for a DMEPOS supplier” and requires “a supplier enrolling in the Medicare
program, making a change in ownership, or responding to a revalidation or reenrollment
request” to submit a compliant surety bond. P. Br. at 5, citing 42 C.F.R.

§ 424.57(d)(2)(i). Petitioner maintains that “[nJowhere in either the statute or the
regulation is a supplier required to submit a surety bond to CMS at any time outside of
the time of application or renewal.” Jd. at 6.
First, Petitioner fails to address section 424.57(d)(1)(i), which plainly required existing
DMEPOS suppliers, such as Petitioner, to meet the surety bond requirement by October
2, 2009.* That requirement reads:

(ii) Existing DMEPOS suppliers. Except as provided in paragraph (d)(15)
of this section, beginning October 2, 2009, each Medicare-enrolled
DMEPOS supplier must meet the requirements of paragraph (d) of this
section for each assigned NPI to which Medicare has granted billing
privileges.

Contrary to Petitioner’s argument, existing suppliers were thus directly required to be in
compliance by October 2, 2009, and the plain language of section 424.57(d)(12)
permitted CMS to request proof of compliance with the surety bond requirement at any
time thereafter.*

Furthermore, Petitioner has not demonstrated that the circumstances here do not
constitute “responding to a revalidation . . . request” within the meaning of section

> The preamble to the final rule describes the timeframe for implementation of the surety
bond requirement separately for existing DMEPOS suppliers. See 74 Fed. Reg. 166, 173
(Jan. 2, 2009). CMS intentionally allowed a longer time for existing DMEPOS suppliers
to obtain a surety bond to “give existing suppliers an opportunity to assess and determine
whether they will continue to participate in the Medicare program during the
accreditation implementation [by October 1, 2009] without incurring additional costs
associated with a surety bond.” Jd. Thus, DMEPOS suppliers already enrolled in the
Medicare program, as of the publication date of this final rule, were required to obtain a
surety bond no later than nine months after the effective date of the final rule (October 2,
2009). Id. In contrast, any DMEPOS supplier seeking to enroll a new practice location,
or to change the ownership of an existing DMEPOS supplier after the publication date of
this rule, was required to submit a surety bond beginning 120 days after the effective date
of this rule (May 4, 2009). Id.

* | thus disagree with Petitioner that CMS relies for its only basis to require submission
of a surety bond by existing suppliers on a provision in a transmittal to its Program
Integrity Manual (PIM), which reads: “[a]ll existing DMEPOS suppliers subject to the
bonding requirement shall submit a copy of the required surety bond to the NSC no later
than October 2, 2009.” PIM, CMS Pub. No. 100-08, Transmittal 287, (issued March 27,
2009; eff. April 6, 2009) (This provision was superseded in the PIM after the October
2009 deadline had passed.). While Petitioner is correct that the PIM does not have the
force of law but rather represents CMS’s interpretation and clarification of the statutory
and regulatory requirements, those requirements, as discussed above, amply support
CMS’s authority to require submission of a surety bond by existing suppliers, such as
Petitioner. Cf P. Br. at 7-8, 7 n.3.
424.57(d)(2). The preamble of this final rule indicates that the “revalidation process . . .
ensure[s] that [CMS] collect[s] and maintain[s] complete and current information on all
Medicare providers and suppliers and ensure[s] continued compliance with Medicare
requirements.” 71 Fed. Reg. 20,754, 20,768 (Apr. 21, 2006).

In accordance with section 424.515(d), CMS reserves the right to perform off cycle
revalidations in addition to the regular revalidations described in the introductory text of
section 424.515.° Section 424.515(d) reads, in pertinent part:

[CMS] may request that a provider or supplier recertify the accuracy of the
enrollment information when warranted to assess and confirm the validity
of the enrollment information maintained by CMS. Off cycle revalidations
may be triggered as a result of random checks, information indicating local
health care fraud problems, national initiatives, complaints, or other reasons
that cause CMS to question the compliance of the provider or supplier with
Medicare enrollment requirements.

Here, the change in regulations adding the surety bond requirement in effect triggered an
off cycle revalidation. A revalidation occurred in October 2009, when CMS required
Petitioner to submit proof of a compliant surety bond.

In Abdul Razzaque Ahmed, M.D., DAB No. 2261 (2009), aff'd, Ahmed v. Sebelius, __
F.Supp.2d __, 2010 WL 1852132 (D. Mass. 2010), the petitioner raised a similar
argument as that raised in the instant case. Ahmed argued, inter alia, that “his revocation
is illegal because CMS failed to conduct a pre-revocation revalidation process.” DAB
No. 2261, at 5. Although the facts in Ahmed are different in that his billing privileges
were revoked because he pled guilty to a “financial crime” within the meaning of section
424.535(a)(3)(i)(B), the process in which CMS carried out the revocation is similar to
that of the instant case. Jd. at 4-5. The Board held that “a revalidation occurred in
November 2007 when CMS or its contractor acquired and reviewed information that
Petitioner had pled guilty to obstruction of a criminal investigation of health care
offenses.” Jd. at 15. The Board analogized the case to Robert F. Tzeng, M.D., DAB No.
2169, at 11 (2008), where the Board held that a CMS contractor had done a revalidation
when it acquired and reviewed information about a supplier’s conviction to determine
whether the supplier should remain enrolled in the Medicare program. Jd.

Similarly, here, by requesting and reviewing surety bonds of existing DMEPOS
suppliers, CMS conducted a revalidation for all existing DMEPOS suppliers to determine
whether they should remain enrolled in the program and whether they continued in

> A DMEPOS supplier must resubmit and recertify the accuracy of its enrollment
information every three years. 42 C.F.R. §§ 424.515 and 424.57(f).
10

compliance with its requirements, including those newly in effect as of October 2, 2009,
the date by which DMEPOS suppliers were required to submit a surety bond.

In summary, compliance with the Medicare regulations is required at all times that a
supplier is enrolled in the Medicare program. CMS has the authority to require suppliers
to submit evidence of their compliance at any time to revalidate their enrollment. CMS
acted within its regulatory authority in requiring Petitioner to submit a surety bond in
conformance with the requirements of 42 C.F.R. § 424.57(d) by October 2, 2009.

2. CMS was authorized to revoke Petitioner’s billing privileges based on
undisputed evidence that Petitioner had not submitted a surety bond that met the
requirements set forth in 42 C.F.R. § 424.57(c)(26) and (d).

Petitioner acknowledges receiving a letter from NSC in August 2009, informing it of the
requirement that existing DMEPOS suppliers submit a surety bond to NSC by October 2,
2009. P. Br. at 3, citing CMS Ex. 6. Petitioner further acknowledges receiving, on
October 14, 2009, a letter dated October 9, 2009 informing Petitioner that its Medicare
enrollment under its supplier number would be revoked in 30 days, because Petitioner
“failed to submit the surety bond to the NSC as required.” P. Br. at 3, citing CMS Ex. 7
(italics in original). The revocation notice advised Petitioner that it could submit a
corrective action plan within 30 days providing evidence that it was currently in
compliance and/or could request reconsideration if it believed the revocation was
“incorrect.” CMS Ex. 7, at 2.

Petitioner submitted a request for reconsideration on October 28, 2009, stating that there
“was either a misunderstanding or miscommunication in whether or not we needed to
keep the DME supplier number. We would like to retain our supplier number.” CMS
Ex. 8, at 1. Petitioner asserts that, on December 14, 2009, after speaking to the Medicare
Hearing Officer, it “submitted a revised form CMS855S and other related documents.”
P. Br. at 3.°

® Petitioner neither describes these documents further nor submits them for my
consideration. The reconsideration decision, however, includes a summary of submitted
documentation, which lists two items: copies of Greenwood Associates CMS 855S on
file with the NSC; and surety bond documentation. See CMS Ex. 10, at 2
(Reconsideration Decision Letter Dated Jan. 22, 2010). CMS submitted a copy of a
“Continuation Certificate,” stating this document is the one that was submitted upon
reconsideration to meet the surety bond requirement. CMS Ex. 11. CMS also submitted
a copy of the Medicare Enrollment Application CMS 8558. CMS Ex. 12. Petitioner
does not dispute that these exhibits reflect what it submitted as its additional
documentation, including the surety bond submitted on reconsideration.
11

As I have noted, an unfavorable reconsideration decision ensued. The Medicare Hearing
Officer concluded as follows:

Sent to this hearing officer for review is the copy of Green- Wood
Associates surety bond information. This information does not show that
the supplier submitted a valid surety bond for this location by the required
deadline of October 2, 2009. Green-Wood Associates submitted a surety
bond, however, the document provided does not have many of the
required elements directed by CMS to be considered an acceptable bond
for DMEPOS suppliers as mandated, 42 C.F.R. Section 424.57(c)(22)(26)
and 424.57(d). The additional submitted documentation sent to this hearing
officer for review, by Green-Wood Associates, contained a copy of this
surety bond. This has been determined to not contain required elements
mandated by CMS. A required element includes, but is not exclusive of:
a surety bond must be signed by the individual who has indicated
themselves as the authorized or delegated official. In this case there is
no signature on the surety bond from an authorized or delegated official of
Green-Wood Associates. Consequently, the NSC revoked the billing
privileges [of] Green-Wood Associates appropriately.

CMS Ex. 10, at 2 (emphasis added). The document that Petitioner submitted with its
request for reconsideration purports to be a Continuation Certificate, in the amount of
$165,000 on behalf of “Green-Wood Associates, LP t/a Mainland Manor Nursing and
Rehab” as principal and in favor of “State of New Jersey,” as obligee, and signed by the
surety company’s representative. CMS Ex. 11, at 1. CMS points out that the underlying
continuation certificate was not submitted by October 2, 2009. CMS Br. at 13.
Furthermore, CMS argues that, on its face, the continuation certificate does not meet
surety bond requirements in multiple respects. Jd. at 13-14. Among those shortcomings,
CMS alleges that the continuation certificate does not guarantee that the surety will,
within 30 days notice from CMS, pay CMS up to the total penal amount of the bond, or
the amount of any unpaid claim, plus accrued interest, or the amount of any civil money
penalties or assessments that CMS imposed, plus accrued interest, and that CMS was not
shown as the obligee. Jd.

l agree with CMS that the continuation certificate is inadequate to demonstrate
submission of a compliant surety bond within the requirements of 42 C.F.R.

§ 424.57(c)(26) and (d) by October 2, 2009, and, therefore, Petitioner was not in
compliance as of the revocation on October 9, 2009. Specifically, pursuant to 42 C.F.R.
§ 424.57(d)(10), the surety bond must name the DMEPOS supplier as principal, CMS as
obligee, and the surety as surety. The continuation certificate submitted failed to show
CMS as the obligee, listing instead, “State of New Jersey” as obligee. CMS Ex. 11, at 1.
I find that the submission was thus non-compliant on its face.
12

Petitioner argues that even were Greenwood “required to submit a surety bond to CMS
on October 2, 2009, the issue is moot as the Facility has a surety bond that was in effect
and provides coverage on October 2, 2009 and before.” P. Br. at 8. In that regard,
Petitioner points to a surety bond that it obtained on February 5, 2010 and that it asserts
provides coverage “from March 3, 2009 to the present, including all times after October
2, 2009.” P. Br. at 3, 8; CMS Ex. 14, at 5-6.

As noted, CMS objected to the admission of this 2010 surety bond, which was attached to
the hearing request on the grounds that this was new evidence for which Petitioner had
not shown good cause for failing to present it on reconsideration. CMS also, however,
included a copy of the 2010 surety bond in its own exhibits. On the one hand, Petitioner
obviously could not have submitted the new bond to the hearing officer on
reconsideration, because it was not yet executed. On the other hand, for the same reason,
the 2010 bond cannot be evidence of compliance at the time of the revocation. Even if
the 2010 surety bond were admissible, it would be irrelevant.

Petitioner maintains that “all purposes of the surety bond requirements are completely
satisfied” by the surety bond effective, and providing coverage to CMS as obligee, as of
March 3, 2009.’ P. Br. at 8. Petitioner explains that “[t]he bond is secured, CMS is fully
protected and all purposes of requiring a surety bond are satisfied.” Jd. Petitioner argues
that revoking Greenwood’s supplier number “elevates form over substance, places the
letter of the law over the spirit of the law and defies common sense.” Jd.

I disagree. First, the issue before me is not whether Petitioner has belatedly achieved
compliance with the surety bond requirement, but whether CMS correctly found that, at
the time of the revocation, Petitioner was not in compliance and that CMS therefore had
authority to revoke. As explained above, at the time of the revocation, Petitioner did not
have a compliant surety bond. That a surety was willing to undertake to cover
Petitioner’s potential overpayments after the fact does not mean that CMS was protected

7 The purposes of the surety bond requirement are stated in the preamble as:

(1) Limit the Medicare program risk to fraudulent DME suppliers;

(2) enhance the Medicare enrollment process to help ensure that only
legitimate DME suppliers are enrolled or are allowed to remain enrolled in
the Medicare program; (3) ensure that the Medicare program recoups
erroneous payments that result from fraudulent or abusive billing practices
by allowing CMS or our designated contractor to seek payments from a
surety up to the penal sum; and (4) help ensure that Medicare beneficiaries
receive products and services that are considered reasonable and necessary
from legitimate DME suppliers.

74 Fed. Reg. at 180.
13

at the relevant time from fraud or billing errors by Petitioner. Furthermore, it is unlikely
that a surety would undertake such retroactive coverage for a supplier had fraud or abuse
been discovered during the past period when no coverage was in place. Therefore, a
belated retroactive surety bond does not satisfy the statutory and regulatory purpose of
providing continuous protection to the Medicare program from the risk of loss due to a
supplier’s fraud or abuse.

Secondly, I must apply the regulations as they are stated. The applicable regulations
clearly required Petitioner to have in place a compliant surety bond by October 2, 2009.
Petitioner points to no source of authority for me to waive the compliance requirement or
grant an exemption on equitable grounds. Moreover, I have no authority to declare the
statute or the regulation invalid or ultra vires. 1866/CPayday.com, L.L.C., DAB No.
2289, at 14 (2009) (“An ALJ is bound by applicable laws and regulations and may not
invalidate either a law or regulation on any ground.”). Even if I did have such authority,
there would be no basis where, as here, the regulation does what the statute grants the
Secretary the authority to do, that is, to require DMEPOS suppliers to demonstrate that
they have obtained a surety bond “in a form specified by the Secretary” and maintain
such coverage “‘on a continuing basis.”

The regulation at 42 C.F.R. § 424.535 plainly authorizes CMS to revoke a supplier’s
Medicare enrollment whenever the supplier fails to maintain compliance with enrollment
requirements. Thus, section 424.535 provides:

Revocation of enrollment and billing privileges in the Medicare
program.

(a) Reasons for revocation. CMS may revoke a currently enrolled provider
or supplier’s Medicare billing privileges and any corresponding provider
agreement or supplier agreement for the following reasons:

(1) Noncompliance. The provider or supplier is determined not to be in
compliance with the enrollment requirements described in this section, or in
the enrollment application applicable for its provider or supplier type, and
has not submitted a plan of corrective action as outlined in part 488 of this
chapter... .

It is an enrollment requirement that “[t]he supplier must meet and must certify in its
application for billing privileges that it meets and will continue to meet” the supplier
standards in 42 C.F.R. § 424.57(c), which includes the surety bond requirement of section
424.57(c)(26). (Emphasis added). CMS may revoke the supplier’s Medicare billing
privileges if the supplier fails to meet any of these standards. 42 C.F.R. § 424.57(e);
18661CPayday.com, DAB No. 22839, at 13 (‘[F]ailure to comply with even one supplier
standard is a sufficient basis for revoking a supplier’s billing privileges.”).
14

Section 424.57(d)(11) further makes abundantly clear the consequences of a failure to
maintain a compliant surety bond, as follows:

CMS revokes the DMEPOS supplier’s billing privileges if an enrolled supplier
fails to obtain, file timely, or maintain a surety bond as specified in this subpart
and CMS instructions. Notwithstanding paragraph (e) of this section, the
revocation is effective the date the bond lapsed and any payments for items
furnished on or after that date must be repaid to CMS by the DMEPOS
supplier.

See 42 C.F.R. § 424.57(d)(11); see also 42 C.F.R. § 424.57(c)(26).

The regulatory language is plain. A supplier must comply with all standards, or CMS
will revoke its billing privileges. And I must sustain CMS’s determination where the
facts establish noncompliance with one or more of the regulatory standards.

I therefore conclude that CMS acted within its regulatory authority to revoke Petitioner’s
Medicare supplier number, because Petitioner was not compliant with the surety bond
requirements of 42 C.F.R. § 424.57(c)(26) and (d) by October 2, 2009.

VI. Conclusion

For the reasons explained above, I grant summary judgment in favor of CMS.

/s/
Leslie A. Sussan
Board Member