Michael Yoong Lee d/b/a Lee's Niles Drug Store, DAB CR6047 (2022)

DECISION

The Centers for Medicare & Medicaid Services (CMS), through its Medicare administrative contractor, Palmetto GBA, acting as the National Supplier Clearinghouse (NSC), revoked the Medicare enrollment and billing privileges of Michael Yoong Lee, d/b/a Lee’s Niles Drug Store (Petitioner) pursuant to 42 C.F.R. §§ 424.535(a)(1) and 424.57(d)(11).  NSC found that Petitioner did not comply with the supplier standards at 42 C.F.R. § 424.57(c)(10) and (c)(26) (supplier standards 10 and 26) because Petitioner failed to maintain a comprehensive liability insurance policy and failed to maintain a surety bond.  Petitioner asserts that it cured the alleged noncompliance.  As described more fully below, I conclude that CMS had a basis to revoke Petitioner’s Medicare enrollment and billing privileges.  I therefore sustain the revocation.

I.  Background and Procedural History

Petitioner is a supplier of Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) located in Bakersfield, California.  CMS Exhibit (Ex.) 1 at 1.  By letter dated February 25, 2020, NSC notified Petitioner that its billing privileges were being revoked, effective February 18, 2020, because of Petitioner’s failure to comply with the requirements of DMEPOS supplier standards 10 (failure to maintain a comprehensive insurance policy) and 26 (failure to maintain a surety bond).  Id.  NSC

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also informed Petitioner that it was barred from re-enrolling in Medicare for two years.  Id.  Petitioner requested reconsideration of that determination.  CMS Ex. 4.  With its reconsideration request, Petitioner enclosed copies of a certificate of liability insurance, effective from May 11, 2019 through May 11, 2020, and a reinstated surety bond with an effective date of March 11, 2020.  Id. at 2-5.  By letter dated April 8, 2020, a NSC hearing officer issued an unfavorable reconsidered determination.  CMS Ex. 5.  Petitioner timely requested a hearing before an administrative law judge.  Docket Entry # 1 in DAB E-File (RFH).  The case was assigned to me for hearing and decision and on June 19, 2020, my office acknowledged receipt of Petitioner’s hearing request and provided a copy of my Standing Prehearing Order (Prehearing Order).

In accordance with my Prehearing Order, CMS filed a prehearing brief and motion for summary judgment (CMS Br.) and nine exhibits (CMS Exs. 1-9).  By email on September 4, 2020, Petitioner stated that it had no other documents it wished to file and would await a decision in this case.  Docket Entry # 7 in DAB E-File.  Petitioner did not object to CMS’s exhibits.  On September 8, 2020, I issued an order closing the record.  In the absence of objection, I admit into the record CMS Exs. 1-9.

With its hearing request, Petitioner submitted a copy of a certificate of liability insurance for a policy effective May 11, 2020 (May 2020 certificate).  See Docket Entry #1b in DAB E-File.  CMS argues that the May 2020 certificate should be excluded pursuant to 42 C.F.R. § 498.56(e), because it represents new evidence not previously submitted with Petitioner’s reconsideration request.  CMS Br. at 4 n.1.  As CMS points out, Petitioner has not argued that it has good cause for submitting this evidence for the first time before me.  Id.  Because I agree with CMS that the May 2020 certificate is new evidence within the meaning of 42 C.F.R. § 498.56(e) and because Petitioner has not made a showing of good cause, I exclude it as evidence and do not consider it in reaching my decision.1

My Prehearing Order advised the parties that they must submit written direct testimony for each proposed witness and that an in-person hearing would only be necessary if the opposing party requested an opportunity to cross-examine a witness.  Prehearing Order ¶¶ 8-11; see Vandalia Park, DAB No. 1940 (2004); Pacific Regency Arvin, DAB No. 1823 at 7-8 (2002) (holding that the use of written direct testimony for witnesses is permissible so long as the opposing party has the opportunity to cross-examine those witnesses).2   Neither party proposed to call witnesses or submitted written direct

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testimony.  Thus, a hearing is not necessary, and I decide the case on the written record without considering whether the standard for summary judgment is met.  Prehearing Order ¶¶ 8-11.  I deny CMS’s motion for summary judgment as moot.

II.  Issue

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

III.  Jurisdiction

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

IV.  Discussion

A. Statutory and Regulatory Background

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

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

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

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

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

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

* * * *

(10) Has a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier’s place of business and all customers and employees of the supplier. In the case of a supplier that manufactures its own items, this insurance must also cover product liability and completed operations. Failure to maintain required insurance at all times will result in revocation of the supplier’s billing privileges retroactive to the date the insurance lapsed;

* * * *

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

The surety bond requirements referenced in supplier standard 26 state that “beginning October 2, 2009, each Medicare-enrolled DMEPOS supplier must meet the requirements of paragraph (d),” which include “a bond that is continuous,” which “meet[s] the minimum requirements of liability coverage ($50,000),” and provides that “[t]he surety is liable for unpaid claims, CMPs [civil money penalties], or assessments that occur during the term of the bond.”  42 C.F.R. § 424.57(d)(1)(ii), (4), (5).  “The term of the initial surety bond must be effective on the date that the application is submitted to the CMS contractor.  42 C.F.R. § 424.57(d)(2).

The regulations provide that failure to maintain a surety bond as required is grounds for revocation of a supplier’s billing privileges.  42 C.F.R. § 424.57(d)(4)(ii)(B); see also 42 C.F.R. § 424.57(d)(11)(i) (“CMS revokes the DMEPOS supplier’s billing privileges if

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an enrolled DMEPOS supplier fails to obtain, file timely, or maintain a surety bond as specified in this subpart and CMS instructions.”).

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

Section 424.57(d)(15)(i) makes exceptions to the surety bond requirements for certain qualified entities:

(A) Government-operated DMEPOS suppliers are provided an exception to the surety bond requirement if the DMEPOS supplier has provided CMS with a comparable surety bond under State law.
(B) State-licensed orthotic and prosthetic personnel in private practice making custom made orthotics and prosthetics are provided an exception to the surety bond requirement if—

(1) The business is solely-owned and operated by the orthotic and prosthetic personnel, and
(2) The business is only billing for orthotic, prosthetics, and supplies.

(C) Physicians and nonphysician practitioners as defined in section 1842(b)(18) of the Act are provided an exception to the surety bond requirement when items are furnished only to the physician or nonphysician practitioner’s own patients as part of his or her physician service.
(D) Physical and occupational therapists in private practice are provided an exception to the surety bond requirement if—

(1) The business is solely-owned and operated by the physical or occupational therapist;
(2) The items are furnished only to the physical or occupational therapist’s own patients as part of his or her professional service; and
(3) The business is only billing for orthotics, prosthetics, and supplies.

The regulations do not make an exception to the security bond requirement for pharmacies or pharmacists.  Id.

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

1. CMS was authorized to revoke Petitioner’s Medicare enrollment and billing privileges under 42 C.F.R. §§ 424.535(a)(1) and 424.57(d)(11) because Petitioner failed to continuously maintain a surety bond.
   1. Petitioner’s surety bond lapsed on February 18, 2020 and Petitioner did not purchase a new bond until March 10, 2020.

Effective October 25, 2016, Petitioner contracted with Old Republic Surety Company for a surety bond in the amount of $50,000, naming CMS as the obligee.  CMS Ex. 7.  On January 9, 2020, Old Republic Surety Company notified CMS, in care of NSC, that effective February 18, 2020, the bond was cancelled for non-payment of the premium.  CMS Ex. 2 at 1.  Petitioner admits that it missed the renewal date of the surety bond.  RFH at 1.  Petitioner further explains that its owner did not renew the surety bond until after NSC issued the initial revocation letter.  Id.  Based on Petitioner’s admissions, I find that Petitioner had no surety bond in force beginning on February 18, 2020, until the new surety bond became effective.

Moreover, when Petitioner allowed the surety bond to lapse, Petitioner did not provide written notice to CMS within 30 days of the cancellation, and Petitioner’s new surety bond did not become effective until March 11, 2020, almost a month after the bond was cancelled and after NSC revoked its enrollment.  CMS Ex. 8.  The regulations authorize CMS to revoke a supplier’s Medicare billing privileges upon cancellation of its surety bond “unless the DMEPOS supplier provides a new bond before the effective date of the cancellation.”  42 C.F.R. § 424.57(d)(6)(ii).

These facts establish that Petitioner violated 42 C.F.R. § 424.57(c)(26) (supplier standard 26) because Petitioner no longer complied with the surety bond requirements in 42 C.F.R. § 424.57(d).  This was grounds for NSC to revoke Petitioner’s Medicare billing privileges.  42 C.F.R. §§ 424.535(a)(1), 424.57(d)(11).

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

The regulations are clear that a DMEPOS supplier is required to continuously maintain a surety bond.  42 C.F.R. § 424.57(d); see also Bentley Pharmacy, Inc., DAB CR2235 at 6 (2010) (the issue before the administrative law judge “is not whether [the supplier] intended to be compliant or can belatedly achieve compliance with the surety bond requirements, but whether CMS correctly found that, at the time of the revocation action, [the supplier] was not in compliance.”) (emphasis in original).  Petitioner concedes that there was a time during which Petitioner did not have a surety bond in effect.  See CMS

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Ex. 4 at 1; RFH at 1.  The fact that Petitioner purchased a new surety bond after NSC revoked its Medicare enrollment does not establish that Petitioner was compliant with the Medicare DMEPOS supplier standards.  At most, Petitioner’s purchase of a new bond represents Petitioner’s effort to correct its noncompliance.

Any attempt by Petitioner to return to compliance with the Medicare supplier standards following revocation is analogous to a corrective action plan (CAP).  However, section 405.809 of the regulations explicitly precludes administrative law judge review of CMS’s or its contractor’s rejection of a CAP.  “The refusal of CMS or its contractor to reinstate a provider or supplier’s billing privileges based on a corrective action plan is not an initial determination under part 498 of this chapter.”  42 C.F.R. § 405.809(b)(2).  Several appellate decisions of the Departmental Appeals Board (DAB) confirm that administrative law judges have no authority to review CMS’s (or a contractor’s) decision to reject a proposed CAP.  See, e.g., Conchita Jackson, M.D., DAB No. 2495 at 6 (2013); DMS Imaging, Inc., DAB No. 2313 at 6 (2010).  Thus, to the extent Petitioner contends that NSC should have determined that the actions Petitioner took following revocation cured the noncompliance, NSC’s review of what is essentially a CAP is not before me and cannot form a basis to reverse CMS’s determination to revoke Petitioner’s Medicare enrollment and billing privileges.

3. Petitioner’s belief that it was exempt from the requirement to maintain a surety bond is not a defense.

Petitioner additionally explains that it failed to renew its surety bond because its owner believed that the pharmacy was exempt from the surety bond requirement because its total annual sales of DMEPOS were less than 5% of its total prescription sales.  RFH at 1.  However, Petitioner cites no authority to support the argument that it was not required to maintain a surety bond.  Furthermore, pharmacies are not exempt from the surety bond requirement.  See 42 C.F.R. § 424.57(d)(15)(i).

Moreover, even if Petitioner’s owner subjectively believed Petitioner was not required to maintain its surety bond, a party’s misunderstanding or ignorance of the regulations is not a defense.  See Emmanuel Brown, M.D., & Simeon K. Obeng, M.D., DAB CR2145 at 6 (2010).  In general, those “‘who deal with the government are expected to know the law . . . .’”  John Hartman, D.O., DAB No. 2564 at 3 (2014) (quoting Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 63 (1984)).

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

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2. I need not decide whether CMS had a basis to revoke Petitioner’s Medicare enrollment and billing privileges pursuant to 42 C.F.R. § 424.57(c)(10).

Having concluded that CMS had a legal basis to revoke Petitioner’s enrollment and billing privileges pursuant to 42 C.F.R. §§ 424.535(a)(1) and 424.57(d)(11), I need not decide whether CMS also had a basis to revoke Petitioner’s enrollment and billing privileges for failing to comply with 42 C.F.R. § 424.57(c)(10) (supplier standard 10).  It is unnecessary for me to do so because I have found that Petitioner failed to comply with 42 C.F.R. § 424.57(c)(26) (supplier standard 26) and that CMS was authorized to revoke Petitioner’s Medicare enrollment on that basis.  See, e.g., Daniel Wiltz, M.D. & Fam. Healthcare Clinic, APMC, DAB No. 2864 at 12 (2018) (if one basis for revocation is established, CMS’s action would be sustained “regardless of the existence of any additional bases for revocation.”); see also 1866ICPayday.com, DAB No. 2289 at 13 (“failure to comply with even one supplier standard is a sufficient basis for revoking a supplier’s billing privileges.”).  For these reasons, I do not decide whether CMS had a legal basis to revoke Petitioner’s enrollment and billing privileges for failing to comply with 42 C.F.R. § 424.57(c)(10).

V.  Conclusion

For the reasons explained above, I decide that CMS had a legal basis to revoke Petitioner’s Medicare enrollment and billing privileges, effective February 18, 2020.

1. In any event, even if the May 2020 certificate were not inadmissible pursuant to 42 C.F.R. § 498.56(e), I would exclude it as immaterial.  The May 2020 certificate sheds no light on whether Petitioner had a valid liability insurance policy in effect on February 18, 2020, the date on which NSC revoked Petitioner’s Medicare enrollment.
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2. Administrative decisions cited in this decision are accessible via the HHS website at:  https://www.hhs.gov/about/agencies/dab/decisions/index.html.
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