D V Jahn Inc., DAB CR6798 (2025)

DECISION

The Centers for Medicare & Medicaid Services (CMS), through a Medicare administrative contractor, revoked the Medicare billing privileges of Petitioner, D V Jahn Inc., based on a failure to comply with the standards applicable to durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) suppliers.  Petitioner requested a hearing to dispute the revocation.  For the reasons stated below, I conclude that Petitioner was not in compliance with a DMEPOS supplier standard and affirm the revocation.

I.  Background and Procedural History

In an August 1, 2024 notice of initial determination, a CMS contractor revoked Petitioner’s DMEPOS supplier number/Medicare billing privileges effective August 19, 2023, and established a two-year re-enrollment bar.  CMS Ex. 4 at 1-2.  The CMS contractor provided the following reasons for its actions:

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• 42 C.F.R. § 424.57(c)(10) – Petitioner’s “general liability insurance policy on file with NPEAST has expired; therefore, [Petitioner is] not in compliance with this standard.”  CMS Ex. 4 at 1 (emphasis omitted).
• 42 C.F.R. § 424.57(c)(26) – “A surety bond cancellation notice was received from Western Surety Company effective August 19, 2023.  [Petitioner] failed to maintain a valid surety bond as required by law.  Therefore, pursuant to 424.57(d)(11) the revocation is effective the date the surety bond lapsed.”

CMS Ex. 4 at 2.

In a September 18, 2024 letter, Petitioner requested reconsideration of the revocation and provided documentation in support of its reconsideration request.  CMS Ex. 5.

In a November 29, 2024 reconsidered determination, a different CMS contractor upheld the revocation “because [Petitioner] failed to provide sufficient documentation to demonstrate that, at the time of the revocation, it was in compliance with the requirements under §§ 424.57(c)(10) and (c)(26).”  CMS Ex. 1 at 5.

On January 28, 2025, Petitioner requested a hearing to challenge the revocation.  On January 29, 2025, the Civil Remedies Division acknowledged the hearing request and issued my Standing Order.  Based on the prehearing submission procedures in the Standing Order, CMS filed a brief/motion for summary judgment (CMS Br.) and five proposed exhibits (CMS Exs. 1-5).  Petitioner filed a brief opposing summary judgment/cross-motion for summary judgment (P. Br.) and three proposed exhibits (P. Exs. 1-3).  Petitioner described Petitioner Exhibit 3 as testimonial evidence from Petitioner’s Chief Executive Officer.  CMS filed an evidentiary objection (CMS Obj.) and a reply brief/rebuttal (CMS Reply).

II.  Evidentiary Rulings

Absent objection, I admit CMS Exhibits 1 through 5 and Petitioner Exhibits 1 and 2.  See 42 C.F.R. § 498.61; Standing Order ¶ 10; Civil Remedies Division Procedures (CRDP) § 14(e).

CMS objected to Petitioner Exhibit 3.  Petitioner Exhibit 3 is an unusual document in that it looks like an email sent by Dmitriy Janoyev to an unknown individual.  Some text in this email is redacted.  However, the email first includes text from an individual named Tanya.  According to the text, Tanya addresses Dmitriy and states that she was “calling” him to discuss a bond.  The text concerning Tanya’s message is in blue.  Following that text is a redacted portion of text, but then there is black text that appears to have been written by Dmitriy.

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Petitioner’s counsel filed a Motion for Admission of Testimonial Evidence (P. Mot.) describing Petitioner Exhibit 3 as “Petitioner’s Chief Executive Officer’s translation of voicemail from Art of Insurance Agency, Inc. representative relating to bond coverage ‘lapse.’”  P. Mot. at 1.  The exhibit is described as “new testimonial evidence” and “represents Petitioner’s own transcription of a voicemail from a Russian-speaking representative of Art of Insurance Agency, Inc.”  P. Mot. at 1-2.

CMS objected to this exhibit because:  it fails to meet the requirement that all written testimony must be a signed affidavit or declaration made under penalty of perjury; Petitioner provided no foundation or authenticity for the contents of the document; and it is not relevant because it seems to explain why Petitioner did not have a surety bond (i.e., a third party allegedly caused the cancellation) and not that Petitioner was properly covered by a surety bond at all relevant times.  CMS Obj. at 2-4.

Petitioner neither responded to the objection nor filed an amended version of Petitioner Exhibit 3 that complied with the requirements for written direct testimony.

I sustain CMS’s objection.  CMS is correct that Petitioner Exhibit 3, as purported testimony, fails to meet the requirement that written direct testimony be a signed affidavit or a declaration made under penalty of perjury.  Standing Order ¶ 11; CRDP § 19(b).  The statutory provision applicable to the hearing in this case provides for the administration of oaths and affirmations, and the examining of witnesses.  42 U.S.C. §§ 405(b)(1), 1395cc(j)(8); see also 5 U.S.C. § 556(c)(1), (d).  The regulations implementing that statute require that “[w]itnesses at the hearing testify under oath or affirmation.”  42 C.F.R. § 498.62.  However, federal law allows for an unsworn statement to be made a declaration under penalty of perjury to substitute for a sworn declaration.  28 U.S.C. § 1746.  Petitioner Exhibit 3 does not comport with these requirements.

Further, I agree that Petitioner’s failure to provide foundation and authentication for Petitioner Exhibit 3 is another basis to exclude it.  This document is redacted; therefore, some of the text is obscured.  The document also appears to be relaying a phone message with additional text from a second person.  However, none of this can be discerned for certain.  In addition, Petitioner’s counsel indicates that this is a translation of a voicemail left in the Russian language.  The person making the translation did not testify to this and did not state under oath his knowledge, education, and qualifications to make such a translation.  In addition, Petitioner did not submit a copy of the voicemail that was translated.

Finally, I agree with CMS that this exhibit is not relevant.  As stated below, I reject Petitioner’s argument that it is not responsible for a lapse in its surety bond because a third-party agent for Petitioner failed to timely pay for the surety bond.  I am to admit relevant and material evidence, but I am to exclude irrelevant and immaterial evidence.  42 C.F.R. § 498.60(b)(1); see also 5 U.S.C. § 556(d).

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III.  Decision on the Written Record

I directed the parties to submit written direct testimony from all witnesses that the parties wanted to present in this case and stated that the opposing party could request to cross-examine the witnesses.  Standing Order ¶¶ 11-12; see CRDP § 16(b).  I also advised the following:

If the parties either do not file any written direct testimony or the parties do not request to cross-examine any of the witnesses from whom written direct testimony has been submitted, I will consider such actions by the parties to serve as a constructive request for a decision on the written record because there will be no reason to hold an in-person hearing.

Standing Order ¶ 7(g)(iii); see also Standing Order ¶ 13; CRDP § 19(b).  In addition, I stated:  “Unless a hearing is required for cross-examination of a witness or witnesses, the record will be closed and the case will be ready for a decision after all the submission deadlines have passed.”  Standing Order ¶ 14; see CRDP § 19(d).

In the present case, CMS did not file any written direct testimony and, while Petitioner submitted what it described as testimony (Petitioner Exhibit 3), I excluded that document.  Even if I had not excluded it, CMS did not request to cross-examine the individual who wrote Petitioner Exhibit 3.  Therefore, I issue a decision based on the written record.  Anil Hanuman, D.O., DAB No. 3080 at 11-12 (2022); EI Med., Inc., DAB No. 3117 at 15 (2023); Vandalia Park, DAB No. 1940 (2004).

Because I render this decision based on the written record, I deny the motion and cross-motion for summary judgment as moot.

IV.  Issue

Whether CMS had a legitimate basis to revoke Petitioner’s Medicare billing privileges.

V.  Jurisdiction

I have jurisdiction to decide this case.  42 C.F.R. §§ 498.1(g), 498.3(b)(17), 498.5(l)(2); see also 42 U.S.C. § 1395cc(j)(8).

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VI.  Findings of Fact

1) Petitioner was enrolled in the Medicare program as a DMEPOS supplier.  See CMS Ex. 3.

2) Western Surety Company issued a “Surety Bond Suppliers of Durable Medical Equipment, Prosthetics, Orthotics and Supplies Medicare Program” in the amount of $50,000 to Petitioner with an effective date of January 23, 2019.  The Surety Bond document states that the Surety or Principal may cancel the Bond by providing written notice of cancellation.  The Surety Bond had an expiration date of January 23, 2020.  P. Ex 1 at 24-25, 28-29.

3) Petitioner’s agent for the surety bond was Art of Insurance Agency, Inc.  P. Ex. 1 at 28-29.

4) In a July 11, 2023 letter to a CMS contractor, the surety company stated that it was cancelling Petitioner’s $50,000 surety bond effective August 19, 2023, because of “Nonpayment of premium.”  The surety company indicated that it sent a copy of the letter to Petitioner and to Art of Insurance Agency, Inc.  P. Ex. 2 at 26; CMS Ex. 2 at 1; CMS Ex. 5 at 27.

5) On July 17, 2023, Petitioner forwarded a copy of the July 11, 2023 letter concerning the cancellation of the surety bond to Art of Insurance Agency, Inc.  P. Ex. 2 at 28.

6) Western Surety Company issued a “Surety Bond Suppliers of Durable Medical Equipment, Prosthetics, Orthotics and Supplies Medicare Program” in the amount of $50,000 to Petitioner with an effective date of December 4, 2023.  P. Ex 1 at 30-31.

7) A Certificate of Liability Insurance, dated October 3, 2023, issued by Utica Insurance Company to Petitioner for $1 million per occurrence, for the following terms:  October 7, 2023 to October 7, 2024, for Commercial General Liability; December 28, 2022 through December 28, 2023, for automobile liability; and October 7, 2023 through October 7, 2024, for umbrella liability.  P. Ex. 1 at 22; P. Ex. 2 at 23; CMS Ex. 5 at 24.

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8) A Certificate of Liability Insurance, dated September 18, 2024, issued by Utica Insurance Company to Petitioner for $1 million per occurrence, for the following terms:  October 7, 2024 to October 7, 2025, for Commercial General Liability; December 28, 2023 through December 28, 2024, for automobile liability; and October 7, 2024 through October 7, 2025, for umbrella liability.  P. Ex. 1 at 21; P. Ex. 2 at 23.

VII.  Conclusions of Law and Analysis

The Social Security Act (Act) authorizes the Secretary of Health and Human Services (Secretary) to establish regulations for enrolling providers and suppliers in the Medicare program and establishing requirements for DMEPOS suppliers to obtain a supplier number.  42 U.S.C. §§ 1395m(j)(1)(B), 1395cc(j)(1)(A).  DMEPOS suppliers must enroll in the Medicare program and receive a supplier number to obtain payment for items and services provided to Medicare beneficiaries.  42 U.S.C. § 1395m(j)(1)(A); 42 C.F.R. §§ 424.57(b)-(c), 424.505.  The Secretary established DMEPOS supplier standards that must be met to enroll and remain enrolled in the Medicare program.  42 C.F.R. § 424.57(b)-(c).  CMS revokes a DMEPOS supplier’s billing privileges if the supplier fails to meet the supplier standards.  42 C.F.R. § 424.57(e)(1).

1. Petitioner’s DMEPOS surety bond was cancelled on August 19, 2023, and Petitioner did not obtain another surety bond until December 4, 2023.  Because Petitioner failed to continuously maintain a surety bond, Petitioner was not compliant with 42 C.F.R. § 424.57(c)(26).

When seeking to enroll in the Medicare program, a DMEPOS supplier must submit a surety bond from an authorized surety that is for no less than $50,000.  42 U.S.C. § 1395m(a)(16)(B); 42 C.F.R. § 424.57(d)(2)(i).  The purpose of the surety bond is to “guarantee that the surety will, within 30 days of receiving written notice from CMS containing sufficient evidence to establish the surety’s liability under the bond of unpaid claims, [civil money penalties (CMPs)], or assessments, pay CMS a total of up to the full penalty amount of the bond.”  42 C.F.R. § 424.57(d)(5)(i).

Petitioner originally complied with the surety bond requirement and submitted a $50,000 surety bond for Medicare DMEPOS suppliers executed on January 23, 2019.  P. Ex 1 at 24-29.  However, the surety bond was cancelled effective August 19, 2023, due to nonpayment, and a new surety bond was not effective until December 4, 2023.  P. Ex 1 at 30-31; P. Ex. 2 at 26; CMS Ex. 2 at 1; CMS Ex. 5 at 27.  Petitioner does not dispute these facts.  P. Br. at 2-3.

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In this proceeding, Petitioner argues that, despite the surety bond’s cancellation as of August 19, 2023, and Petitioner did not again have an effective surety bond until December 4, 2023, that there was no gap in surety bond coverage.  P. Br. at 7.  Petitioner based this argument on the following provision in the January 23, 2019 surety bond:

In the event this Bond is cancelled or expires, and the Principal fails to submit a new bond to the Obligee,1the Surety remains liable for unpaid claims, civil money penalties or assessments that were imposed or assessed by CMS or the Office of the Inspector General during the 2 years following the effective date of cancellation or expiration of this Bond.

P. Ex. 1 at 25; P. Br. at 7.  Petitioner asserts that this provision proves that Petitioner’s surety bond “coverage is continuous.”

Petitioner misinterprets the clause quoted above.  Petitioner asserts that it means the surety essentially provides two years of free coverage.

This provision in the surety bond reflects the coverage of unpaid claims, CMPs, or assessments imposed within two years following the cancellation or expiration of the surety bond related to claims or conduct by Petitioner that occurred during the time when the surety bond was in effect.  This interpretation is borne out in the regulatory provision that is likely the basis for the surety bond provision quoted above.

If the DMEPOS supplier fails to furnish a bond meeting the requirements of paragraph (d) of this section, fails to submit a rider when required, or if the DMEPOS supplier’s billing privileges are revoked, the last bond or rider submitted by the DMEPOS supplier remains in effect until the last day of the surety bond coverage period and the surety remains liable for unpaid claims, CMPs, or assessments that—

(A)  CMS or the OIG imposes or asserts against the DMEPOS supplier based on overpayments or other events that took place during the term of the bond or rider; and

(B)  Were imposed or assessed by CMS or the OIG during the 2 years following the date that the DMEPOS supplier failed to submit a bond or required rider, or the date the DMEPOS supplier’s billing privileges were terminated, whichever is later.

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42 C.F.R. § 424.57(d)(5)(iii) (Emphasis added).  Therefore, the surety bond’s coverage did not extend beyond August 19, 2023, as stated in the July 11, 2023 letter, but merely allowed a two-year window for unpaid claims, CMPs, and assessments that were based on Petitioner’s actions while the surety bond was in effect.

Petitioner also argues that it is not responsible for the cancellation of the surety bond for nonpayment because it reasonably relied on an agent, Art of Insurance Agency, Inc., to make the payments.  P. Br. at 7-8.  However, as CMS argues, Petitioner cites no law that says it is not responsible for complying with the regulations merely because Petitioner hired a third party to help it ensure compliance and the third party failed to do so.  CMS Reply at 3-4.  Third-party agent actions or inactions are not usually a defense in sanction cases involving providers and suppliers.  Cf. Madison Cnty. Nursing Home, DAB No. 2895 at 8-9 (2018); Howard B. Reife, D.P.M., DAB No. 2527 at 7-8 (2013).

Finally, Petitioner interprets the regulations narrowly so that they are limited to Petitioner’s certification at the time of enrollment.  Petitioner argues that CMS’s “receipt of a cancellation letter . . . was not sufficient in the absence of an examination into Petitioner’s certifications in its initial application for billing privileges.”  P. Br. at 8.  I disagree with Petitioner’s interpretation of the regulations.

The Secretary established “Application certification standards” as part of the DMEPOS supplier standards, which require:  “The supplier must meet and must certify . . . that it . . . will continue to meet” the standards.  42 C.F.R. § 424.57(c).  The relevant standard in this case requires Petitioner to “[m]eet the surety bond requirements specified in paragraph (d) of [42 C.F.R. § 424.57].”  42 C.F.R. § 424.57(c)(26).  One of the requirements in paragraph (d) is:  “If CMS receives notification of a lapse in bond coverage from the surety, the DMEPOS supplier’s billing privileges are revoked.”  42 C.F.R. § 424.57(d)(6)(iii).  Further, “CMS revokes the DMEPOS supplier’s billing privileges if an enrolled DMEPOS supplier fails to . . . maintain a surety bond as specified [in the regulations]. . . .  [T]he 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.”  42 C.F.R. § 424.57(d)(11)(i).  This is ample support that Petitioner had an ongoing obligation to fulfill the surety bond requirement and that CMS could revoke Petitioner’s Medicare supplier number and billing privileges based on a lapse in surety bond coverage.

2. CMS had a legitimate basis to revoke Petitioner’s DMEPOS supplier number/Medicare billing privileges based on Petitioner’s failure to comply with a DMEPOS standard.

When CMS finds that a DMEPOS supplier is not compliant with a DMEPOS standard, CMS revokes the supplier’s billing privileges.  42 C.F.R. § 424.57(e)(1);

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1866ICPayday.com, LLC, 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.”).

I have concluded that Petitioner failed to comply with a DMEPOS standard.  Therefore, CMS had a legitimate basis to revoke Petitioner’s Medicare billing privileges.2

Unless there is an exception in the regulations, the revocation is effective 30 days after a notice of the initial determination to revoke is sent to the DMEPOS supplier.  42 C.F.R. § 424.57(e)(1).  As quoted above, one such exception applies when CMS revokes a DMEPOS supplier’s billing privileges for failing to maintain a surety bond, in which case, the revocation is effective on the date that the surety bond lapsed.  42 C.F.R. § 424.57(d)(11)(i).  In this case, Petitioner’s surety bond lapsed on August 19, 2023.  P. Ex. 2 at 26; CMS Ex. 2 at 1; CMS Ex. 5 at 27.  Therefore, CMS appropriately set August 19, 2023, as the effective date for the revocation.

VI.  Conclusion

I affirm the revocation of Petitioner’s Medicare billing privileges effective August 19, 2023.