Chaque Femme Boutique LLC D/B/A Every Woman Boutique, DAB No. 3180

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

Chaque Femme Boutique LLC D/B/A Every Woman Boutique (Petitioner) appeals the decision of an administrative law judge (ALJ) upholding a determination by the Centers for Medicare & Medicaid Services (CMS) to revoke Petitioner’s Medicare enrollment and billing privileges as a supplier of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).  Chaque Femme Boutique LLC D/B/A Every Woman Boutique, DAB CR6527 (2024) (ALJ Decision).  The ALJ concluded that CMS had a lawful basis for the revocation because Petitioner failed to meet the surety bond requirement in the federal regulations governing DMEPOS supplier enrollment.  We affirm the ALJ Decision because it is supported by substantial evidence and free of legal error.

Legal Background

Under the Social Security Act (Act), the Department of Health and Human Services administers the Medicare program through CMS and administrative contractors.  Act §§ 1816(a), 1842(a), 1874A. (42 U.S.C. §§ 1395h(a), 1395u(a), 1395kk-1(a)).¹  A provider or supplier of Medicare services must be enrolled in the Medicare program to receive payment for items and services that Medicare covers.  42 C.F.R. § 424.505.²  A DMEPOS supplier, such as Petitioner, is “an entity or individual . . . which sells or rents Part B covered items to Medicare beneficiaries and which meets the standards in paragraphs (c) and (d) of” section 424.57.  Id. § 424.57(a). 

To maintain Medicare enrollment and associated “billing privileges,” a DMEPOS supplier must comply with the certification standards in 42 C.F.R. § 424.57(c).  Relevant to this case, a DMEPOS supplier “[m]ust meet the surety bond requirements specified in 

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paragraph (d)” of section 424.57.  Id. § 424.57(c)(26).  Section 424.57(d) requires, among other things, that each DMEPOS supplier “submit a bond that is continuous,” meets the minimum requirements of liability coverage ($50,000), guarantees that the surety will pay CMS “up to the full penal amount of the bond” within 30 days of receiving written notice from CMS, 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.”  Id. § 424.57(d)(4), (5).³ 

The DMEPOS regulations provide generally that “CMS revokes a supplier’s billing privileges if it is found not to meet” any of the supplier standards in section 424.57(c).  Id. § 424.57(e)(1); see also § 424.502 (“Revoke/Revocation means that the provider or supplier’s billing privileges are terminated.”).  Regarding the surety bond supplier standard, “CMS revokes the DMEPOS supplier’s billing privileges if an enrolled DMEPOS supplier fails to obtain, file timely, or maintain a surety bond as specified in [Part 424, subpart D] and CMS instructions.”  Id. § 424.57(d)(11)(i) (emphasis added); see also § 424.57(d)(6)(iii) (“If CMS receives notification of a lapse in bond coverage from the surety, the DMEPOS supplier’s billing privileges are revoked.”).  Regarding the requirement to “maintain” a surety bond, the regulation states, “Cancellation 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.”  Id. § 424.57(d)(6)(ii) (emphasis added).  Additionally, 42 C.F.R. § 424.535(a)(1) states that CMS may revoke a supplier’s Medicare enrollment where the “supplier is determined to not be in compliance with the enrollment requirements described in this subpart P or in the enrollment application applicable for its . . . supplier type, and has not submitted a plan of corrective action as outlined in part 488 of this chapter.”

Revocation of a DMEPOS supplier’s enrollment for failure to meet the surety bond requirements “is effective the date the bond lapsed.”  42 C.F.R. § 424.57(d)(11)(i).  If CMS revokes a supplier’s Medicare enrollment, the supplier (with some inapplicable exceptions) is “barred from participating in the Medicare program from the effective date of the revocation until the end of the reenrollment bar.”  Id.  § 424.535(c)(1).  The reenrollment bar “[b]egins 30 days after CMS or its contractor mails notice of the revocation and lasts a minimum of 1 year, but not greater than 10 years . . . depending on the severity of the basis for revocation.”  Id. § 424.535(c)(1)(i).

A supplier may request reconsideration of a revocation by the contractor and may then request a hearing on the reconsidered determination before an ALJ.  Id. §§ 424.545(a), 498.5(l), 498.22, 498.40.  A party dissatisfied with an ALJ’s decision may seek review by 

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the Board, which may modify, affirm, or reverse the ALJ’s decision.  Id. §§ 498.80, 498.88(f)(1)(iii).

Case Background⁴

Petitioner was enrolled in the Medicare program as a DMEPOS supplier with a surety bond through Old Republic Insurance Company (Old Republic).  ALJ Decision at 2; CMS Ex. 2.  By notice of July 18, 2023, Old Republic notified a CMS contractor, Palmetto GBA, that the surety bond for Petitioner was cancelled effective September 8, 2023.  CMS Ex. 2, at 1, 3.   

By letter dated October 4, 2023, CMS, via Palmetto GBA, informed Petitioner that effective September 8, 2023, its Medicare enrollment and billing privileges were revoked pursuant to 42 C.F.R. §§ 424.57(d)(11), (e) and 424.535(a)(1) for noncompliance with “the supplier standard” at section 424.57(c)(26) because Petitioner “failed to maintain a valid surety bond as required by law.”  CMS Ex. 3, at 5.  The notice stated that the “effective date of this revocation has been made retroactive to September 8, 2023 . . . the date [Petitioner’s] surety bond on file was cancelled,” and that CMS had set a two-year reenrollment bar beginning 30 days after the postmark date of the letter.  Id. at 5-6 (citing 42 C.F.R. §§ 424.57(d)(11), 424.535(c)).  The notice gave Petitioner the opportunity to submit a Corrective Action Plan (CAP) within 35 days “to demonstrate that you have corrected” the deficiency and to request reconsideration of the revocation within 65 days by stating the issues and findings “with which you disagree and the reasons for the disagreement.”  Id. at 6-7. 

By email dated December 6, 2023, Petitioner requested reconsideration, claiming (without evidence) to have “a surety bond with a different company, currently.”  CMS Ex. 4.  By letter dated February 26, 2024, a CMS contractor for enrollment appeals, Chags Health Information Technology, LLC (C-HIT), 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)(26).”  CMS Ex. 1, at 3 (emphasis added).  The contractor determined that Petitioner “failed to provide a copy of its current and updated surety bond showing no lapse in coverage” and thus “[did] not provide any evidence to support its claim” that “it currently has a new surety bond with a different company.”  Id.  C-HIT declined to accept a CAP for the same reasons it denied reconsideration, and determined that the duration of the reenrollment bar was appropriate.⁵ Id.  

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Petitioner requested a hearing before an ALJ, asserting that it gave CMS or the contractor, by e-mail, a “copy of current and updated surety bond . . . showing no lapse in coverage, as required under 424.57(c)(26).”  Petitioner said the copy of the surety bond was provided with the reconsideration request but had been “excluded from the fair and due process of review which led to the decision to uphold revocation by C-HIT.”  With the hearing request, Petitioner included copies of the referenced replacement surety bond, executed December 19, 2023, and effective September 8, 2023, and of an email to Palmetto GBA disputing the reconsideration decision on the ground that C-HIT had not addressed the replacement surety bond.⁶  None of the documents shows Petitioner submitted a copy of the replacement surety bond with its request for reconsideration.

Before the ALJ, CMS filed a motion for summary judgment and four proposed exhibits (CMS Exs. 1-4) and stated that it did not intend to call any witnesses; Petitioner filed a brief and response in opposition to CMS’s motion for summary judgment and did not submit exhibits with its brief, propose witnesses, or object to CMS’s proposed exhibits.  ALJ Decision at 2.  Petitioner argued it had obtained a replacement surety bond with no lapse in coverage and “did not receive fair and due process by C-HIT” because it took more than 60 days to issue the reconsidered determination and did not review the documents Petitioner said it submitted.  P. ALJ Br. at 2, 4-5.

The ALJ did not rule on CMS’s motion for summary judgment and issued a decision on the merits based on the written record, as provided in the ALJ’s order to the parties and the Civil Remedies Division (CRD) procedures when neither party proposes witnesses.⁷  ALJ Decision at 2.  The ALJ concluded that CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment and billing privileges because “Petitioner was noncompliant with 42 C.F.R. § 424.57(c)(26),” the requirement to have and maintain a compliant surety bond, and “does not contend that it purchased a surety bond prior to September 8, 2023, nor has it provided any evidence that it obtained new surety coverage prior to the date of the revocation notice.”  Id. at 3-4 (bold removed).  Instead, the ALJ stated, “Petitioner argues that the purchase of a surety bond with retroactive coverage to September 8, 2023, proves no lapse in coverage.”  Id. 4.  The ALJ rejected this argument because “[t]he copy of the surety bond that Petitioner submits with its request for hearing as proof of coverage,” though retroactive to the cancellation date of September 8, 2023, “is dated December 19, 2023” and “Petitioner does not contend that it purchased a surety bond prior to September 8, 2023, nor has it provided any evidence that it obtained new surety coverage prior to the date of the revocation notice.”  Id. at 4.

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The ALJ thus found that “[o]n October 4, 2023, when the revocation notice was issued, Petitioner did not demonstrate that it had a surety bond in place prior to the lapse on September 8, 2023” and “attempted to correct its prior noncompliance by obtaining a surety bond with a retroactive date effective September 8, 2023.”  Id. at 5.  The ALJ held, however, that “such corrections cannot undo past noncompliance on the date of the revocation.”  Id.  The ALJ cited language in the surety bond regulation “stating that ‘[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.’”  Id. at 4 (quoting 42 C.F.R. § 424.57(d)(6)(ii)).  The ALJ rejected Petitioner’s reliance on the replacement bond issued in December 2023 because “[t]he Board has held that a subsequent execution of a surety bond with a retroactive effective date does not demonstrate compliance with sections 424.57(c)(26) and 424.57(d) at the time of revocation.”  Id. at 5 (citing Pepper Hill Nursing & Rehab. Ctr., DAB No. 2395, at 7 (2011)). 

The ALJ thus concluded “that Petitioner was in violation of 42 C.F.R. § 424.57(c)(26) and that CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment pursuant to 42 C.F.R. §§ 424.57(e)(1) and 424.535(a)(1).”  Id.

Finally, the ALJ rejected Petitioner’s argument that C-HIT denied Petitioner due process by issuing an untimely reconsidered determination and not addressing the documents Petitioner said it submitted.  Id. at 5.  The ALJ also concluded that to the extent Petitioner sought equitable relief, such relief is not available because it would require ignoring or declining to apply the requirements of the applicable enrollment regulations.  Id. at 5-6. 

Standard of Review

The standard of review on a disputed factual issue is whether the ALJ’s decision is supported by substantial evidence in the record as a whole.  The standard of review on a disputed issue of law is whether the ALJ’s decision is erroneous.  See Guidelines – Appellate Review of Decisions of Administrative Law Judges Affecting a Provider’s or Supplier’s Enrollment in the Medicare Program.⁸

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Analysis

We affirm the ALJ’s conclusion that CMS had a lawful basis to revoke Petitioner’s Medicare enrollment and billing privileges based on its noncompliance with the surety bond requirement at 42 C.F.R. § 424.57(c)(26) as it is supported by substantial evidence and free of legal error.

On appeal of the ALJ Decision, Petitioner states that it emailed to C-HIT “the copy of current and updated surety bond . . . confirming no lapse in coverage, as required under 424.57 (c) (26).”  Request for Review.  Petitioner states “no lapse in coverage ever existed and business wasn’t noncompliant but was waiting on the processing time and documentation to be issued by the new bond company.”  Id.  Petitioner also reports having “made every effort possible to remain compliant as a new Medicare Provider/Supplier” in the community, which “take[s] [its] business very seriously because [its] mastectomy patients need and depend upon the services” Petitioner provides.  Id.

Petitioner’s appeal does not provide a basis to reverse the ALJ Decision.  Most notably, the record fails to show that there was no lapse in surety bond coverage, as Petitioner maintains.  The replacement surety bond Petitioner provided with the hearing request was executed on December 19, 2023, as the ALJ found; above the signature for “Surety” it states, “the undersigned Principal and Surety have set their hands and seals on this 19th day of December 2023.”  ALJ Decision at 4, 5; DAB CRD E-file Dkt. No. C‑24-370, Doc. No. 1b at 5.  Petitioner has not cited evidence that undermines or contradicts that finding or the ALJ’s additional findings that Petitioner did not have a surety bond in place before either the lapse of its surety bond on September 8, 2023, or the revocation on October 4, 2023, thus leaving a period of over three months when there was no surety bond in effect.  ALJ Decision at 4-6.

We acknowledge Petitioner’s effort to comply with the surety bond requirement by obtaining a new surety bond with retroactive coverage beginning on the date the prior surety bond was cancelled.  The surety bond regulations, however, are clear in directing CMS to revoke enrollment and billing privileges of any DMEPOS supplier that experiences a period during which no surety bond coverage is in effect, regardless of whether the supplier later obtains retroactive coverage.

The Board discussed in Pepper Hill Nursing and Rehabilitation Center, LLC, why DMEPOS suppliers are “required to maintain continuous surety coverage.”  Pepper Hill at 6.  The Board explained that “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 in section 424.57(c),” including the surety bond requirement in section 424.57(d).  Id. at 6 (quoting 42 C.F.R. § 424.57(c), underlining replaced with italics).  Section 424.57(d) in turn repeats the requirement for continuous coverage 

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without any lapses, as it calls for revocation of 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) (emphasis added).  The record shows that a replacement surety bond did not exist as of the effective date of the cancellation, September 8, 2023.  As stated in Pepper Hill, a “retroactive surety bond . . . does not establish that CMS was afforded protection from fraud or billing errors . . . as required by section 424.57(d)(1)(ii), for the simple reason that the bond did not exist . . . as of the date that [the contractor] determined to revoke [the supplier’s] billing privileges.”  Pepper Hill at 7.  A surety’s willingness to undertake to cover Petitioner’s potential overpayments after the fact does not mean that CMS was protected at the relevant time from the risk of potential fraud or billing errors underlying the surety bond requirement.  Id. at 7. 

It is a longstanding norm that the provider and supplier enrollment revocation regulations generally sanction noncompliance as of the date of revocation.  See 42 C.F.R.§§ 424.57 (addressing DMEPOS suppliers and including the surety bond requirement); 424.535 (applicable to all suppliers and providers).  As noted in Pepper Hill, to “focus on compliance at the time of the revocation action . . . is consistent with the preamble to the regulations implementing the appeals process for suppliers whose billing privileges are revoked.”  Pepper Hill at 6.  CMS in that preamble stated that “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,” and that “appeal rights are limited to provider or supplier eligibility at the time the Medicare contractor made the adverse determination.”  73 Fed. Reg. 36,448, 36,452 (June 27, 2008) (emphasis added); see Pepper Hill at 6.

There was thus no error in the ALJ’s determination that CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment pursuant to 42 C.F.R. § 424.57(e)(1).⁹

Finally, the further considerations Petitioner cites, like the importance of Petitioner’s services to its mastectomy patients, also provide no grounds for the Board to reverse the revocation.  As the Board held in John A. Hartman, D.O., DAB No. 2911 (2018) (affirming CMS’s denial of a reenrollment application), “[w]e do not doubt that beneficiaries may need or benefit from Petitioner’s services, or question that Petitioner . . . is ready and able to provide needed services . . . [b]ut we cannot allow considerations” like “claims of potential benefits to future patients to” affect “decision-making on the legal basis for denial any more than the ALJ could.”  Hartman at 21.  This is because “[n]either the ALJ nor the Board is authorized to provide equitable relief by reimbursing or enrolling a supplier who does not meet statutory or regulatory 

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requirements,” as both “are bound by the applicable statute and regulations,” including the regulation calling for revocation of DMEPOS suppliers that do not maintain continuous surety bond coverage.  Pepper Hill at 11 (citing US Ultrasound, DAB No. 2302, at 8 (2010); 1866ICPayday.com, DAB No. 2289, at 14 (2009))).  Thus, “neither the Board nor the ALJ . . . has authority to alter a legally valid revocation, even were the basis for equity present.”  Hartman at 21 (quoting Foot Specialists of Northridge, DAB No. 2773, at 19 (2017)).  To the extent CMS may have discretion in determining whether to revoke enrollment in individual cases, the Board and the ALJ do not share that discretion.  While “CMS itself may have discretion to consider unique or mitigating circumstances in deciding whether, or how, to exercise its revocation authority,” ALJs and the Board may not “substitute [their] discretion for that of CMS in determining whether revocation is appropriate under all the circumstances.”  Care Pro Home Health, Inc., DAB No. 2723, at 9 n.8 (2016).

On review of a determination to revoke a supplier’s Medicare enrollment and billing privileges, an ALJ and the Board “decide only whether CMS has established a lawful basis for the revocation.”  Cornelius M. Donohue, DPM, DAB No. 2888, at 4 (2018).  That standard is met here because the regulations require that a DMEPOS supplier maintain a surety bond, and Petitioner did not meet that requirement.  Petitioner has shown no error in the ALJ’s finding that Petitioner did not timely obtain a surety bond to maintain coverage when the Old Republic surety bond’s coverage ended on September 8, 2023.

Conclusion

The Board affirms the ALJ Decision upholding the revocation of Petitioner’s Medicare enrollment and billing privileges.

Endnotes

¹  The current version of the Social Security Act is at http://www.socialsecurity.gov/OP_Home/ssact/ssact.htm.  Each section of the Act on that website contains a reference to the corresponding United States Code chapter and section. Also, a cross-reference table for the Act and the United States Code is at https://www.ssa.gov/OP_Home/comp2/G-APP-H.html.   

²  We cite and apply the regulations in effect on October 4, 2023, the date of the initial revocation determination (CMS Ex. 3, at 1).  See Meadowmere Emergency Physicians, PLLC, DAB No. 2881, at 2 n.2 (2018).

³  Section 424.57(c)(26), (d) implements section 1834(a)(16)(B) of the Act (42 U.S.C. § 1395m(a)(16)(B)), which states that the Secretary of the Department of Health and Human Services shall not issue or renew a Medicare provider number to a DMEPOS supplier unless the supplier “provides the Secretary [via CMS] on a continuing basis . . . a surety bond in a form specified by the Secretary and in an amount that is not less than $50,000.”

⁴  Background information is drawn from the ALJ Decision and the record before the ALJ and is not intended to substitute for the ALJ’s findings of undisputed facts.

⁵  The ALJ and the Board cannot review CMS’s or the contractor’s determinations of the length of a reenrollment bar following revocation or to not accept a CAP, as neither are among the “initial determinations” the Board reviews per regulation.  See 42 C.F.R. §§ 405.809(b)(2), 498.3(b).

⁶  The ALJ Decision cites the materials filed with the hearing request as “DAB E-file Dkt. No. C-24-370, Doc. No. 1b”; those materials were not designated as numbered exhibits.  ALJ Decision at 4.

⁷ See ALJ’s Standing Prehearing Order, DAB CRD E-file Dkt. C-24-370, Doc. No. 2a ¶ 13 (“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 deadlines have passed”); CRD Procedures, Doc. No. 2b ¶ 19.d (“[I]f the parties do not identify any proposed witnesses . . . the ALJ may decide the case based on the written record.”).

⁸ https://www.hhs.gov/about/agencies/dab/different-appeals-at-dab/appeals-to-board/guidelines/
enrollment/index.html.

⁹  The ALJ also upheld the revocation under 42 C.F.R. § 424.535(a)(1); we need not consider that issue and have limited our analysis to the revocation authority at sections 424.57(d)(6)(iii), (d)(11)(i) and (e)(1) because they apply specifically to DMEPOS suppliers and direct revocation for noncompliance with the surety bond requirements.