Bond Requirement Would Likely Hurt Small Providers, Observers Say

BALTIMORE–It was a case of déjà vu for many in the industry
last week when HHS announced a proposed rule that would require all
DMEPOS providers to supply CMS with a $65,000 surety bond (see
HomeCare Monday, July 30).

In 1997, the Balanced Budget Act mandated that providers obtain
a $50,000 surety bond as a condition of Medicare enrollment. The
next year, CMS–then called the Health Care Financing
Administration–published a proposed rule that included the
requirement, but it was never finalized.

The bond was, and is, intended to curb fraud. So, will it?
Stakeholder opinions are mixed.

“It will combat some fraud, [but] it’s not the only thing that
anyone who wants to eliminate or reduce fraud needs to rely on,”
said HME consultant Wallace Weeks, president of Weeks Group in
Melbourne, Fla. In the proposal’s favor, he said, many potential
scammers would likely give up from the get-go just because the
requirement is in place.

If sham companies are under-reporting income and showing little,
if any, profit, Weeks said, that ultimately weakens their financial
position and, thus, their ability to buy a bond.

“At a minimum, it will raise their premium and, at the worst,
make them uninsurable,” Weeks said. He estimated that a surety bond
premium would be $3,000 to $6,000 a year, “so I think the majority
of suppliers can handle it. Those that can’t are going to be
companies who have such a bad financial position that an insurance
company will not write the bond.”

Meanwhile, VGM President Ron Bendell said the bond requirement
could force some providers out of the business, “so that could
reach some potential for fraud, but I think those that are going to
commit fraud are going to be able to get past this hurdle
also.”

Raul Lopez, director of operations for Bayshore Dura Medical,
Miami Lakes, Fla., and president of the Florida Association of
Medical Equipment Services, was also uncertain the requirement
would be effective against fraud. “I don’t know that it would be a
deterrent, because anybody who wants to get into the business to
commit fraud will spend whatever they need to when they think
there’s a huge payout at the end,” Lopez said.

In Florida, providers who do business with Medicaid are already
required to have a surety bond. One question Lopez had was whether
those companies would be required to get an additional bond for
Medicare. If so, “you’re hitting the Medicaid provider twice in the
pocket,” he noted.

The majority of FAMES members–80 to 85 percent–do not do
Medicaid business, he said, so getting a bond would be new for
them. The added cost will be a factor for providers vying to
participate in competitive bidding, but even for those that aren’t,
it’s an added expense to other constantly mounting costs–gas,
vehicle insurance, rent, utilities.

“Our expenses continue to go up, but our reimbursement either
stays the same or, in some cases, reduces,” Lopez said. “We don’t
get to increase our fees because of gas price increases, unlike
every other industry, so it’s going to be a pain for some
people.”

“I think it is one of those things we are going to have to
swallow,” said David Petsch, president of Petsch Respiratory
Services in Martinez, Ga. However, while the price is “a little
high,” he noted, “there is nothing unreasonable about it. I would
support it to add to our industry’s image to fight fraud and
abuse.”

“We have all heard it before, and were prepared to deal with it
then,” said Todd Tyson of Norcross, Ga.-based Hi-Tech Healthcare.
“It is an additional expense, but not an unrealistic one. The big
issue before was finding someone to write the surety bonds, but
there are companies that will provide bonds now.”

“I think CMS needs to sit back and make a plan,” said Kim
Brummett, vice president of reimbursement for Advanced Home Care in
Greensboro, N.C. “We have competitive bidding, accreditation,
re-enrolling two large areas in Miami and L.A. and now this. Seems
like they are throwing ideas out one on top of the other [and] not
all are needed.”

The ultimate consequence, according to Miriam Lieber of Lieber
Consulting, Sherman Oaks, Calif., may be the loss of small
providers. With the cost of the surety bond on top of costs for
accreditation, Lieber said, some providers might “truly have to
evaluate the additional financial burden.

“This may become the last straw for many small providers who
finally decide to exit the HME market, particularly small pharmacy
HME owners,” she said.

VGM’s Bendell made a similar assessment.

“It’s a further cost being borne by smaller suppliers that I’m
not so sure they can handle,” Bendell said. “With accreditation and
everything else that’s going on, this is just another added cost to
the whole industry–when they’re looking to further cut
reimbursement.”

To view the proposed rule, which includes instructions for
submitting comments, click here. Comments on the rule must be
submitted no later than 5 p.m. on Oct. 1, 2007.