Bond, Surety Bond

Surety bond companies have two words for home medical equipment providers who haven’t obtained the surety bond that will, on Oct. 2, be required to continue doing business with Medicare: “Shop now.”

“My recommendation would be that … [providers] do their shopping now. Don’t put it off until August or September,” advises John Liberty, vice president of Cushman Insurance in Herndon, Va. “Unless they know they have really good credit and/or really strong financials, either corporately or [personally], I certainly would not wait until the last minute to shop around.”

In a final rule published Jan. 2, the Centers for Medicare and Medicaid Services mandated that existing DMEPOS providers obtain a $50,000 surety bond by the October deadline in order to renew their NPI, which will allow them to bill Medicare. New providers, those adding locations and those changing ownership were required to obtain the bond by May 4. For enrollment applications submitted on or after May 4, CMS said the NSC will reject the application if the provider does not furnish a valid surety bond. For enrolled providers, failure to submit a bond by Oct. 2 will result in revocation of billing privileges.

The agency is also requiring providers with past “adverse actions,” such as suspension of Medicare billing privileges or revocation of a state license, to add $50,000 to the bond amount for each of those actions.

In establishing the bond requirement, CMS said the agency hoped to stem fraud and abuse and curtail Medicare costs. Its final rule also said CMS expects more than 25,000 HME providers to abandon the Medicare program because of the combined costs of the surety bond and accreditation, which is required by Sept. 30.

Brisk Business

In spite of the predicted provider fallout, representatives of organizations offering DMEPOS surety bonds report steady business.

“We’re getting a lot of applications in, and it seems like every day things are picking up more and more,” says Warren Freeman, director of sales and marketing for VGM Insurance in Waterloo, Iowa. The company issued bonds to about 28 percent of those that CMS expected would seek an NPI by May 4, he says. Most of those companies were adding a location, he notes, but there were a number of new providers and some changing ownership.

Freeman believes, however, there are still large numbers of providers who are in waiting mode. “There are a lot of people sitting on the sidelines thinking that October’s a long way off, and they’re kind of waiting,” he says.

For some, price is the issue.

“Some of the larger providers are taking a wait-and-see approach hoping that they can get discounts for having so many locations,” says Sue Mairena, COO of the American Association for Homecare, which is issuing bonds through AON Affinity Insurance Services.

CMS has estimated the average annual cost of a surety bond at 3 percent of its face value, or about $1,500 for a $50,000 bond.

But surety bond issuers say a $50,000 bond could cost anywhere from under $200 to $2,000, depending on factors such as the HME’s time in the business, financial strength, adverse actions and credit rating, etc. That can add up for providers who have many locations, but many surety companies say they do offer price breaks to providers with multiple sites.

In his experience, most providers fall on the low end of the cost spectrum, Freeman says, adding that “95 percent” come in under $500.

He and Liberty report most of the providers they have worked with so far have no adverse actions that would pump up that cost. Freeman’s company has seen very few: “.0014 percent that we have handled have had adverse actions,” he says.

“[Of] 100 percent of the applicants that we have seen so far, not one of them has had an adverse action,” adds Liberty.

That could change, however; CMS is set to release a list of providers with adverse actions in July.

In addition to waiting for potential price breaks and more time to lapse, some providers are just waiting for answers.

With a bill in Congress requesting exemption, some pharmacies, particularly small ones that do minimum Medicare DMEPOS business, are stalling in hopes they will ultimately be excluded from the surety bond mandate. Others are determining whether it is even viable for them to continue doing business with Medicare.

And some providers are simply waiting for more clarification. Although CMS has held educational sessions and issued FAQs about the surety bonds, there are still questions.

“This is still a pretty fluid process,” Mairena said. “It’s not black and white.”

Waiting Could Mean Wanting

Whatever the reason for waiting, surety bond issuers say it isn’t wise to postpone starting the process. Hence, the advice to “shop now.”

“The application process does not take long,” Mairena says, noting that it can require as little as 15 days. But depending on the financial information the bond issuer might require, it could also take months. “You don’t want to wait until two weeks before the Oct. 2 deadline,” she cautions.

And, even though surety bond companies have added additional staff to handle an influx of applications, delays could increase as the window of time narrows.

“The closer we get to the need-by date, the bigger the flood will be and things may slow down as to turnaround time,” Liberty says.

He notes providers are sometimes surprised when they are asked for financials — either corporate or, if the business is privately owned, personal. That information can take time to assemble, he points out.

“Don’t be surprised if you are asked to provide financials,” he says. “Your Social Security number is almost, without question, going to be asked. Be prepared to be asked some pretty personal information from a financial standpoint, because the underwriting is based on financial stability.”

Privately owned companies must be indemnified by their owners, bond carriers explain.

“Sometimes, the owners are reluctant to give out their personal, private information,” Liberty says. “The bad news is, there is no way to avoid that. The good news is that all the [insuring] companies go to great lengths to ensure that information is protected and is not disseminated to someone who does not have a need to know.”

Freeman has already noticed another possible glitch. The National Supplier Clearinghouse has rejected some bonds because a provider didn’t include some information or signed a document on the wrong line, he says.

“I believe they are looking at everything. If there is any question, they are going back to the provider. In a couple of cases we have heard of, they want something immediately or they are giving them 30 days,” Freeman reports.

That can tie up an NSC application and perhaps place a provider’s Medicare standing in jeopardy, bond issuers say.

Freeman recommends that providers looking for a surety bond seek a carrier that has a working knowledge of the NSC. “If there are issues, then you want somebody that knows who the NSC is and knows people there and can pick up the phone and say, ‘This has been rejected; can you get some answers for me,’” he suggests.

The bottom line: Get the bond now. (And remember to send a copy of the bond certification to the NSC.)

“We are trying to get as many people as possible to get ahead of the crunch,” Liberty says.

For a list of approved surety bond carriers, see the Department of Treasury Web site at www.fms.treas.gov/c570/c570_a-z.html

Get Your Info Ready

A surety bond carrier will likely ask for basic information about your company, such as location(s), ownership, number of years in business, annual Medicare billings, accreditation and audit and disciplinary history. The information you may be asked to provide could include:

• Corporate and/or personal financial statement
• Tax returns
• Billing policies and procedures
• Organization chart/resumes
• Application for NPI
• Agreement of indemnity. In most cases, according to a CMS FAQ, the surety will require the company and the owners (if the business is closely held) to provide their indemnity (agreement to repay the surety in the event the surety pays a claim).