AAHomecare, VGM to Offer Surety Bonds

ATLANTA — In an effort to aid HME providers who must now
secure surety bonds if they are to participate in Medicare, two
major industry organizations announced last week that providers
could work through them to obtain the bonds required by CMS.

VGM
Insurance in Waterloo, Iowa, and the American Association
for Homecare in partnership with AON Affinity Insurance Services will offer the
surety bonds. In its final rule issued Dec. 29, 2008, CMS said that
as of Oct. 2, all HME providers participating in Medicare will need
surety bonds for at least $50,000 per NPI number.

HME providers seeking to enroll in Medicare or providers
changing ownership must have a surety bond in place by May 4.

Under the Balanced Budget Act of 1997, Congress mandated the
surety bond requirement and CMS attempted to implement it in 1998,
but the rule was never finalized. CMS revived the requirement with
a new bond proposal in July 2007 (see HHS Asks for Surety Bond from DME
Suppliers, HomeCare Monday, July 30, 2007).

The announcements by the two organizations could help ease at
least some provider anxiety that surfaced with the final rule,
which left a host of unanswered questions, not the least of which
was where providers were to go to secure surety bonds. While CMS
acknowledged that no such bonds now exist, “We believe that our
implementation of this requirement will help create a market for
sureties,” the final rule said.

The agency said such a market would have time to grow because it
has delayed the effective date for nine months, and estimated the
average cost for a $50,000 bond at $1,500.

Wallace Weeks of Weeks Group in Melbourne, Fla., took a more cautious
view.

“Ordinarily, the CMS statement that a market will surface could
have some truth,” he told HomeCare. “However, the
financial markets are in turmoil and not able to accept new risk.
So, if a market does surface, my expectation is that it will cost
at least $1,500 and maybe $2,500 [for a surety bond].”

John Spragle, president of VGM Insurance, estimated that surety
bonds obtained through his agency would cost between 2 and 5
percent of the face value. “You could pay $1,000 to $2,500 [for a
$50,000 bond],” he said.

AAHomecare officials said they were focusing on providing “an
inexpensive and quick industry solution.” CMS’ $1,500 estimate
“could be high,” said Walt Gorski, vice president of government
relations.

Both groups emphasized, however, that the cost would likely rise
for companies that have what CMS calls “adverse legal actions.” CMS
will require such companies to have surety bonds of elevated
amounts at a rate of $50,000 per occurrence, and companies in that
situation might have trouble obtaining them.

“People who have poor credit, have been audited and who have had
problems, the people who have had a bankruptcy — they are
going to have problems,” said Spragle.

Weeks agreed. “Those who have been in the business for less than
three years, have credit blemishes, leverage ratios (debt divided
by equity) of greater than 2 to 1 or audits resulting in
overpayments claimed by a payer are those likely to have real
challenges,” he said.

Gorski said CMS officials have told AAHomecare the agency will
release more guidance in July and, at that time, will alert
companies it deems high risk that they will need a higher surety
bond and how much it must be.

Companies should wait to see how much their surety bond must be
before purchasing one, Spragle said. “No one will want to purchase
their bond before this [July 1] date,” he said, noting that
providers should expect to indemnify the bond personally.

“This is not insurance,” Spragle emphasized. “A bond is a
guarantee that the bonding company, if required, will pay out this
amount if needed, to, in this case, Medicare. It’s a guarantee that
they will get their money [back].

“All of the companies that get a bond will have to personally
indemnify the bond, which means if you have a board of directors or
three directors, they will have to sign their names and guarantee
they will pay that money back. That’s the nature of a bond.”

In its final rule, CMS addressed the access issue this way:
“While we believe that some DMEPOS suppliers will make the decision
to withdraw from the Medicare program due to the additional costs
associated with the surety bond, we believe that Medicare
beneficiaries will not encounter barriers to care.” The agency said
it expects “the remaining DMEPOS suppliers would offer the products
and services similar to those of the exiting DMEPOS suppliers.”

The requirement is the latest in the government’s attempt to
stem fraud and abuse and curtail Medicare costs, officials said.
But in a statement issued after release of the rule, AAHomecare
said it is concerned that “overly burdensome requirements applying
a ‘one-size fits all’ approach to deter fraud have real potential
to harm legitimate home care providers.” The association said it is
also concerned that the new requirement could create access
problems for Medicare beneficiaries.

Some providers are exempt from the requirement under certain
conditions, including government-operated providers, orthotics and
prosthetics providers, physicians and non-physician practitioners,
and physical and occupational therapists. But the rule gives the
following list of those who are not exempt:

• Pharmacies and community pharmacies;
• Publicly-traded chain DMEPOS suppliers;
• Established DMEPOS suppliers;
• Home-health agencies and hospices;
• Skilled nursing facilities;
• Rural DMEPOS suppliers; and
• Medical supplies companies that employ orthotic or prosthetic
  personnel.

CMS said it expects as many as 25,188 DMEPOS providers to
abandon the Medicare program because of the combined costs of the
surety bond and accreditation, which is required by Sept. 30.

“If [providers offer HME] more as a convenience, they may decide
they don’t want to continue with this,” said AAHomecare’s Gorski,
referring to such companies as small pharmacies that offer aids to
daily living.

In its final rule, CMS addressed the access issue this way:
“While we believe that some DMEPOS suppliers will make the decision
to withdraw from the Medicare program due to the additional costs
associated with the surety bond, we believe that Medicare
beneficiaries will not encounter barriers to care.” The agency said
it expects “the remaining DMEPOS suppliers would offer the products
and services similar to those of the exiting DMEPOS suppliers.”

VGM Insurance has established a hotline to answer questions
about the surety bond requirement at 866/497-0472; access the
company’s Web site at www.vgminsurance.com.

For a quote on the AAHomecare-AON Affinity Insurance Service
surety bond, call 800/544-2672 and reference source code AAHC.

View a PDF of the surety bond final rule, published in the Jan. 2.
Federal Register.