HCFA agrees to consider surety bond rule changes

Industry, Congress win deadline extension

It almost took an act of Congress, but the deadline for posting surety bonds has been extended, thereby preventing approximately half of the nation’s Medicare-certified home health providers from going out of business.

Yielding to pressure from Congress and intense lobbying from both the home health and surety industries, the Health Care Financing Administration (HCFA) on Feb. 13, said the original Feb. 27 deadline would be extended to give HCFA time to make "technical revisions."

In a letter to Congress, HCFA Administrator Nancy-Ann Min DeParle wrote, "These technical issues will be detailed in a Federal Register notice to be published shortly about our intent to amend the regulation. They are in keeping with standard industry practice and would help surety companies offer bonds at more affordable prices to agencies by providing a more precise and more limited time frame for which bond writers are liable and by giving bond writers appeal rights. There will be a 30-day comment period on this Federal Register notice."

Under the previous terms of the rule published by HCFA Jan. 5, 1998, few, if any, agencies would have been able to post surety bonds. Min DeParle said changes "should help smaller, reputable agencies, such as non-profit visiting nurse associations, obtain bonds without weakening the bond requirement’s ability to block out agencies that should not be billing Medicare."

Min DeParle went on to say, "The comments on this Federal Register notice and the comments on the original regulation published Jan. 5, 1998, will form the basis for a final rule. We intend to proceed expeditiously as soon as all comments are received to make whatever changes are necessary in this important regulation so that it can protect Medicare without unduly burdening reputable providers. . . . . Home health agencies will be given 60 days from the date the final regulation is published to submit a surety bond."

Agencies that purchased surety bonds already should submit proof to the Fiscal Intermediary by the Feb. 27 deadline, while those that have been unable to obtain bonds should notify the intermediary by that date, the new HCFA chief said.

According to experts such as health care attorney Elizabeth Hogue, "more than 50% of home care agencies" would have closed their doors had HCFA not reconsidered. However, even before the extension was announced, Hogue was advising her home care clients against jumping into the bond buying frenzy. "I’m telling them even if you can get a surety bond under these draconian requirements, it’s foolish to get one now when it all may very well change.’ "

In the weeks following the publication of HCFA’s surety bond rule, some key members of Congress, such as Rep. Karen Thurman (D-FL) expressed their concerns. A member of the House Ways and Means Committee, Thurman created the surety bond legislation that found its way into the Balanced Budget Act of 1997 (BBA). Her provision was based on a Florida law designed to prevent "fly-by-night" health care providers from entering the state’s Medicaid program. The Florida law requires home care agencies and other providers to post a $50,000 surety bond.

Thurman wrote to HCFA saying that the federal agency’s interpretation of the surety bond law, especially by increasing the $50,000 minimum amount to 15% of an agency’s annual Medicare reimbursement, based on its most recent cost report, was contrary to Congressional intent.

"I believe HCFA’s regs, while well intentioned, may go beyond the intent of my legislation," Thurman said in her letter to HCFA. "While I believe this provision will preclude the fly-by-nighters from entering the industry, the 15% provision may impose an undue financial burden on reputable HHAs."

Thurman asked HCFA to delay implementation of the final surety bond rule until Congress and others can analyze and comment on the regs.

Three members of the Senate Finance Committee also wrote HCFA asking that the deadline be extended to allow for technical changes to be made in the regulation.

In a Jan. 26 letter to Min DeParle, Senators Charles Grassley (R-IA), John D. Rockefeller IV (D-WV), and John B. Breaux (D-LA) urged the agency "to (1) delay the effective date of the rule, and (2) work with the bonding and home health care industries to develop modifications that will make the rule workable."

Both Grassley and Rockefeller also serve on the Senate Subcommittee on Health Care. Rockefeller is the ranking Democrat on the committee. Breaux is chairman of the committee to reform Medicare.

The senators pointed out that the rule "seeks to implement Section 4312(b) of the Balanced Budget Act of 1997 (BBA). The BBA did not impose detailed surety bond specifications, requiring only that a participating HHA provide HCFA on a continuing basis with a surety bond in a form specified by the Secretary and in an amount that is not less than $50,000.’"

The lawmakers further noted, "In implementing this mandate, however, HCFA appears to have imposed conditions that go beyond those bonding companies bear in the course of their normal business. Some areas of particular concern that these companies have identified are:

• cumulative liability if a company provides bonds to an HHA for more than one year;

• primary liability of the surety;

• prima facie liability without the ability to assert any legal defenses until appeal;

• short period of time in which to pay a claim;

• indefinite duration of liability on each bond;

• deficiency bonds forcing surety to assume existing liability;

• bond values of 15% of previous year’s Medicare revenues with no maximum.

"The cumulative effect is that many surety companies are opting not to offer bonds to Medicare HHAs at all. Those companies that are offering the bonds are doing so at a cost that is prohibitive or with demands for collateral or personal guarantees that HHAs cannot provide. These problems are particularly acute for small and non hospital-based agencies. The bonds are thus simply unavailable to many HHAs upon which many seniors depend, unless HCFA revises the rule."

While it is true that many hospital-based agencies should find it easier to purchase bonds than most independents and non-profits, an informal fax survey of Hospital Home Health subscribers shows that hospital-based agencies are struggling to meet the requirements, too. Out of the first handful of replies to our questionnaire (11), seven encountered significant difficulty in obtaining a bond. None of these agencies had obtained a bond by early February; five of them said they were still waiting, and two said they had been rejected.

Of the five respondents who said they had no trouble obtaining a bond, one was a government agency, which got a waiver.

One director whose agency was rejected reported that the only company that would entertain an HHA bond had stringent requirements, such as:

• $2.5 million net worth;

• CPA audit;

• history of profitability;

• five-year accumulative bond representing no more than 10% of the agency’s net worth.

According to a spokeswoman with the Washington, DC-based Surety Association of America, bond companies are balking at writing the business chiefly because of the indefinite duration of liability allowed in the rule. No matter how long a bond’s coverage period runs — one year, for instance — the bonding company can be held accountable by Medicare for any penalty an agency might be assessed for any year after that. And the government can make claims on a home care agency bond without going to court.

Possibility of stacking’

Not only that, with agencies required to post bonds at 15% of their annual Medicare cost reports, there is a potential for what the bonding industry calls "stacking." For example, if an agency’s last annual three cost reports show reimbursement in the amounts of $100,000, $200,000, and $300,000 respectively, does the bonding company insure for $300,000, the most recent figure, or for a total of $600,000? The rule is not clear on this point.

Craig Bierbaum, a commercial account representative with Howalt McDowell Insurance company of Sioux Falls, SD, an independent agency, agrees. "We’re trying hard to find bonds for these folks, but it’s not possible for most agencies to qualify for a surety bond now. The surety association is trying to negotiate with HCFA. I am hopeful HCFA and the surety association can come to some agreement."

Jim Murray, deputy council for the National Association for Home Care is more confident. "The surety bond regs are going to be rewritten," he said. "If Congress thinks they have trouble now, wait until over half the home care providers have to close their businesses. They ain’t seen nothing yet."