GAO releases surety bond report; industry cheers findings
GAO releases surety bond report; industry cheers findings
By MATTHEW HAY
HHBR Washington Correspondent
WASHINGTON The General Accounting Office (GAO; Washington) last week released its long-awaited report on the surety bond requirement for home health agencies, and it was mostly good news for the home care industry. The report, entitled "Medicare Home Health Agencies: Role of Surety Bonds in Increasing Scrutiny and Reducing Overpayments," recommends that the bond requirement should be capped at $50,000, that exemptions be granted to agencies with proven financial track records, and that separate bonds should not be required for agencies that participate in both Medicare and Medicaid.
The report was requested by Congress after a firestorm of protest from the home care industry prompted the Health Care Financing Administration (HCFA; Baltimore) to postpone the date by which home health agencies must obtain a bond. Under pressure from Congress, HCFA withdrew the surety bond requirement last June pending completion of the GAO’s assessment.
The surety bond requirement was initially established by the Balanced Budget Act of 1997 (BBA), and HCFA published its surety bond regulation in January 1998 requiring home health agencies to obtain a financial guarantee bond. However, HCFA’s regulation also allowed it to recover delinquent overpayments made for any reason rather than just those resulting from fraud and abuse. In addition, it also set the bond amount at 15% of an agency’s Medicare revenues, higher than the minimum $50,000 required by the BBA.
According to the GAO, HCFA raised the value of the bond above the legislated minimum out of concern about overpayments. For example, HCFA argued that 60% of home health agencies had overpayments in 1996 an amount that equaled roughly 6% of Medicare’s spending on the home health benefit that year and said it expected these overpayments to increase in the future. But according to the GAO, HCFA’s own experience shows that most overpayments are recovered. "HCFA data indicate that unrecovered overpayments in 1996 were less than 1% of Medicare’s home healthcare expenditures, although even this lower percentage overstates the problem," the GAO asserted. "Further, there was no evidence that larger agencies would be expected to have more unreturned overpayments to justify the requirement for a larger bond."
The GAO noted that HCFA’s 15% requirement would have increased the cost of a bond "considerably" for some agencies and dismissed HCFA’s argument that when large agencies fail to return overpayments, the potential loss to Medicare is greater than when smaller agencies do so. "HCFA has not undertaken any analysis to determine the relationship between unrecovered overpayments and [an agency’s] size," the GAO added. "In fact, larger agencies might be more likely to return them because they have more resources to manage the repayments and a greater incentive to remain in the Medicare program."
The National Association for Home Care (NAHC; Washington) immediately welcomed GAO’s findings regarding the $50,000 cap and elimination of the 15% requirement, but expressed concerns with the GAO’s support of HCFA’s requirement for a financial guarantee bond. "Congress imposed the surety bond requirement as an antifraud effort," said NAHC. "As a result, HCFA should have required an antifraud bond as opposed to a financial guarantee bond."
The home care industry favored an antifraud bond because recoupments for these bonds could only have been exercised for fraudulent or abusive behavior and, as a result, the standards for qualifying for these bonds and the collateral requirements would not be as burdensome. The GAO disagreed, however. "We believe that HCFA made a prudent choice in specifying the surety bond as a financial guarantee," said the GAO, arguing that HCFA’s use of a financial guarantee bond will "ensure more scrutiny and benefits" to Medicare by deterring home health agencies that lack "relevant business experience" from entering the program while existing Medicare-certified agencies will be examined as to "business soundness." It added that home health agencies with overpayments that do not make an effort to repay them will be unlikely to obtain a subsequent surety bond and will be removed from the Medicare program. "Generally," concluded the GAO, "all providers will be deterred from incurring overpayments and will have incentive to repay any that are discovered.
"Screening by a surety appears to be the most useful for new agencies," the GAO further reasoned, adding that the "rapid increase" in the number of home health agencies entering the Medicare program "with little scrutiny" also makes requiring surety bonds a useful mechanism for screening agencies already in the program. At the same time, the GAO acknowledged that "little may be gained from repetitive scrutiny of established, mature agencies" and recommended that Congress develop a mechanism to exempt agencies that have demonstrated fiscal responsibility.
The GAO also said that while allowing agencies to substitute a Treasury note for a surety bond would enable HCFA to recoup some unrecovered overpayments, it would also undermine the objective of requiring Medicare providers to submit to "outside scrutiny." Hence, the GAO said Treasury notes should not be allowed to replace surety bonds.
The GAO also found that requiring home health agencies to obtain separate bonds for both Medicare and Medicaid was "excessive" and noted that while requiring one bond for two programs may diminish the financial protection, it will not impact the incentives for agencies to repay overpayments.
Concerning the number of agencies that had already acquired a bond, the GAO cited HCFA’s estimate that about 40% of all agencies obtained a bond prior to HCFA’s postponement of the requirement. Provider-based agencies were more likely to secure a bond, said the GAO, while freestanding agencies were the least likely. The timing of the requirement may have affected some agencies that were reluctant to use their own assets as collateral and to provide personal indemnity because of the "uncertainty" created by the substantial changes in Medicare’s payment policy, said the GAO. "It is not possible to determine whether they could have purchased bonds or ultimately will."
There is no set timetable for HCFA to revise and republish its regulations. However, the GAO’s findings typically carry great weight on Capitol Hill, and HCFA is expected to follow its primary recommendations.
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