New surety bond reg will prune HHAs

Home health agencies (HHAs) will be heartened to learn that HCFA has accepted recommendations in a General Accounting Office report that calls for a less expensive bond than originally proposed by HCFA. But many HHAs would still find it difficult to meet even the milder HCFA requirement for bonds.

Under HCFA’s original bond reg, which would have required HHAs to obtain a bond of $50,000 or 15% of their Medicare revenues, a staggering 60% of home health agencies could not have met the minimum standards that bond companies insist upon before issuing a bond, says Bill Dombi, vice president of health law for the National Association for Home Care in Washington, DC.

HCFA has accepted GAO’s advice to drop the 15% requirement, which would have been expensive for larger HHAs, but retained a flat $50,000 bond. But even the smaller bond would result in 40% attrition, Dombi estimates.

GAO also concludes that DME suppliers, who would also need bonds, would be culled of their smaller members. "Since many DME suppliers receive very limited Medicare revenue, they may be more likely to cease participation in the program if they view the surety bond requirement as too costly," says Congress’s watchdog agency. However, HCFA accepts GAO’s contention that mandating providers to buy both a Medicare and a separate Medicaid bond would be redundant.

Surety bonds are supposed to indemnify HCFA against fraud and abuse by HHAs and DME suppliers who may lack the funds to repay Medicare. GAO estimates that fees for these bonds could exceed $60,000 for a large HHA, though the typical agency would pay $1,000 to $7,500.

However, GAO’s research does reveal how HHAs can reduce their surety bond premiums. While premiums are 1% to 2% of the face value of the bond, according to GAO, one bond company contacted by the agency said that its rates varied between 0.5% and 3%.

"It indicated that having a written business plan describing how the agency would respond to the new payment rates created by the BBA, audited financial statements, positive cash management history, and rigorous record-keeping policies and practices reduced the HHAs’ fees," according to the GAO. "In addition, the bond company said its lowest fees were charged to "nonprofit HHAs supported directly or indirectly by public or private foundations. Its highest fees were for providers new to the home health care business."

GAO also recommends that bonds only be required for new HHAs as a way to ensure that they have adequate capital. "Little may be gained from continued screening of established, mature agencies," concludes GAO. In addition, GAO wants a loophole closed in a Treasury Department regulation that allows Treasury notes to be substituted for a surety bond.

HCFA spokesman Craig Palosky replies that authority to make these changes rests with Congress rather than HCFA. One opponent of exempting established HHAs may be the insurance industry. Bond companies say that exempting older HHAs from bonds would only drive up the cost for those agencies that need bonds, according to the study.