CMS Publishes FAQs for DMEPOS Surety Bond Requirements
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CMS Publishes FAQs for DMEPOS Surety Bond Requirements
 
On December 29, 2008, CMS announced regulations requiring suppliers of certain DMEPOS to post a surety bond as a condition of new or continued Medicare enrollment.  CMS has published the following list of Frequently Asked Questions (FAQ) to provide more information about the surety bond requirement.
 
Q. Can group practices avail themselves of the exceptions to the surety bond requirements?  In other words, are the exemptions for physicians, non-physician practitioners, prosthetists, etc., identified in 42 CFR 424.57(d)(15)(i)(B) through (D) limited to sole proprietorships and solely-owned LLCs and corporations?
 
A. As a general rule, a group practice is eligible for an exemption to the surety bond if each member of the group would – if he/she was operating as a solo practitioner – qualify for the exemption on his/her own.  Thus, for instance, if three prosthetists are in private practice together, each prosthetist must be licensed by the State and have an ownership interest in the business; moreover, the three prosthetists must be the only owners and operators of the business.  Likewise, if two physicians operate their own group practice, each physician in the practice must furnish DMEPOS items only to his or her own patients as part of his or her own service in order for the physician group to qualify for the bond exemption.
 
Q. Does the exemption for State-licensed orthotists in private practice apply regardless of the type of orthotics he or she provides?  For instance, can an orthotist who furnishes only 'prefabricated' and 'off-the-shelf' items and services be exempt from the bond requirement?
 
A. The language in 42 CFR 424.57(d)(15)(i)(B) states as follows:  "State-licensed orthotic and prosthetic personnel in private practice making custom-made orthotics and prosthetics are provided an exception to the surety bond requirements…..”  The practitioner must therefore be 'making custom-made orthotics and prosthetics,' which would therefore exclude persons who furnish only 'prefabricated' and 'off-the-shelf' items from the purview of the exemption.
 
Q. I am a State-licensed prosthetist in solo private practice.  For purposes of the exception for State-licensed prosthetists identified in 42 CFR 424.57(d)(15)(i)(B), does it make a difference if my practice is set up as a solely-owned corporation or LLC, rather than as a sole proprietorship?
 
A. No.  So long as the prosthetist owns 100 percent of his/her business, it is immaterial whether the business is organized as a sole proprietorship or a solely-owned LLC or corporation.
 
Q. If a physical or occupational therapist bills for DMEPOS items such as wheelchairs and oxygen equipment, can he or she still qualify for an exemption to the bond requirement?
 
A. No.  The therapist must only be billing for prosthetics, orthotics and supplies.
 
Q. Suppose a physical or occupational therapist is employed by a physician practice that otherwise qualifies for an exception to the bond requirement.  Does this mean that the therapist is also exempt from the bond requirement?
 
A. No, for the business is not solely-owned and operated by the physical or occupational therapist.
 
Q. What events must the bond cover?
 
A. The supplier is required to submit a bond that - on its face - reflects the requirements of the surety bond final rule. Specific terms that the bond must contain include:
  • A guarantee that the surety will-within 30 days of receiving written notice from CMS containing sufficient evidence to establish the surety's liability under the bond of unpaid claims, civil monetary penalties or assessments- pay CMS a total of up to the full penal amount of the bond in the following amounts:
    • (A) The amount of any unpaid claim, plus accrued interest, for which the DMEPOS supplier is responsible
    • (B) The amount of any unpaid claims, civil monetary penalties or assessments imposed by CMS or the Office of Inspector General on the DMEPOS supplier plus accrued interest.
  • A statement that the surety is liable for unpaid claims, civil monetary penalties or assessments that occur during the term of the bond.
  • A statement that actions under the bond may be brought by CMS or by CMS contactors
  • The surety's name, street address or post office box number, city, state, and zip code
The bond must also name the DMEPOS supplier as the Principal, CMS as the Obligee, and the surety (and its heirs, executors, administrators, successors and assignees, jointly and severally) as surety.
 

Q.  With respect to the exemption for government-operated DMEPOS suppliers that furnish CMS with a comparable surety bond under State law, what is meant by the phrase "comparable surety bond under State law?”

A. It means that if the supplier furnishes to CMS a copy of a surety bond that: (1) is currently in effect, (2) the supplier was required to obtained pursuant to State law, and (3) otherwise meets all of the criteria required under 42 CFR 424.57(d)(26) (e.g., $50,000 amount; same bond terms), the supplier need not obtain an additional $50,000 in bond coverage for its Medicare DMEPOS enrollment.
 
Q.   Are there any DMEPOS supplier types that are exempt from obtaining a surety bond?
 
A.  Yes. The following DMEPOS suppliers are exempt from the surety bond requirement found in 42 CFR 424.57(c)(26):

Government-operated DMEPOS suppliers are provided an an exception to the surety bond requirement if the DMS supplier has provided CME with a comparable surety bond under State law.

State-licensed orthotic and prosthetic personnel in private practice making custom-made orthotics and prosthetics are exempted from the surety bond requirement if:  (1) the business is solely-owned and operated by the orthotic and prosthetic personnel, and (2) the business is only billing for orthotics, prosthetics and supplies.

Physicians and non-physician practitioners, as defined in section 1842(b)(18) of the Social Security Act, are exempted from the surety bond requirement when items are furnished only to the physician or non-physician practitioner's own patients as part of his or her own service.

Physical and occupational therapists in private practice are exemptedfrom the surety bond requirement if : (1) thebusiness is solely-owned and operated by the physical oroccupational therapist, (2) the items are furnished only to the physical or occupational therapist's own patients as part of his or her professional service, and (3) the business is only billing for orthotics, prosthetics and suppliers.

All other DMEPOS suppliers are subject to the surety bond requirement.
 
Q.  How much will the bond cost?
 
A.  We estimate that the average annual bond cost is approximately 3 percent of the value of the bond.  Thus, the annual cost to the supplier of a $50,000 bond will be around $1,500.
 
Q.  I am an existing supplier who is subject to the October 2, 2009, date.  Should I obtain a bond now, or should I wait until that date to obtain one?
 
A.  We recommend that suppliers that have to meet the October 2, 2009, implementation date should begin the work for the bonding as soon as possible.
 
Q.  I have multiple DMEPOS supplier locations. Do I need to obtain a bond for each location?
 
A.  Yes.  Suppliers subject to the bonding requirement are required to obtain a surety bond for each practice location that has a separate National Provider Identifier (NPI).  Thus, if a supplier has two separately-enrolled DMEPOS locations, each with its own NPI, it must obtain $50,000 worth of bond coverage for each location.  This can be accomplished by obtaining two $50,000 bonds or a single $100,000 bond.  If the supplier elects to obtain one bond that covers multiple locations, however, the bond must specify the locations it encompasses.
 
Q.  What is a DMEPOS surety bond?
 
A.  A DMEPOS surety bond is a bond issued by an entity (the surety) guaranteeing that a DMEPOS supplier will fulfill an obligation or series of obligations to a third party (the Medicare program).  If the obligation is not met, the third party will recover its losses via the bond.
 
Q.  What should the dollar amount of the bond be?
 
A.  This bond must be in an amount not less than $50,000.  However, a higher bond amount will be required if the DMEPOS supplier has had a final adverse action imposed against it within the past 10 years; specifically, the necessary bond amount will be raised by an additional $50,000 for each final adverse action that has been imposed against the supplier within the previous 10 years.  For purposes of the surety bond requirement, a 'final adverse action' is defined as any of the following:
  • A Medicare-imposed revocation of any Medicare billing privileges
  • Suspension or revocation of a license to provide health care by any State licensing authority
  • Revocation or suspension by an accreditation organization
  • A conviction for a Federal or State felony offense (as defined in §424.535(a)(3)(i)) within the last 10 years preceding enrollment, revalidation or enrollment
  • An exclusion or debarment from participation in a Federal or State health care program
Q.  What sort of paperwork do I need to submit to prove that I have obtained the necessary surety bond?
 
A.  A copy of the bond agreement, as well as any certificates of proof, should be submitted.  If the NSC requires additional supporting documentation, it will contact the supplier accordingly.
 
Q.  When will the surety bond requirement become effective?
 
A.  Suppliers enrolling in the Medicare program for the first time, existing suppliers undergoing a change of ownership, or existing suppliers establishing a new practice location are required to submit a surety bond to the National Supplier Clearinghouse (NSC) with their CMS-855S enrollment application on or before May 4, 2009. Absent an exception to the bonding requirement, the NSC will reject a pending supplier's enrollment application if the supplier has not submitted a valid surety bond by May 4, 2009.
 

Enrolled DMEPOS suppliers subject to the bonding requirement are required to submit a valid surety bond to the NSC by October 2, 2009.

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