ENSURE REASONABLE APPLICATION AND IMPLEMENTATION OF HOME
HEALTH SURETY BOND REQUIREMENT
ISSUE: The Balanced Budget Act of 1997, P.L. 105-33, mandated that all home health agencies and
certain other entities participating in Medicare and/or Medicaid secure a minimum surety bond of $50,000
in order to protect the programs from fraud. The provision was effective January 1, 1998.
The Centers for Medicare & Medicaid Services (CMS) published implementing regulations for home
health surety bonds in the Federal Register on January 5, 1998, that went far beyond the intent of
Congress. While the legislation required a minimum $50,000 bond and allowed CMS to waive the
requirement in states where a similar requirement already exists, CMS expanded on that authority in the
regulations by requiring a bond which is the greater of $50,000 or 15% of previous year’s Medicare
and/or Medicaid revenues. CMS placed no cap on the amount of the bond. Additionally, the regulations
were crafted so that the length of time for which the surety company was liable could be as long as six
years. As a result, many surety companies would not write surety bonds for home health; other companies
required that agency administrators or owners provide personal guarantees or post collateral two or three
times the full value of the bond. Most home health agencies were unable to secure bonds. In the
regulations, CMS waived the requirement for government-run agencies (even though the statute did not
expressly allow this), but CMS made no attempt to exempt providers with proven good track records.
In an effort to address concerns about the January, 1998, regulations, CMS published changes that
responded to the criticisms of the surety industry, but that failed to address home health agencies’
concerns. The Small Business Administration (SBA) petitioned CMS to withdraw the rules, citing, among
other concerns, the threat the regulations posed to agencies as small businesses.
Both the Senate Special Committee on Aging and the Senate Committee on Small Business held hearings
on home health surety bonds. Witnesses from the SBA, home health and the surety industries all
expressed concern over CMS’ regulations. Finally, in the wake of overwhelming Congressional objection
and the threat of passage of resolutions introduced by Senator Kit Bond (R-MO) and Representative Jim
Nussle (R-IA) formally disapproving the surety bond regulations, CMS was forced to withdraw the
compliance date for agencies to meet the bonding requirement. CMS agreed to await the results of a
Congressionally-requested General Accounting Office (GAO) study prior to developing new regulations.
The GAO study was issued in January, 1999, and recommended the following:
1. Retaining the “financial guarantee” nature of the bond, rather than restricting it to a fraud bond.
2. Eliminating the requirement for separate bonds for Medicare and Medicaid participation.
3. Exploring the possibility of exempting agencies that have demonstrated financial stability.
4. Eliminating the option of substituting a Treasury note or other federal public debt obligation in
place of a surety bond.
As part of efforts during 1999 to refine the BBA, the Congress made the following changes to the home
health surety bond requirements:
1. Limiting the bond to the lesser of $50,000 or 10% of previous year’s program revenues.
2. Requiring that agencies secure bonds for four consecutive years, rather than for the full length of
Medicare and/or Medicaid program participation.
3. Requiring that agencies secure only one bond to fulfill their obligations under Medicare and
Medicaid.
The Affordable Care Act, section 1128J(g), expanded the Medicare authority to impose surety bonds on
home health agencies in allowing the bonds to be set at amounts “that the Secretary determines is
commensurate with the volume of the billing of the home health agency.” The purpose of this change was
to overcome any perceived obstacle to the imposition of a bond in excess of $50,000.
The HHS Office of Inspector General followed the ACA amendment with a report entitled, “Surety
Bonds Remain an Unused Tool to Protect Medicare from Home Health Overpayments” (September 27,
2012. The OIG suggested that a surety bond on home health agencies would reduce the amount of
uncollected overpayments in Medicare.
RECOMMENDATIONS: CMS should:
1. Apply the surety bond requirements only to agencies with poor records of repayment to Medicare
and/or Medicaid or to new agencies wishing to participate in the program(s).
2. Apply any surety bond requirement for a time-limited period of no more than three years
consistent with the recommendation of the GAO.
3. Utilize the surety bond only as a screen to bar inappropriate providers from the programs to
protect against fraud, not as insurance against any programmatic losses through unrecouped
overpayments.
4. Honor the notice and comment requirements in the Administrative Procedures Act in
promulgating regulations to implement the surety bond requirement.
5. Comply with all procedural requirements of the Small Business Regulatory Enforcement Act in
developing regulations for the surety bond requirement.
6. Establish objective criteria for agency eligibility for a repayment plan.
7. Explore more targeted approaches to resolving the root causes of problems related to recoupment
of overpayments, including requiring that agency operators have sufficient knowledge of
Medicare prior to opening an agency. Serious consideration should be given to alternatives that
are better measures of an agency’s competence and worthiness to participate in Medicare than
imposing surety bond and similar requirements. Alternatives to a surety bond approach include
requiring the demonstration of financial management ability and knowledge of Medicare
coverage and participation requirements.
RATIONALE: Unrecouped Medicare home health overpayments amount to less than 0.2% of home
health outlays and are the result of issues presented by a very small number of providers. Also, CMS has
many tools available to avoid overpayments altogether and to significantly reduce the risk of uncollected
overpayments, such as strengthened authority to suspend payments and real-time data access to catch
overpayments quickly. Given these facts, applying an across-the-board surety bond requirement that is
onerous and difficult for many agencies to meet is counterproductive and will limit the availability of
important home health services. Home health, for the most part, is not a capital-intensive industry. Rather,
many agencies are small businesses that are established because of a commitment to providing vital
services to needy beneficiaries. These agencies have limited financial reserves. Meeting any requirement
that focuses primarily on capital does not necessarily demonstrate an agency’s understanding of Medicare
policies, nor does it gauge an agency’s motivations for getting into the home health business. Unrealistic
or excessive requirements could preclude all but the most highly-capitalized providers from entering the
program, discouraging many highly scrupulous and capable providers from participating in the program
and threatening beneficiary access to care.