Surety bond questions? Keep reading

At the end of December 2008, CMS released a surety bond ruling that requires HME providers that bill Medicare to have a $50,000 surety bond. CMS has set deadlines of Oct. 2, 2009, for existing businesses and May 4, 2009, for new businesses to obtain and show proof that a bond has been purchased and currently enforced.

The Surety Association and CMS were working together at press time in early March on final language.

Many HME providers have complained about the confusion surrounding the surety bond ruling. Here's a list of their most common questions and my answers.

What is a surety bond, and how is it different from insurance?

A bond is a financial instrument. In this case, the bond size is $50,000, and it must be underwritten and approved by the bond carrier before it can go into effect. Note: A bond is not insurance. Insurance is used in the event that a “loss” occurs during the policy period. If a claim occurs, the insurance carrier pays the claim and the insured is usually only responsible to pay if a deductible is involved.

If a bond carrier, however, has to pay out on a provider's behalf then the provider, as the bond holder, will have to reimburse the carrier.

A bond acts like a glorified line of credit to make good on a fraudulent claim. Just like any other line of credit, it must be repaid.

What information is required to qualify for the bond?

HME providers will need to fill out applications that contain at least three years of personal and business financial statements, and they may need bank, tax and other records. Depending on the financial condition of the company, the owners may be required to personally indemnify the bond. The bond carrier, through this collection of information, is making sure that the provider can repay any loss that occurs during the period that the bond is in force.

Another key question that will be asked by the bond carriers: Has the provider ever had any previous penalties from CMS? They will also want to know if the owner(s) or any partners of the company have ever been convicted of fraud.

Do I have to have a bond for each NPI number?

Yes. The Surety Association has advised that CMS will accept a “Blanket Bond” for HME providers that have multiple NPI numbers. For example, if a provider has five NPI numbers, then they would need five $50,000 bonds. With a blanket bond, that provider could purchase a $250,000 surety bond to cover all five numbers. The blanket bond would be less expensive to purchase than buying five individual bonds.

Can I buy a bond now?

The final bond language was supposed to be completed sometime in March. According to the Surety Association, CMS seeks to coordinate the implementation date with the date that all HME providers need to be accredited (Sept. 30, 2009). I advise that providers stay close to their state associations for updated information on when they can start purchasing the bond.

When it comes to surety bonds, make sure that the insurance agent you are working with understands your industry and knows for sure that they are placing you with the correct bond. Many insurance agents do not specialize in the HME field and may not even know that a bond is being proposed for this industry.

Bonds can be very simple to understand if you keep yourself informed as to how they work, and what is required to obtain one. Find someone that is knowledgeable about the CMS bond, and the process of purchasing this particular bond can be pretty painless. hme 

Bill McMahon is an HME insurance specialist for Cailor Fleming Insurance. He can be reached at 800-796-8495.