CMS Promulgates New Surety Bond Requirement for Suppliers of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies

January 12, 2009

The Centers for Medicare and Medicaid Services (“CMS”) recently published a final rule that requires certain suppliers of durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”) to furnish CMS with a surety bond as a condition to the issuance or renewal of a DMEPOS Medicare supplier number. With this requirement, CMS aims to ensure that only qualified suppliers are eligible to enroll and participate in the Medicare program as well as to protect the Medicare program against fraud.

The final rule requires certain DMEPOS suppliers to obtain and maintain a surety bond of at least $50,000 when 1) enrolling in the Medicare program, effectuating a change of ownership, or responding to a revalidation or reenrollment request; 2) seeking to become an enrolled DMEPOS supplier through a purchase or transfer of assets or the acquisition of an ownership interest; or 3) enrolling a new practice location. CMS has carved out an exception to the requirement for certain DMEPOS suppliers, as described further below.

Under certain circumstances, DMEPOS suppliers must obtain and maintain an elevated bond amount above the $50,000 base surety bond. The National Supplier Clearinghouse, the entity that enrolls DMEPOS suppliers in the Medicare program, will prescribe an elevated surety bond amount of $50,000 per occurrence if an applicant has been subjected to an adverse legal action within the 10 year period preceding enrollment, revalidation, or reenrollment. The regulation defines an adverse legal action as any one of the following:

  1. A Medicare-imposed revocation of Medicare billing privileges;
  2. Suspension or revocation of a license to provide health care by any state licensing authority;
  3. Revocation or suspension by an accreditation organization;
  4. Conviction of a Federal or state felony offense within the 10 years preceding enrollment, revalidation, or re-enrollment; or
  5. An exclusion or debarment from participation in a Federal or state health care program.

Failing to comply with the surety bond requirements will result in revocation or denial of a DMEPOS supplier’s billing privileges. DMEPOS suppliers may cancel a bond or change a surety, but they must ensure there is no gap in the coverage of the surety bond. If a lapse in coverage occurs, CMS will deny billing privileges to a supplier and will not pay for any items or services furnished by the supplier during the coverage gap.

CMS provides an exception to the surety bond requirement for certain DMEPOS suppliers under certain circumstances, including:

  1. Government-operated DMEPOS suppliers if the supplier has provided a comparable surety bond under state law;
  2. State-licensed orthotic and prosthetic suppliers in private practice making custom-made orthotics and prosthetics 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;
  3. Physicians and non-physician practitioners when items are furnished only to the physician or non-physician practitioner’s own patients as part of the physician service; and
  4. Physical and occupational therapists in private practice if
    1. the business is solely owned and operated by the physical or occupational 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 supplies.

The final rule becomes effective on March 3, 2009, and requires existing DMEPOS suppliers to comply with the surety bond requirement by October 2, 2009 for each assigned National Provider Identifier to which Medicare has granted billing privileges. DMEPOS suppliers seeking to enroll in Medicare or to effectuate a change of ownership must meet the requirements of the final rule beginning May 4, 2009.