59

staff had had much previous experience with the Medicare or Medicaid
programs, bonds for this type of an obligation were not unique. We believed at
that time that we could assist HCFA as they drafted bond regulations that both
furthered the intent of Congress and provided a viable market for the bonds.

These discussions first took place by phone and mail while the SAA still
was located in New Jersey. At that time we were attempting to provide HCFA
with technical assistance to draft a bond form which would provide the coverage
and terms on which they were insistent. As we moved to Washington in the fall of
1997, we met personally with HCFA staff to further present our positions as to
what actually should be covered by the bond and how it normally would be
written in the marketplace.

Attached are copies of two letters, the first from the SAA and the American
Insurance Association (“AlA") discussing our visit with HCFA staff in late
September. The second is a follow-up letter sending a proposed bond form
drafted by SAA to HCFA. This bond form contained an obligation that the surety
would guaranty HCFA against loss caused by the fraud of an HHA or its officers,
directors, stockholders or employees. This type of anti-fraud bond is common,
and the underwriting is fairly simple.

At some time after this October 31, 1998, letter to HCFA, HCFA
determined that the surety bond mandated by Congress should be crafted not
just to protect against fraud, but to protect the Medicare and Medicaid Trust Fund
against loss caused by overpayments to providers. This essentially is a type of
surety bond called a financial guarantee bond. Through discussions with HCFA
staff, it soon became clear that HCFA would not accept our proposal of an
antifraud bond, but would insist on a financial guarantee bond. We again worked
with HCFA staff, advising them as to the way the surety bond industry worked in
an attempt to assist them in drafting regulations to make such a bond
requirement as reasonable as possible. At some point shortly after the October
31° letter HCFA staff told us that they no longer could talk with us about the
regulation drafting process.

On January 5, 1998, HCFA published regulations requiring the
submission of a surety bond by February 27, 1998. The bond required was the
overpayment, financial guarantee bond, and the regulations contained a number
of provisions that made underwriting the bond extremely difficult.

This was unfortunate for sureties, HHAs, HCFA and Congress. When the
BBA mandating this new surety bond requirement first was enacted, many surety
companies geared up to enter this new market. When the January regulations
were published, however, the regulations contained many problems which forced
companies to reverse their decisions.


128

. Strengthen accreditation and Conditions of Participation guidelines.

|. Require corporate fraud and abuse compliance programs for all providers.

5. Continue to develop with industry input outcome measures that can be used to evaluate
homecare agencies.

6. Correct IPS and move quickly to a PPS system that allows cost efficient agencies to be

rewarded and places the appropriate financial constraints on high cost providers.

7. Lastly, I can’t stress enough HCFA’s need to work with the industry. The industry wants to

climinate any fraud and abuse as much as HCFA does. Working together as partners with a

‘common goal will accomplish more than the current adversarial relationship.

‘Thank you again for the opportunity to share my perspective.

SUN Home Health Services and many quality home care providers across the United States
remain committed to our patients and our communities. However we need your help to insure
that our mission is not destroyed by bad healthcare policy at the national level. Thank you for
your assistance in this home-care crisis.

Respectfully submitted,

Stin Beihand

‘Steven Richard
Chief Financial Officer
‘SUN Home Health Services


25

Inappropriate Bankruptcy Protections

Even if'a home health agency still has assets after filing for bankruptcy, under current law health
care providers can use the protections afforded by the Bankruptcy Code to avoid the imposition
of administrative sanctions or collection of Medicare overpayments. Specifically, providers can
make strategic use of two devices — the automatic stay and the discharge provisions of the
Bankruptcy Code. Under the automatic stay provision, providers can respond to the threat or
imposition of an administrative sanction by filing a petition in bankruptcy and then asserting that
the automatic stay bars any further sanction activity. Indeed, in 1995, the U.S, Bankruptcy Court
in the Eastern District of Pennsylvania found the Department of Health and Human Services in
contempt for violating the court's automatic stay after DHHS sought to exclude a podiatrist who
refused to repay his Health Education Assistance Loan. Under the discharge provision, the home
health agency can assert that any overpayment or civil monetary penalty due to the Medicare
program is discharged and does not survive the bankruptcy proceeding.

It is thus still possible for wrong doers to use bankruptcy protection as a way to avoid
responsibility for repayment of overpayments, fines, or penalties and in some cases even
circumvent a program exclusion. The cases we deal with are not those where a legitimate
business declares bankruptcy because of unfavorable economic or business conditions. Rather,
the bankruptcy is used subsequent to a fine or penalty to allow the agency to avoid completely
any financial responsibility for wrong doing. We are also concemed about using the bankruptcy
law to prevent the Secretary from suspending Medicare payments to a provider under
investigation for fraud.

Recent Initiatives to Reduce Fraud and Abuse

Over the past year, we have emphasized that structural reforms alone will not be enough to
prevent the fraud and abuse that is atleast partially to blame for losses which this program is
experiencing. It is also necessary to keep unsuitable home health care providers from
participating in the program as well as to improve program controls that will prevent
inappropriate expenditures while ensuring the availability of services and the quality of care. In
‘addition to improved payment controls, we recommended that HCFA develop and implement
program safeguards that would 1) strengthen its ability to identify potentially problem providers,
2) prevent unsuitable home health agencies from entering the program, and 3) prevent the
Medicare trust fund from incurring further losses due to the activities of exploitive home health
agencies.

‘The Balanced Budget Act, signed into law August 5, 1997, contains a number of important
Provisions to help prevent Medicare feud end abuse and to promote responsible program

‘These measures, which include moving to a prospective payment system, will help
papery seer tpeerindr rweter deren ‘Additionally, the Secretary has
recently made significant changes to program operations to crack down on abuse in home health.
All of these actions are consistent with and responsive to our past recommendations. The
combined impact of enactment of the new legislation and strong administrative actions should go
along way to address problems in the home health industry.

‘louse Commitne oa Government Reform and Oversight
Sobcommitice on Human Resources: Hearing July 22, 1998 Page 6


154

just seems to me that maybe we can find a middle ground to assist
some of these associations.

Now, I happen to believe that—I know the chairman is not on
the Banking Committee, but we had the same problem in manufac-
turers’ housing about 10 years ago. And it was a question of how
government was going to regulate it and see what we could do. And
what we finally came up with is—I think the chairman, being on
that side of the aisle, will appreciate my suggestion—is that regu-
latory control, is it should be first attempted to be imposed by the
private sector.

And it seems to me that we ought to find some way to encourage
the home health care people particularly to come up with this solu-
tion to how it works, so they have to put a great deal of input on
the surety bonds.

I don’t think we should say absolutely surety bonds are bad,
they’re terrible and they should be done away with, because they’re
a way of filtering out the bad actor.

But we had the home—the manufacturers’ housing industry do
their self-policing, their own standards, their own models, stamps
of approval. And we’ve had an improvement—incalculable improve-
ment over the last 10 years and a very low cost without a govern-
ment agency getting involved and passing regulations. The indus-
try did it itself.

Now, what we have to just find for this industry, it just seems
to me, is a way of getting the secondary market or secondary in-
surer involved. So there’s not a great deal of difficulty, and they
probably could self-fund. If they did self-fund, they would also self-
police.

And you would have—Mr. Richard may have preferred they
knew there was a bad actor out there and they’re yapping among
themselves, there’s a bad actor, maybe even talking to the agency.
But if there was a risk involved to the insurance fund for all, there
would be more of a likelihood of a direct report and charges made
within the private sector.

Mr. Towns. Mr. Chairman, I yield to my colleague and friend,
but I also think there’s another piece to the fact that I think HCFA
has to assume some responsibility, which means that it might be—
have a cost effect in the beginning and the front end. Because what
I see now is going to happen if we don’t watch, that the IG is going
to end up with all the money; and I think we have to careful about
that. I think HCFA has to assume some of the responsibility up
front in terms of screening and certifying and to do the kinds of
things that need to be done to—that’s one way to get a lot of folks
out.

You know, I think the bond is one thing, but I think that you
can’t eliminate HCFA’s responsibility as well; and I think that
that’s very, very important.

Mr. KANJORSKI. Well, and I agree with you. And I’m suggesting,
you know, if you want HCFA to be the health police agency, it’s
going to be very expensive, very difficult and probably these provid-
ers would prefer not to have that, because it’s going to be more
costly.

What I’m suggesting is we try and use the private sector, profit
and nonprofit, to try and bring up the standards, bring up the in-


149

to come up with a surety bond requirement. The law as written in
Florida is very different than the implementation of the program.
The program worked as implemented. The program as written was
for a 1-year, new entrants requirement. As implemented, the Medi-
care agency in Florida required bonds from everybody, and that
was a very important point, and we were told that there was a sig-
nificant impact. I don’t have any numbers on what the impact was
for home health agencies.

The law also does allow for the repayment of overpayments
under the bond, and as implemented it was implemented as an
antifraud bond instead. Very important points. If the committee or
subcommittee is interested in the same kind of a program as Flor-
ida, it is important to model it on what worked versus what was
actually drafted and on the books.

Thank you.

Mr. Towns. Let me ask this. I believe that the reason this rule
ran into trouble was because it was enacted without public hear-
ings or an opportunity of the affected people, the providers, to com-
ment on the issue. During the rulemaking process, what efforts
were made to bring in home health care or even surety bond agen-
cies? Any effort?

Mr. Domai. I would like to say that our organization was highly
successful in getting entry into HCFA discussion on surety bonds
because that is my job to be there, to consult with them, and
present information to them.

The way our testimony characterized it, we were heard but not
listened to. That we had phone calls returned. We had meetings
with HCFA, but I swear it was the same as talking to an empty
room, and the results showed throughout on that.

It became a very frustrating experience for us because we
couldn’t produce for our constituents in that way. But what became
more alarming than anything else was the increasing and perhaps
habitual use of the waiver standard for waiving public notice and
comment in advance of a rule becoming final.

I have not seen HCFA in the last 20 years move in the direction
that they have in the last 1 or 2 years to waive the APA and Regu-
latory Flexibility Act requirements to the degree that they have
now with the excuse that they continue to use which is we are run-
ning out of time. We have a congressional deadline we must meet.

In this bond rule it was signed into law on August 7, 1997. On
January 5, a final rule with an opportunity for comment was pub-
lished. It did not need to take that long to develop that rule, and
it did not need to take it into a final, waived, public-comment
stage. We have yet to see any response to the comments which we
did submit after the final rule was implemented. And, as I men-
tioned earlier, we have no promises that they will comply with the
APA on the third visit to this rule once again, and we may be back
before this committee with a third crisis where 60 percent of home
care agencies can’t find bonds that make sense to secure and access
to services are once again in jeopardy.

Mr. Koniers. In the medical equipment industry, we had an op-
portunity to meet with HCFA once; and, frankly, they did not take
our advice with respect to the 15 percent rule; and we thought that
that was very much injurious to our industry.


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida PAUL E. KANJORSKI, Pennsylvania
JOHN M. McHUGH, New York GARY A. CONDIT, California
STEPHEN HORN, California . CAROLYN B. MALONEY, New York
JOHN L. MICA, Florida THOMAS M. BARRETT, Wisconsin
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
DAVID M. McINTOSH, Indiana DC
MARK E. SOUDER, Indiana CHAKA FATTAH, Pennsylvania
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
JOHN B. SHADEGG, Arizona DENNIS J. KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois
MARSHALL “MARK” SANFORD, South DANNY K. DAVIS, Illinois

Carolina JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas
PETE SESSIONS, Texas THOMAS H. ALLEN, Maine
MICHAEL PAPPAS, New Jersey HAROLD E. FORD, Jr., Tennessee
VINCE SNOWBARGER, Kansas ——
BOB BARR, Georgia BERNARD SANDERS, Vermont
DAN MILLER, Florida (independent)

Kevin BINGER, Staff Director
Danie R. MOLL, Deputy Staff Director
Davin A. Kass, Deputy Counsel and Parliamentarian
dupitH McCoy, Chief Clerk
PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES
CHRISTOPHER SHAYS, Connecticut, Chairman

VINCE SNOWBARGER, Kansas EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York THOMAS H. ALLEN, Maine
DAVID M. McINTOSH, Indiana TOM LANTOS, California
MARK E. SOUDER, Indiana BERNARD SANDERS, Vermont (Ind.)
MICHAEL PAPPAS, New Jersey THOMAS M. BARRETT, Wisconsin
—_ — DENNIS J. KUCINICH, Ohio

EX OFFICIO
DAN BURTON, Indiana HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel
Marcia Savor, Professional Staff Member
Jesse S. BUSHMAN, Clerk
CueRnt BRANSON, Minority Counsel

ay


119

million policy. It has no cash value. So we did everything humanly
possible, and as of the time that the bond regulations were with-
drawn, we still did not have a bond.

I would say that I think that there are several reasons that
HCFA is so intent on the bonding regulations. One of those has to
do with IPS. One of the things that I have become very convinced
of is that the bonding regulations are extremely important because
HCFA realizes that with the new interim payment system that
there will be hundreds and maybe thousands of home health agen-
cies that will go out of business. And so I think that is something
that needs to be factored into this equation.

I also will tell you that the fact that the IPS system was in place
was an impediment to us getting a bond. In the State of Pennsyl-
vania, agencies have always traditionally been very cost efficient.
Our per beneficiary limits in Pennsylvania are some of the lowest.
in the country, and when I went out to bond companies one of the
questions that I was asked is, what is your IPS rate? And when
T had to tell them that it was approximately half maybe of the na-
tional average, it did me no ood. in getting a bond.

I would have to agree with HCFA that there are bad apples out
there. There needs to be ways to get rid of the bad apples. But one
of the things that I do in my spare time is that I grow apples, and
I store apples in my basement. And when the fruit flies start to
come out, I know that I have a bad apple. And when I sort through
my apples, I am very careful with the good apples because, once
you bruise them, they are no good either. One of the things that
is happening in this industry right now is that we are bruising and
battering the good agencies along with the bad, and all we end up
with is the type of mess that we have today.

Excuse me if I get a little impassioned, but this is my career and
my agency that was being put down the tubes by this regulation.

Mr. SHAYS. We accept your version of passion.

Mr. RICHARD. Thank you.

Having said that, I do have some recommendations. I do think
that we need stronger conditions of participation. We need to have
stronger accreditation standards. We need to require compliance
programs. We need to use outcome measurements. We need all of
these things to help identify the good and the bad apples in the in-
dustry. And I will tell you that there are too many home health

encies out there, and I am in agreement that there are bad ap-
ples that need to be removed.

I do have some other specific suggestions that are in my testi-
mony, and I am not going to go through all of those, but I think
it is important for this committee to realize that I represent an
agency that is seen as an industry leader in many ways, but be-
cause we were guilty, guilty of caring for our community, guilty of
providing over $200,000 of uncompensated care annually, we did
not have the financial assets to make a surety company com-
fortable with our situation.

Had I known these regulations were coming along, there were
steps that could have been taken. We are taking steps now. We
just launched or moved forward a very aggressive endowment pro-
gram, trying to increase the assets that are in hand to be used as
collateral and for financial collateral for this bond.


68

HICFA as sole oblige. The bond must ram to HCFA and not to third parties. For
example: °

“HCFA is the sole Obligee of this Bond, and no action may be brought on it by or
for the use or benefit of ary other person or entity.”

{mm enclosing smple bo fom n reply Your guest egaring bw a formal
Medicare bond form might look. Our General Counsel, Edward Gallagher, and I would
be happy to mest you in Baltimore to address rely xy adiional technical questions
you might

Took aren wearing fiom you. Ihave direct phone cmmber that wil soa to me
‘without intenediaries: (202) 778


152

Mr. Suays. Will the gentleman yield? This is a dialog we had be-
fore you came. The one challenge is that sometimes in a nonprofit,
you find that the employees pay themselves more and they con-
sume the profit in salaries, and you end up with a nonprofit almost
becoming an employee-owned operation.

Mr. KANJORSKI. Sometimes does it appear to be nonprofit but the
operators treat it as a for-profit?

Mr. Suays. I think our Inspector General was clear in pointing
out that most of the fraud was in the startup entrepreneurial profit
side. So, there may be a leaning toward that side, but I don’t want
to—we will extend the debate on the efficiencies of nonprofits and
whether they truly keep costs down and so on, so we will have an
interesting dialog on that as well.

Mr. KANJorsKI. I found in the meetings that 1 had with many
nonprofits, because that is what we have, almost a personal reac-
tion to it. They are questioning our integrity. Organizations like
Visiting Nurse Association came in, Catholic organizations came in
and said, what is this? We have been doing it for 20, 30, 40 years,
and suddenly our government says we are so irresponsible we need
to come up with 281 million bond.

I encouraged them to do their own self-insurance. It is not a pun-
ishing feature that the government wants to have some fund to
look at there. And, in reality, it would be self-policing if the asso-
ciations did their own surety bonds because they wouldn’t give a
surety bond to an irresponsible organization. They would keep tabs
on them as to what is happening and going on.

Now the for-profit organization is a great fear, it seems to me,
because it can be started with little assets and little recourse if the
people do commit fraud and abuse. I am not sure what we should
do, but, on the other hand, we shouldn’t make it a test to keep irre-
sponsible people out.

Quite frankly, as an entrepreneurial thing, I don’t see that great
of a profit. If you are going to commit fraud and that is your inten-
tion, there are many other areas you can go into to commit fraud
and make at profit, if you are a fraudulent entrepreneur, than
home health care. That is a difficult field, and particularly dealing
with Federal prosecution and audits and everything else.

Mr. Suavs. If the gentleman will yield again. I am really happy
to continue, so I am not going to take his time, but we have been
meeting this morning. We are going from $3 billion to $4 billion to
$18 billion in a span of less than 5 years; and the Inspector Gen-
eral’s report, obviously, we will have to dissect a little more; but
we are looking at numbers between 20 and 40 percent mispayment
or overpayment. We are not talking about 1 or 2 percent. That is
what is really shocking.

Mr. KANJORSKI. Then you have to look at what the overpayment
is about.

For instance, in a district like mine, we have people that are dia-
betic and both the husband and wife are in their 80’s and there is
need for insulin and blood testing, and they may live 30-40 miles
away from a hospital or laboratory where they can get the test
done. And it is determined now that blood testing on its own is not,
for diabetes, a sufficient cost for the home health care provider to
come in, and so they are literally cutting it off.


19

doing business and this is having the desired effect. But in Medicare, HME suppliers that subject
themselves to rigorous oversight and inspection are treated no differently than those companies
that fail to adhere to these standards. Unless HME suppliers see that the government values
adherence to these standards, our concern is that over time, fewer and fewer companies will

agree to comply.

We have met with your Subcommittee’s staff to outline some of our ideas and would like to
continue working with them as this process continues. At some point, we may ask for some
prodding from Congress. However, we are comfortable working with HCFA to adopt

reasonable standards for the HME services industry. We look forward to working with your

office and I would be happy to answer any questions you may have.


15

We proposed new home health agency Conditions of Participation on March 10, 1997 which
would prohibit agencies from employing home health aides with a conviction or prior employment
history of child or client abuse, neglect, or mistreatment, and require agencies to immediately
investigate allegations of mistreatment, neglect, or abuse; prevent future abuse; and report the
results to HCFA and appropriate State officials

They would place responsibility on agencies to directly provide a majority of the skilled services.
The proposed rule would require a majority ofall skilled professional (nursing, therapy, social
work) services to be provided directly by home health agency staff, rather than by contracted
personnel, in order to ensure that agencies exercise an appropriate level of quality control.

They would clarify HCFA’s unequivocal authority to decertify home health agencies found out of
compliance with any Federal, State, or local law or regulation. This will enable us to cite agencies
whenever violations affect the health and safety of patients, the ability of agencies to deliver
quality services, the rights and well-being of patients, and the agency's ability to recruit qualified
staff

‘And they would require the home health agency’s governing body to assume full legal
responsibility for management of services and fiscal operations and to appoint a qualified
administrator. The home health agency board and administrator would be held to an even higher
standard to ensure sound fiscal operation. They also will allow us to hold an agency's branch
offices accountable to the same requirements as the parent office. Where an agency's branch
office is not located sufficiently close to the parent to effectively share administration, supervision
and services, the branch would be required to have its own Medicare provider mmber, meet the
Conditions of Participation, and be subject to routine surveys.

DME BOND
We are also working toward implementing a Balanced Budget Act requirement for all durable
medical equipment (DME) suppliers to obtain surety bonds. We began internal discussions about


128

JAYNE FREEDMAN QUINN, BSH, RM, CHA
P.O0.Box 6656
Portsmouth, NE 03802
(603) 431-9367

EDUCATION: BoM, University of Rochester, May 1979

Home Care Coordinator, York Hospital, York, Maine, 10/20/97 - present.
Responsible for creating and establishing the hospital's Certified
Home Health Agency, including administrative, clinical, fiscal,
regulatory and operational aspects.

(Case Manager/Steff Nuree, Columbia/HCA Portsmouth Regional Home Care
(formerly Portsmouth Regional Visiting Murses and Hospice),
Portsmouth, New Hampshire, 11/13/95 - 10/09/97. Visiting wurse
responsible for coordination and primary care delivery of all home
health services. .

Vice President and Director of Nursing, Nantucket Cottage Hospital,
Nantucket, Massachusetts, 8/6/90 - 5/26/95. Responsible for
and administrative functions (clinical, fiscal,

functions included budget preparation and administration, personnel
responsibilities, policy and procedure development and
implementation both for individual departments and Hospital-wide
systems, strategic planning, total quality improvement program
development and implementation, and clinical program development for
inpatient, outpatient and community services. Served as
AMministrator of the Hospital in the absence of the President.
Attained and maintained JCAHO accreditation for the Home Health
Department and Private Duty Agency.

‘Training Specialist, Allen Associates, Inc., (AAI) Wakefield,
Massachusetts, 1/90 - 8/90. Responsible for installation and
training of AAI‘'s management information system for home health
agencies and mental health centers. Activities involved lectures,

, consulting, documentation, quality control, and
‘development.

”


184

‘+ Although we were officially certified effective April 17, 1998, we have yet to bill for any services
tremendous cash-fow

«The computer process which included training, installation, development , paraliel run and “go
live" date was originally scheduled from October of 1997 to a “go live” date of June 1, 1998.
‘Because of the morstorium, we could not even reschedule the starting time until April of 1998,
with @ projected “go live” date of October or November, 1998. This resutted in a six month delay,
at least.

‘* Patients have been denied access to our continuum of care because of the moratorium. We
estimate that period of denied access to be approximately 6 months.

‘© We are currently providing service at only 50% of the projected level for this time period. We
estimate a loss of revenue of approximately $325,000 by the end of our current fiscal year (FYE
(06/30/1989). This represents 2 27% loss in revenue to our program because of the moratorium
delays.

© We were required to secure surety bonds as part of the initial application process due to the
pubiication of the surety bond regulations when the moratorium was lifted. See the next topic for
information about that process.

‘York Hospital Home Care's efforts to secure a surety bond:

+ York Hospital Home Care was successful in securing three $50,000 security bonds for Medicare,
term 01/01/98 - 06/30/98; Medicaid, term (01/01/98 - 12/31/98). and Medicare, renewal term
07/01/98 - 06/30/99. The cost was $500 each, a total of $1,500. Thee costs. atwourh rechired

fr pargipation inthe Medicare program, are not currently considered relmbursable By
or Medical.

» Because York Hospital Home Care is part of York Hospital, we were able to make one phone call
to our agent, who made contact with one surety company (on the fist of federally approved surety
companies) to secure the bonds.

‘+ Some of the conditions of the bonds sre:
1. A Medicare overpayment for which the Principal and Surety are lisble under this Bond is an
“unpaid claim," (as defined in 42 C.F.R. section 489,60 on the date the Surety executes
this Bond) arising out of payment for home health services which both becomes “unpaid”
‘and for which HCFA first demands payment from the Surety, during the term of thie Bond.
2. A civil penalty for which the Principal and Surety are liable under this Bond is an “unpaid
civil money pensity of assessment” (a8 defined in 42 C.F.R. section 489,60 on the date the
‘Surety executes this Bond) in connection with home health services which both becomes.
“unpaid” and for which HCFA first demands payment from the surety, during the term of
this Bond.

3. HCFA shall promptly notify the Surety of any claims or civil money penalties or
assessments which it asserts againal or imposes on the Principal during the term ofthis,

‘York Hospital Heme Care Testimony, JULY 22, 1908 PAGE



14

Nation Associa
‘Sedical Equipment Services

Mr. Chairman, members of the Human Resources Subcommittee. On behalf of the National
Association for Medical Equipment Services and our 1,000 plus members, | appreciate this
opportunity to testify today. My name is Bill Koniers. I am the Senior Vice President of
Business Development at AMHealth Group, Inc. in Stratford, Connecticut, and a NAMES

member.

AMHealth Group is the parent of three established businesses servicing Connecticut residents for
an aggregate of 83 years. These businesses are Genox Homecare, Collins I.V. Care, Inc, and
Collins Pharmacy. Our three sites have 110 employees including respiratory therapists,
pharmacists, registered nurses certified in home infusion and HME technicians. We serve over
3,000 patients statewide 24 hours a day, seven days a week. Our home care businesses are
JCAHO accredited. Our Collins I.V. Care, Inc. has received the highest JCAHO accreditation,
“With Commendation”. Mr. Chairman, | invite you to visit our company to see how we serve

your constituents every day.

We have been asked to comment, on behalf of NAMEs on:

625 Sliters Lane * Suite 200 ¢ Alexandria, WA L2574-117 1 (703) 836-6263 FAX (703) 836-6740



32

Mr. Suays. I want to recognize two other outstanding members
of our subcommittee, Mr. Snowbarger, who is the vice chairman,
and Mr. Kucinich. We are prepared to ask questions.

Do you want to make an opening statement?

Mr. SNOWBARGER. No.

Mr. SHays. I am actually going to begin, Mr. Grob, and ask
you—first, I am going to come right down to this point. I first need
to know what surety bonds would actually do and how they would,
in fact, be a protection. And in that case, once I clear that hurdle,
I agree there has to be some kind of a middle ground, and my
sense would be the purposes of the committee would be to find that
middle ground.

Also, I am going to jump in and say that we need to find a way
to deal with the very real problem that Mr. Towns talks about, that
we need to make sure that there is entry into this field by minori-
ties and other entrepreneurs who really could make a good go of
it but are prevented by all of the rules and regulations.

If I turn to page 5 of your statement, you give examples, and let’s
take the two men who are felons. First off, I am willing to say to
you that, once you serve time in jail and you have paid your debt
to society, you have a record and you have to live with that record,
but I do believe people should be able to rebuild their lives. But,
obviously, there are indications of past conduct which should have
some impact.

How would a surety bond have saved us money? Give me an ex-
ample of how we would have gotten more back. Tell me the impact
of the surety bond in each of the cases.

Mr. GROB. One example can be used to illustrate it. First of all,
if I could establish kind of a principle that I would have in the back
of my head which is that it has been extraordinarily difficult for
the government to administer programs that detect the business
worthiness, the business readiness of people who participate in our
various programs and that an approach that might work in this
case is to rely on the private sector to do that. That is one concept,
and it is not something that everyone would agree with, that the
Federal Government might not want to allow in its programs peo-
ple whose competency is not good enough to allow them to compete
in the private sector.

Mr. SHAyYs. One of your points, and I am only going to allow my-
self 5 minutes, but in some cases they would not get a bond and
they don’t deserve to get a bond, and that becomes one way of fil-
tering out?

Mr. Gros. That’s right.

Mr. Suays, Let’s say that these two gentlemen were able to get
a bond?

Mr. Gros. The surety company might have noticed that the
were felons and might not have wanted to give them a surety bond.

Mr. Suays. Non-felons can also do crooked things.

Mr. Grob. Second, there are lots of ways to design a bonding re-
quirement, but the way that we understood the bonding require-
ment to be designed was that we would have been able to recover
from the bonding company up to 15 percent of that company’s ex-
penditures from the previous year if we had not been able to re-
cover it from them through the recovery of overpayments.


108

patients, and continue to raise capital? It's a vicious circle and there is tremendous

‘cumulative effect of all the various state and federal regulations. In any event, it seems

‘that with only a cursory analysis and a litle industry outreach, HCFA should have been

‘able 10 determine that the final rule would have a significant economic impact on a

substantial number of small entities. Therefore. under the RFA, HCFA thould have

epee inet seglatory Rex ity analysis with all the required elements for that
SiS.

B. Final Regulatory Flexibility Analysis
‘The preparation ofa FRFA may be delayed but not waived. Section 608(b) of the RFA
reeds:

“Except as provided in section 605(b) [where an agency certifies that there will be
‘no significant economic impact on a substantial number of small entities), an
‘agency head may delay the completion of the requirements of section 604 of this
title [regarding the preparation of FRFAS] for a period of not more than one
hundred and eighty days after the date of publication in the Federal Register of a
final rule by publishing in the Federal Register, not later than such date of
publication, a written finding, with reasons therefor, that the final rule is being
promulgated in response to an emergency thet makes timely compliance with the
provisions of section 604 of this title impracticable. If the agency has not prepared
8 final regulatory analysis pursuant to section 604 of this tite within one hundred
‘and eighty days from the date of publication of the final rule, such rule shall lapse
land have no effect Such rule shall not be repromulyated until a final regulatory
flexibility anatysis has been completed by the agency

FRFAs may not be waived because they serve a vial function in the regulatory process.
“The preparation of « FRFA allows an agency to carefully tailor its regulations and avoid
unnecessary and costly requirements while maintaining important public policy objectives.
Without a careful analysis—which should include things like data, public comments and a
fall description of costs—agencies would be operating in a vacuum without sufficient
information to develop suitable alternatives.

Since the agency did not issue a proposed rule, the agency had an obligation to consider
carefull all ofthe significant comments regarding the impact ofthe final rule. Afterall,
the agency was apparently unsure of the impact."” The congressional lettes should have
bbeen some indication that there would be 2 sigaificam economic impact and that further
analysis was required HCFA did extend the deadline for obtaining a surety bond for 60
days, and in some ways limited the liability of sureties. However. the agency did not
change the bond or capitalization requirements. or explain why stich changes were not
feasible Inacmuch ac the agency fiuled to heed any of the comments regarding impact—
even those from Congress—the comment period served no real function here.

Unsure of the actual wnpact. the agency specifically solecuied comments ov us asscrors and
assumptions. Se 63 Fed. Reg. at 34


39

HCFA expreses confusing "certification-ke” statements throughout the txt ofthe final rule (8)

‘However, the actual certification and statement of factual basis are not to be found in the final

it did so erroneously for reasons discussed more
Dot intend to certify, but instead intended to

rule, If the agency was attempting to certify,

fally below. On the other hand, bean perhaps HC
prepare a FRFA. T! do some type of analysis: "we have prepared the following
analysis, which in tonjuneion with other material provided in this preamble, constitutes an

alysis under the [RFA]."" 63 Fed. Reg, at 303. The problem with that declaration is that there is
more than one type of analysis under the RFA. There is the preliminary assessment analysis which

igencies determine whether to certify, and in the case of a final rule, there is a FRFA when
jency determines that certification is not appropriate. If HCFA was attempting a FRFA, then

the FRFA was not adequate because itcoutnined no analysis of alternatives to reduce the burden
0 small home health care providers. This, too, is more fally discussed below.

A. Certification

When determines and certifies that a rule will not have « significant economic impact
ona substaucal number of small entities, then Ics logical to assume tat the ageacy has already
performed some basic level of analysis to make that determination, Will « substantial number of
small entities be impacted? Ln the instant cae, the agency adits hat all home health agencics will
be affected. According to SBA’s regulations, « small home bealth care agency is one whose annual
receipts do not exceed SS million, or one which is» not-for-profit organization (9) Although the
Office of Advocacy does not have data based on annual receipts, data is available based on
‘umber of employees. 1993 data obtained from the US. Bureeu of the Census by the Office of
Advocacy indicates that about 7% of home health care services (489 out of 6,928) have 500 or
more employees and earn 51.2% of all annual receipts for the industry, 93% of home health care
services (6,439 out of 6,928) have fewer than 500 employees and earn about 49% of all annual
receipts for the industry, and 52.5% of home health care services (3,637 out of 6928) bave fewer

/ees and earn 6.3% of all annual receipts for the industry. Although it may be
Aifcult to reconcile employment bused and receipt-based size st is still fairly clear
from the available data that a substantial number of small entities will be impacted by this final
role.

Will there be a significant economic impact? To determine whether the final rule is likely to have a
significant economic impact, further analysis is required. It is not enough to claim that elimination
of fraud and abuse lathe Medicare/Medicaid system outweighs the need for further anabyss. tia
not enough fo assume that only those agencies with “past aberrant billing activities” will be
impacted. It is not enough to say that reducing a surety's liability means that there will not be a
significant economic impact on home health agencies, The Office of Advocacy opines thatthe

analysi doomed from the outset because of the agency's flawed assumptions
bout the number and type of small entities likely to be impacteds and about the costo
compliance.

Which small entities will be impacted? The RgEDEY id not ake the basic and necessary step of
dequately explaining why other smal entities (presumably shove whese billig practices ave not
not be affected or whether small home health providers are even the primary
oftenders ‘he lest, the agency must consider the impact the bonding requirement will have on
all small home health rs and not just the ones with “aberrant” billing practices. After
the majority of home malty ageaces apparently do not have aberrant billing practices. HCF.
ents evidence that, in 1996, Medicare overpayments were 7 percent of all claims paid to
HivAs, aad of that 7 percent, 14 percent remained uncollected by Medicare. Fourteen percent of 7
percent is .0098.(10) In other words, Medicare fails to collect overpayments less than one percent
of the time. Despite this extremely low occurrence of failure to collect overpayments, HCFA
deemed it necessary to place extremely costly and burdensome requirements on the entire
industry. However, HCFA did not identify what percentage of the industry is contributing to the
fraud problem, whether certain offenders were recidivist, or whether those offenders are
primarity large or small.

5009 72198 5:10PM.


164

DAVID McINTOSH anne

secu Congress of the United States
* Bouse of Representatives
ae ae Washington, DE 20515-1402 REL,

STATEMENT OF REP. DAVID McINTOSH

HUMAN RESOURCES SUBCOMMITTEE HEARING
‘ON HCFA SURETY BOND REQUIREMENT

Oy sa

Under the Balanced Budget Act of 1997, home health agencies are required to secure surety
bonds of at least $50,000 to participate in Medicare and/or Medicaid Unfortunately, HCFA went
well beyond the will of Congress by issuing regulations that stated that the bond amount for home
health agencies had to be the greater of $50,000 or 15% of the home care agency's previous
year's Medicare revenues, with no ceiling,

This blatant disregard of Congress’ instructions is simply not acceptable. It is an unconstitutional
usurpation of Congress’ legitimate authority 1 demand that HCFA state unequivocally that it will
reverse its earlier ruling and abide by the Congress’ directions as it is required to do under the
Constitution. Ifit doesn’t, the future of quality, affordable home health care isin jeopardy for
millions of elderly Americans.

HCEA’s draconian regulations are sure to drive honest home-heaith providers out-of-business
This will unnecessarily expose millions of seniors to inadequate health care In my state of
Indiana, the effects of HCFA’s assault on home health are already being felt. Many Hoosier
agencies are going out of business and many more are on the brink This must end and balance
must be restored to this debate

1 must also mention that this is a small business issue as well Most home health providers are
family -run small businesses, which are the real engine of our economy. Small business is also
under assault here In fact, the Small Business Administration recently concluded that the
HCPA’ illegal regulations are sure to cost thousands of small businesses heavily and small home-
health agencies are going to be run out of business in droves in the near future if HCFA is allowed
to have its way,

‘Therefore, | unequivocally insist that HCFA rewrite the January 5 regulations to bring the bond
program back to its original intent. The surety bond amount should be no greater than $50,000
Bonds should be imposed in the first year only for honest home-health providers, Moreover,
surety companies should be required to include only reasonable personal guarantee requirement
‘on good providers. Finally, HCFA should make the cost of the bonds a Medicare-covered
expense

“Ths MAILING WAS PREEARED, PUBLISHED, AND MARED



fi

64

The Surety Association of America

1101 CONNECTICUT AVENUE, NW. SLATE 800. WASHINGTON. OC 20096 TEL ci) 443-0600 - FAX. 2021 463-0608
Cate: we eyo}
E-mac nlermanondeurety oro

73 —
oH MD 21244-1840_

Deer

First, we are writing to thank you for the opportunity to meet with you on September 30,
1997, at the Health Care Financing Administration (HCFA). You were thoughtful to
provide such an srray of participants in our dialogue on the Medicare surety bond

‘Second. you requested bond provisions that normally would be found in license and
permit bonds, which the Medicare surery bond will resemble. You also requested

with the regulations.
Incorporation of traditional bond provisions will heip assure the high degree of

prequalification that HCFA seeks. Accordingly, we have listed below the traditional
bond provisions that you should consider incorporating into the regulatory specifications:
1, Aggregate liability clause.

A typical aggregate liability clause uses this language: “The aggregate liability of the

surety for any and ail breaches of the conditions of the bond shall in no event be more
than the penal sum of the bond.”

2 Continuous bond.

‘A continuous bond would reduce paperwork and administrative oversight for the surety
and for HCFA. Thus, once the term of the bond has expired, the bond would continue to
run until cancelled either by the surety or by the provider. However. thit could be
misimerpreted to provide for cumulative liability. See betow.


148

to come into the business. I look at all aspects of fraud, where you
get somebody to put money in and then you come in. I think the
back door is something that we should try to do everything that we
can to stop, and I think sometimes when we call ourselves fixing
something we are actually tearing it down.

Ms. QUINN. It is not unreasonable, I think, to make a contract
with a provider and expect that provider to be in business a year
after you make a contract with them. So any business needs to be
able to have some kind of business plan, and if that means initial
capitalization, that is not unreasonable. But, about payment, the
way that the system is designed is to look at claims and review
them and give payment after that fact.

Recently, there have been new payment requirements, something
called sequential billing. If you submit a bill for the care you gave
me and there is a question, you cannot submit claims for any sub-
sequent month thereafter. You still have to deliver care. Because
if you don’t deliver care to me, then it is abandonment. There are
all of these things that are so complicated in the system.

What is happening, people are looking at the little pieces and
they are trying to make decisions as to the little pieces, and it is
making it worse. It is\making it onerous to the providers. It is
making it difficult for people to give good care to the patients, and
it is a mess.

Mr. Towns. Thank you very much.

I am concerned about the fraud example used to justify the use
of bonds. Would any of the witnesses like to comment on the dif-
ferences between the program in Florida and the Federal rules pro-
posed by HCFA?

Mr. Domai. Perhaps I can offer you some insights.

Florida was the first to date and, outside of Medicare, the only
bonding requirement for home health services. It. also applied to
durable medical equipment suppliers.

With respect to home health agencies, it applied only for the first
year of operation for a new home health agency unless its track
record was tainted along the way.

Existing agencies in the State of Florida did not require a bond
requirement. It was also set at a minimum of $50,000. It appears
that they are using it as a faith bond, although the authority may
be there for using it beyond that into the overpayment realm, and
I understand that they are looking at that once again in the State
of Florida.

It had limited impact from the home health agency side on home
health services, because the State also has a certificate of need
process, which is all of the hoops that Ms. Quinn referred to that
you have to jump through. The government has to say that there
is a need for your home health agency in your State, and that proc-
ess costs you several hundred thousand dollars just to secure that

So the people getting into home health services in Florida were
screened significantly to begin with, and a $50,000 additional bond
requirement was not going to be that significant to them because
they had shown their commitment already.

Ms. SCHUBERT. This is one of the most important issues pending,
since I understand Congress looked at Florida as a good example


35

April 15, 1998

Health Care Financing Administration
Department of Health and Human Services
Attn: HCFA-1152-FC

P.O. Box 26688
Baltimore, MD 21207-0488

Re: Regulatory Flexibility Act Requirements; Petition for Amendment of the Final Rule on Surety

Bond and Capitalization Requirements for Home Health Care Agencies; 63 Fed. Reg, 29:

amunry 5, 1986); 63 Fed. Reg. 10730 ond 63 Fed. Reg, 16732 (March 4, 1998); File Code
*A-1152-FC.

Dear Dockets Management Clerk:

‘On January 5, 1998, the Heath Care Financing Administration (HCFA) published a final rule
with comment period concerning surety bond and capitalization requirements for home health
care agencies (HAs). This regulation implements the surety bond requirement for such agencies

lished in the Balanced Budget Act of 1997 (BBA). The regulation also imposes additional
‘Slates © capitalization requirements 0
surety bond eauirerents not contained
reduce Medicare/Medicaid fraud by regulating HHAs that do not or cannot reimburse
Medicare/Medieaid for overpayments.

To address complaints by the surety bond industry and the HHA industry regarding the
compliance dealine for obtaining surety bonds, HCFA published 2 final rule on March 4, 1998
deleting the February 27, 1998 effective date for all HHAs to furnish a surety bond. The new
compliance date is on or about April 28, 1998, or 60 days after publication of the final rule.

In addition, to address complaints by the surety bond industry and members of the Senate
Finance Committee regarding the potentially unlimited lability of sureties under the final rule,
HCFA published a Notice of Intent to Amend Regulations on March 4, 1998 (concurrently with
the final rule to extend the compliance date). The notice announces HCFA's intent to amend the
fi ircumstances. It also establishes that a
two years after the date an HHA leaves
licaid program; and gives a surety the right to appeal an overpayment, civil
or an assessment if the HEA fails to pursue its rights of appeal. HCFA claims that
‘non-profit visiting nurse associations, to

‘money pent
the changes will help smaller, reputable HHAs,

obtain surety bonds.

‘The Office of the Chief Counsel for Advocacy of the U.S. Small Business Administration was
created in 1976 to represent the views and interests of small business in federal policy making
activites (1) The Chief Counsel participates in rulemakings when he deems it necessary fo ensure
proper representation of small business interests, In addition to these responsibilities, the Chief
Counsel monitors compliance with the Regulatory Flexibility Act (RFA), and works with federal
agencies to ensure that their rulemakings demonstrate an analysis of the impact that their
decisions will have on small businesses.

‘The Chief Counsel has reviewed the final rules in the instant case and has determined that HCFA
as not adequately analyzed the impact on small entities. This ascrmination does not mean that
regulating the proble policy objective. Nor does it

tmaan thet small busiaen imceress supersede legitimate public policy objectives, Rather. the
‘determination is based on the principle that public policy objectives must be achieved by ut
recognized administrative procedures. The purpose of the procedures is not to place an
unnecessary burden on federal regulatory agencies, but fo ensure the promulgation of common

ore 7721/98 5:10PM


67

The Surety Association of America

1101 CONNECTICUT AVENUE, NW. SUITE B00. WASHINGTON. OC 20036 TEL (202 483-0600 - FAX: 2021 463-0666
ea roe au 9
mat:

LYNN M. SCHUBERT.
aoe

October 31, 1997

7500 Security Blvd.
MD 212441
Der

1 am writing to follow up on our phone conversation sbout specific and appropriate
language to amplify certain elements of the Medicare surety bond suggested by The
Surety Association of America (SAA).

Continuous bond incorporating s cancellation clause. A continous bond would
reduce paperwork and administrative oversight far HCFA and for the surety. Under such
‘4 continuous bond, although a premium is charged for each year, the bond contimies to
‘ran until cancelled either by the surety ar by the provider. For example:
“The term of this Bond shall commence upon the delivery of a fally executed.
original of the Bond to HCFA and shall terminate on the earliest of the
. following:
(a) sixty days following the receipt by HCFA of written notice from the
‘Surety that it is canceling the Bond, except that cancellation for non-
‘Payment of any premium due for this Bond or for amy renewal or
Ceoemson thereof shall be Tesive immediatly upoa HCFA’s recip of
ny gosh ting b rsp nd mney CTA
(©) immmedinely upon Principal ceasing tobe an approved Medicare provider;
(© Sma gon HCPA len tnt Prac ty of ofc,
directors, stockholders has

‘including, but not limited to, any comtract far Medicare or other health
care services of equipment.”


104

‘The dearth of information regarding less costly alternatives is possibly the most serious
Gofect in the analysis presented. To begin with, HCFA never demonstrated why the
$50,000 bond was insufficient or would not accomplish the objective of discouraging bad
actors from entering the Medicare program The agency did not demonstrate why the 15
percent rule would not cause a significant economic impact—particularly when the
$50,000 bond amount chanyed from a maximum level to a maximum fevel. There is no
evidence that HCFA attempted to find less costly alternatives, Before heaping on
‘additional regulations, would it not be prudent to first determine whether the programs
‘and policies recently put in place by the Administration, and the prospective payment rules
yet to come will work?

'V. Conclusion

Not everyone in the home health industry is a bad actor. More importantly. home health
(providers that cannot afford to comply with HCFA’s regulations are not necessarily bad
actors either. HCFA has twisted Congress’ intent and changed the rule into a vehicle for
punishing legitimate home health agencies and for socuring overpayments by Medicare
rather than 2 vehicle to discourage bad actors trom entering the Medware program. There
must be a middle ground—a place where lewitimate home health providers can survive and
compete in the marketplace, and where fraud and abuse can he controtied This fir
is not that place

‘Therefore, the Office of Advocacy petitions HCFA to amend its final rule to remove the
15% bonding requirement and the capitalization requirement until such time as proper
‘notice and comment procedures can be completed. Thank you for your prompt attention
to this urgent matter Please contact our office if we may assist you in your efforts to
comply with the RFA on this er any other rule effecting small entities, 202-205-6533

‘wasup (ah tb bla

‘Shawne Carter McGibbon
‘Asst. Chief Counsel for Advocacy

Sincerely,



167

the interim payment system, overpayments are virtually ensured; and they may
not know in time to be able to pay HCFA back. Since these HHA owners
currently are not personally liable to HCFA for these overpayments, they do not
want to take on that obligation to a surety company. However, due to the nature
of suretyship, personal indemnity is a very common underwriting tool.

Under a surety bond, the principal, in this case the HHA, remains primarily
liable for the obligation; while the surety is secondarily liable. Thus, if the surety
Pays the obligee (HCFA or the state Medicaid agency) its losses, it is entitled to
recover those losses from the HHA, which is primarily liable. Since many of
these HHAs provide only services reimbursed by Medicare or Medicaid, and the
HHA is not entitled to make a profit on those services, the HHA itself does not
have the capital to repay the surety. In cases like this in all areas of suretyship,
for all types of surety bonds, a surety often will ask for the personal indemnity of
the owner of the business or perhaps the posting of collateral.

It is imperative to understand that these two underwriting tools are part
and parcel of the surety industry and often are the only tools that will allow
certain bond applicants to obtain those bonds required to stay in business.
Sureties often require and rely on personal indemnity in order to issue a bond.
For certain bond applicants, collateralization is the only tool that permits a surety
to issue the bond necessary for the applicant to stay in business. Elimination of
these two underwriting tools would interfere with the traditional underwriting
process and dramatically reduce the availability of bonds.

We have been told by representatives of HHAs that many HHA owners
would not have the same reluctance to sign a personal indemnity agreement or
post collateral if they were guaranteeing their own honesty and compliance with
licensing requirements rather than the return of overpayments under the HCFA
system.

This situation clearly needs to be addressed as expeditiously as possible.
A different type of bond obligation, in other words, a bond that guaranteed
against the dishonesty or fraud of the HHA, should allow HHAs a much better
opportunity to provide the bond on terms with which they would be more
comfortable.

The recent agreement between HCFA and the Senate Committee on
Finance suspends indefinitely the July 31 compliance date by which HHAs must
submit a surety bond. At the same time the Committee on Finance plans to
request the General Accounting Office ("GAO") to conduct a study on surety
bonds and HHAs. While we are heartened by the intent to include GAO in this
issue, we do have some concern about bonds which already have been written
for and purchased by providers. Although the existing rules allow surety bonds
to be canceled, it is unclear what liability the surety will have on canceled bonds
for the time during which they were in affect. Only if the obligee on the bond,


126

I think that the surety bond regulations that came out after the
moratorium or some of the new regulations in terms of making
home health agencies go through a new application process, our
agency was the first in the State of Maine to go through the new
application process with the new requirements. We were required
to see 10 patients and demonstrate that we could provide care to
10 patients before the State would survey us.

In my experience of 20 years of home care, and I started in New
York State, and I will let Mr. Towns know that there is a New
York person here, I have been in home care for 18 years and a
nurse for 20 years. There have been in the New England area
where I have worked State licensing and certification procedures.
I don’t understand why you weren't able to get an answer to your
question about what things can be done to enforce the regulations
and to get the bad players out because there are things in place.

If you have to be licensed in your State or if you have States
with certificate of needs, there are hoops that you have to jump
through. You can’t say, I want to be a provider, fill out an applica-
tion and start providing home care. I can speak more to that later,
but I don’t understand why you couldn’t get an answer to that.

Because in my experience with the process of medical review,
when you submit your claims, with the process of focused medical
review, if the claims that you submit have too many errors, and in
the process of your initial State survey and your annual State sur-
veys, where the State surveyor comes in and looks at whether you
are meeting the conditions of participation of the program in which
there are qualifications for the administrator, the director of nurs-
ing, qualifications for staff, qualifications for home health aides and
supervision, and on and on and on, I don’t understand why these
things can’t be utilized to enforce the program. And why are we
wasting money, excuse me, in new pro; is and new regulations
when we don’t just look at the systems that we have?

Look at the good players. Look at the States with the good rep-
utations and the agencies with good reputations. Look at the sys-
tems that are in place that are working, and let’s make them work
in other areas, and let’s focus on the bad apples or the fraudulent
people or the waste, but let’s not try to reinvent the system.

prepared statement of Ms. ‘Quinn follows:]


45

about. I am wondering if—I would be interested in your assessment
of the different types of players in this field.

And then the followup question, of course, is can the surety bond
requirement be structured in such a way to reflect some of those
differences so that we are not—we are putting the burden where
it should be placed and not on every agency across the board?

Mr. Gros. I don’t want to use up all of your time, so I will try
to make my philosophical meandering as short as possible.

We were concerned about that distinction, and we ran it in the
earlier study. There was less of a growth among the more tradi-
tional nonprofit agencies. It was the entrepreneurial ones where we
saw the growth spurt and more home health aides as opposed to
skilled nursing care. As far as, is there a way to distinguish, I don’t
think the distinction is really so much the nonprofit versus for-prof-
it as it is could you really tell who is reputable or not. That is
where we have the problem.

If we had a way of knowing that an agency was not ripping us
off and was responsible, then I think the amount of the bond could
reflect that, or even the existence of the bond. The trouble is, how
do you know, because the standard mechanisms that we have don’t
seem to get deep enough. It is a problem. If we could solve that
problem, then I think we could make those distinctions.

Mr. ALLEN. How about history? Suppose you had no problem
with an agency for 2 to 5 years, can you reduce the requirement
of the bond or eliminate it based on past history?

Mr. Gros. That, I think, makes a lot of sense to consider that.
There remains a problem which is, even over a long period of time,
we can’t always tell. An investigation usually takes 3 to 5 years to
conduct. So if you need to prove that somebody is doing something
deliberately, you can’t run the program that way. It is not a good
structure to do it.

But if there were a way—see, another problem, people may have
overpayments that are not intentional. They are not really to be pe-
nalized either. But the measures we have right now are not reli-
able enough because they are based on the papers and there is not
enough background. Whenever we have looked behind it, we have
found a lot more going on.

I think the points you are raising are very important and are
really things that need to be considered in this moratorium that we
are having now, where we have the opportunity to look over this

icy.

I would like to put on the record, in the past when I have made
statements about the entrepreneurs or the for-profits, we don’t
have a policy that favors one or the other. I think that some com-
panies that are not-for-profit can make a lot of money through
their salaries and lose a lot of money through sloppiness because
they don’t care about the bottom line. Some for-profits see them-
selves as competing and can be very efficient; and of course, the op-
posite of what I just said can be true, too.

Mr. ALLEN. Is there a way to go at this by trying to figure out
the competence of the entity in the health care field? That is, we
are looking today mostly at financial requirements, capitization re-
quirements for surety bonds. Is there another route which has


87

indemnification by the owner or members of the board of the home health agency.
Generally, the personal indemnification represented an amount equivalent to two to three
times the face value of the bond in order to cover recoupment costs. This requirement is
a standard element of a surety bond. With home health agencies, it was imposed whether
the agency was for-profit or not-for-profit. Some not-for-profit agencies reported to
NAHC that the personal indemnification requirement was made on its community-based
board of directors. In another instance, the employed administrator and her spouse
secured a bond by guaranteeing it through a pledge of their home.

The personal indemnification was required by the surety bond companies regardless of
historical experiences of the home health agency with the Medicare and Medicaid
programs. It became a significant roadblock to accessing a bond because the individuals
either did not have personal assets sufficient to support a guarantee or they were
unwilling to take such a personal risk when there was not offsetting opportunity for gain
in a cost reimbursement program. Many others were unwilling to take the risk due to the
ongoing arbitrary and inconsistent administration of the home health benefit where
revised interpretations of long standing rules are applied retroactively.

‘The reasons for rejection of other home health agencies cover a wide range including
insufficient net worth, unavailability of collateral, existing overpayments with Medicare
(even where in the process of repayment), and low rates under the interim payment
system.

It is NAHC’s opinion that the continuation of a surety bond requirement in the manner
promulgated by HCFA would lead to a significant loss of access to services throughout
the country. In many of the rural areas, there would be no adequate altemative provider
available to substitute for an agency that could not secure a bond. With inner city home
health services, a similar lack of substitution exists. In other circumstances, the nature of
the population served by a specialty home health agency, e.g. infusion therapy for
infectious disease patients, ventilator dependant children, and services for the mentally
retarded and handicapped may be lost due to the inadequacy of alternative care providers.
A particular problem arises with Medicaid providers of services resulting from limited
caseloads and low levels of reimbursement. In such circumstances, the loss of a
participating Medicaid provider could close out access to services for the Medicaid
population in that region.

As previously stated, NAHC’s concerns with the January 5 and June | surety bond
regulations remain essentially unchanged. The modifications improved the financial
risks for the surety bond companies, thereby opening up the availability of bonds to a
limited degree. However, HCFA failed to address any of the home care industry
concerns. These concems are as follows:

¢ The surety bonds were not limited to the financial risks posed Medicare/Medicaid
programs through fraud and abuse.


agencies entering the program and in home health care spending. Home health care spending
dropped for the first time ever in 1997. And, since the moratorium was implemented, fewer than
40 agencies have entered the program, versus the nearly 800 that were let into the program in
1997 before the moratorium.

The moratorium provided time for us to develop the surety bond regulation and implement other
new, higher standards that help ensure home health agencies are financially secure and providing
quality care. It sent an unequivocal message to the industry that we are serious about stopping
waste, fraud and abuse.

And, during the moratorium, we doubled the number of home health cost report audits and
increased medical review of claims by 25 percent. Home health agencies are now held to higher
financial and quality of care standards, both before and after they are allowed to enter the
Medicare program.

We strongly believe surety bonds are a necessary protection for the Medicare home health benefit
However, we have put the bond requirement on hold while the General Accounting Office studies
its impact. We will review the GAO findings and consult with Congress about the surety bond
requirements before proceeding. Home health agencies will not have to obtain bonds until 60 days
after a new regulation is published, and not before February 15, 1999

BACKGROUND

Medicare's home health benefit is crucial to millions of beneficiaries, allowing them to recuperate
in the comfort of their own homes. Congress stipulated that care provided under this benefit be
related to the skilled treatment of a specific illness or injury. Beneficiaries must be under the care
of a physician who certifies that medical care in the home is necessary and establishes a plan of
care. They must be confined to the home and need intermittent skilled nursing care, physical
therapy, speech language pathology services, or have a continuing need for occupational therapy.
If these requirements are met, Medicare will pay for: skilled nursing care on a part-time or


MEDICARE HOME HEALTH AGENCIES: STILL
NO SURETY AGAINST FRAUD AND ABUSE

WEDNESDAY, JULY 22, 1998

House OF REPRESENTATIVES,
SUBCOMMITTEE ON HUMAN RESOURCES,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room
2247, Rayburn House Office Building, Hon. Christopher Shays
(chairman of the subcommittee) presiding.

Present: Representatives Shays, Snowbarger, Pappas, Towns,
Kucinich and Allen.

Also present: Representative Kanjorski.

Staff present: Lawrence J. Halloran, staff director and counsel;
Marcia Sayer, professional staff member; Jesse S. Bushman, clerk;
and Cherri Branson, minority counsel.

Mr. SuHays. I would like to call this hearing to order and apolo-
gize for my arriving a bit late, and I would like to welcome our
guests and witnesses.

Before issuing a driver's license, every State requires proof of fi-
nancial responsibility in the form of auto insurance. Even the local
video store requires a credit card number for every member to in-
sure payment for late or lost videos. But to qualify as a Medicare
home health provider today requires no financial guarantees of any
kind. As a result, Medicare beneficiaries, and the Medicare pro-
gram remain, vulnerable to billions of dollars of fraud, abuse and
waste.

Medicare expenditures for home health have grown dramatically
from less than $4 billion in 1990 to almost $18 billion last year.
The Department of Health and Human Services [HHS] Inspector
General [IG] estimates 20 to 40 percent of those payments may be
improper. Easy money, and easy entry into the home health pro-
vider rolls, attract scam artists and fly by-night operators. The
Health Care Financing Administration [HCFA] is unable to screen
out or exclude problem providers before scarce Medicare dollars are
irretrievably lost.

Last year, Congress and the administration took steps designed
to strengthen a program relied upon by millions of the elderly and
disabled for home health services. In the Balanced Budget Act, we
directed HCFA to require home health agencies and durable medi-
cal equipment suppliers to obtain surety bonds “in an amount not
less than $50,000.” In September, the White House announced a 4-
month moratorium on enrollment of any new Medicare home
health agencies while HHS implemented the surety bond provi-

()


150

Mr. DomBl. One more thing. We have asked this question 100
times of HCFA officials and still don’t have an answer. Why is it
that they came out with a proposed rule for the DME bond and a
final rule for home health agencies?

The DME bond is still in a proposed stage. We don’t know when
the final rule will see the light of day. We are going into the third
iteration of a final rule on home health with never an opportunity
to review a proposed one.

Ms. SCHUBERT. As soon as the Balanced Budget Act was passed,
we started providing HCFA as much information as possible. I will
tell you that the rule that came out in January bore little resem-
blance to any of the information that we had provided.

After that time, they have been very cooperative. This is not to
say that they didn’t work with us beforehand, but in my opinion
they determined what they wanted and they wrote a rule to get
what they wanted, despite what anybody else had told them at the
time.

Since then, they have been very cooperative in listening to the
effect of the regulations and trying to make technical corrections,
and now of course are moving forward. I think the GAO study will
be significantly helpful in assisting them in writing a rule that
maybe makes more sense.

Mr. Towns. I am out of time, but Ms. Quinn?

Ms. QUINN. They never asked me.

Mr. RICHARD. Me neither.

Mr. SCHNEIDER. No.

Mr. Towns. I yield back. You have been very helpful.

Mr. Suays. Mr. Kanjorski, you have the floor.

Mr. KANJORSKI. Thank you.

Let me see if I can break it down, because I spent an awful lot
of time in my District. It seems to me that what happened is that
the Congress, in its wisdom—I say that with quotes—saw this huge
increase in home health care and, automatically, that means that
there is great fraud, mismanagement and abuse. Because any time
an expenditure goes up significantly, I think government and bu-
reaucrats and the press tend to say there must be abuse there
when, in fact, it all occurred to a large extent by our cost contain-
ment in the hospital field, that is, to get people out to lower cost
care, and in Pennsylvania generally because of our tremendous
senior citizen population. It actually saved a great deal of money
by having effective home health care as opposed to hospitalization
and nursing home care, but the numbers went up.

Certainly the hospital costs would have gone up significantly
higher if the people would have been hospitalized instead of being

ut in home care, but, nevertheless, the home care portion of the
udget went up.

So the agency looked at this, and from the top down, rather than
extracting information from the bottom up, saw the bond require-
ment as a quick fix, and I think they made some fundamental er-
rors, and I want to address that.

I see a distinct difference between for-profit and nonprofit organi-
zations. There is certainly a greater incentive to commit fraud and
abuse if it is for-profit, if you are going to keep it. I don’t know
many Catholic charities or Jewish community centers or Lutheran


42

Mr. Towns. I am concerned about the capitalization require-
ments. I don’t believe that being well-financed means that you can
deliver excellent service. Can the panel explain the relationship be-
tween capitalization and delivery of service?

Ms. THOMPSON. One of the reasons why we wanted to have a
capitalization requirement for new agencies entering the program
was because we were concerned that if revenues did not come into
that agency as expected that that would disrupt patient care.

As an agency begins to do business in the home care industry,
it is going to anticipate that a certain volume of patients will be
served, and many of its revenues may come from the Medicare pro-
gram. Our concern was, if there wasn’t a basic initial capitalization
of those companies, a very small amount, 3 to 6 months worth of
capitalization, that if the volume of patients did not materialize as
expected that the patients being cared for by that agency would be
severely harmed. Either there would be significant reductions in
the staffing, reductions in the amount of services that were being
provided to them, or the agency would discharge them.

Mr. Towns. I am concerned that HCFA may have declared war
on the home health industry. Can you tell the committee about the
moratorium and would it really avoid waste, fraud and abuse?

Ms. THOMPSON. There are a number of concerns about all of the
activities that we are taking with regard to home health, and I
think that certainly has created a very challenging environment for
home health providers and for the agency to administer.

We are making payment reforms. We are changing our enroll-
ment standards, the way that we do survey and certification. And
then we are trying to proceed to implement a surety bond require-
ment requiring capitalization, requiring a patient load to be admin-
istered before a home health company can come into the program.

Clearly, these are a long list of changes that are affecting the
home care industry. I think that it is worth noting that when we
proceeded with the moratorium and the Secretary announced it,
she made clear that she considered this to be an unprecedented
step by the Department. I don’t know that we have ever done any-
thing like that before.

And the concern was that, because of the amount of information
that we had about improper payments, whether they be based on
fraud or whether they be based on all of these other factors that
Mr. Grob has noted and the unsustainable growth of the amount
of payments made under the program, we felt the entire benefit
was at risk. The Secretary said that. The administrator said that.
We felt that we needed to take strong and unprecedented action to
make sure that we had this home health benefit in the program
and that we had it for future Medicare beneficiaries.

Our goal is not to initiate war with home health agencies. They
are our partner in providing necessary home health care to bene-
ficiaries, but our goal is to preserve the program.

Mr. Towns. Thank you. Keep in mind there are big crooks and
little crooks.

T yield back, Mr. Chairman.

Mr. SHAYS. There is an unprecedented amount of overpayment
and waste, and we see gigantic growth in this industry. We are


INTERIM PAYMENT SYSTEM (IPS) FOR MEDICARE HOME HEALTH SERVICES

STATISTICAL SUMMARY - 1994

161

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73

Mr. Chairman, as an industry we have recognized for some time
that aggressive steps were necessary to clean up this business.
NAMES leadership, therefore, has endorsed a process of certifi-
cation for HME suppliers. This is a key point. We have recently
met with HCFA officials responsible for overseeing this area to
present our ideas. We are clearly in the early stages of develop-
ment of these standards, and we hope to work in partnership with
this agency.

In addition to the program we are now developing, a large vol-
untary HME accreditation has been in place for several years
through national organizations such as JCAHO, and while we can
encourage adherence to industry-wide standards for our members,
those efforts will have little overall impact until adherence to these
standards affects a supplier's ability to participate in Medicare.

Mr. SHays. Let me stop you. I have read your last two para-
graphs. I appreciate it very much. Thank you.

(The prepared statement of Mr. Koniers follows:]


82

Inspector General will shortly release its model compliance plan for
home health agencies similar to that issued for hospitals and lab-
oratories already. It is voluntary. Our organization supports it be-
coming mandatory.

Mr. SHays. Thank you.

[The prepared statement of Mr. Dombi follows:]


MEDICARE HOME HEALTH AGENCIES: STILL NO
SURETY AGAINST FRAUD AND ABUSE

HEARING

BEFORE THE

SUBCOMMITTEE ON IIUMAN RESOURCES

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS
SECOND SESSION

JULY 22, 1998

Serial No. 105-171

Printed for the use of the Committee on Government Reform and Oversight

ae

U.S. GOVERNMENT PRINTING OFFICE
51-063 CC WASHINGTON : 1999

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-058020-X
a


108

———
RATIONAL ASSOCIATION FOR HOMECARE KAVE DANIELS: HONORABLE FRANK E. MOSS te
Sanstcortaenoano —— SeoecouNier
VAL 1 MALAMANDARIS STANLEY M. BRAM
(202) 547-7424, FAX 200/507 3500 mane Gieoatconate
‘August 22, 1995

‘The Honorable Newt Gingrich
Speaker of the House

U.S. House of Representatives
H-233 The Capitot
Washington, D.C. 20515

Dear Mr. Speaker:

1 appreciated so much your generously giving of your time for me to interview you on

‘August 7. It was a great honor and pleasure for me to be able to spend time with you. At that
interview, you had asked that I give you some recommendations on behalf of the National Association
for Home Care (NAHC) on how to prevent fraud and abuse in the industry. I share your deep
concern about this issue, and have been proud that there has been a relatively low incidence of fraud
and abuse in the industry to date. However, it is essential that we prevent any further occurrences

‘The National Association for Home Care has developed specific recommendations on fraud
and abuse that apply to the home care industry. In addition, NAHC has done extensive work with
the Coalition of Health Associations United Against Fraud and Abuse, which is composed of
organizations representing health care providers and suppliers, who want to work with Congress to
eliminate fraud and abuse in the health care industry. Our recommendations are as follows:

PROPOSALS FOR HEALTH CARE INDUSTRY-WIDE FRAUD & ABUSE LEGISLATION
Fraud and abuse statutes must:

© Increase wols of enforcement. against willful and criminal violations by giving
regulators budgetary recognition and sufficient resources to enforce the law;

© Provide adequate and thorough education for providers, consumers, and payers to
prevent violations;

© Protect Federal health care programs from unnecessary cost, utilization, and the failure
to deliver appropriate levels of care;

ANEPRESENTING IME VATION'5 HOME HEALTH \GENCIES HOME CAPE AIDE ORGANIZ TONS ASD HOSHICES


131

‘several other witnesses to speak to those points. However we believe you selected York Hospital
Home Care simply because of our individual and collective experience in actually delivering home
health care to patients in our community, and in maneuvering through the innumerable regulatory
hoops along the way. At any rate, here is our story.

1. York Hospital's experience in providing care to the community and the reason we
sought to offer home care In the first place:

York Hospital has been serving the southem Maine seacoast area since 1904. We are a 79 bed
non-profit community hospital with a wide range of services from birthing to skilled nursing. We are
unique in that we consider the desires and needs of our patients first and strive to meet them. Our
documented testimonials from patients, their families and friends will substantiate our ability to
accomplish this.

About nine years ago, we developed a model of care for our expectant mothers that extends through
discovery of pregnancy, to delivery, and includes home visits for the first five years of the child's life.
Hospital based nurses initially meet the expectant mother in the physician's office; this starts the
relationship. These nurses will be providing all preparation courses as well as care during the
delivery and recovery. They develop a relationship with the mother and family that continues
throughout the prenatal course on through delivery and retum to home. A pediatric nurse then
begins a relationship and follows the infant and family throughout the first five years of life with focus
‘on growth and developmental stages of the child during this period.

‘This program has been such a success that we realized how important a continuum of care is for
‘every patient, regardless of age. In March of 1995 we implemented a plan for reorganization that
focused on putting the maximum amount of resources in areas that touch the patient. We did away
with the various “layers” of people that our patients must meet and deal with. Fotlawing entrance into
the hospital, a patient will be cared for by nurses who work as a team organized by community. We
call these teams paths and list them by the communities of York, Wells, Kittery and Eliot. “Path*
stands for “Patient Approach To Health’ and is further explained in York Hospital's patient vision
statement.

YORK HOSPITAL
PATIENT VISION

‘THROUGH THE PATIENT'S EYES
Caring, Listening, Satisfying... One by One

At York Hospital, each one of us is devoted to satisfying the needs and expectations of
‘every patient by:

PAGE

‘York Hospital Home Care Testimony, JULY 22, 191


INTERIM PAYMENT SYSTEM (IPS) FOR MEDICARE HOME HEALTH SERVICES

STATISTICAL SUMMARY - 1994

Be age Bee





109

‘The Honorable Newt Gingrich
‘August 22, 1995
Page 2

© Be appropriate for the changing health care market; and
© Separate willful from technical violations.

We urge Congress to adopt the following proposals to help eliminate health care fraud and

lL Tools of Enforcement

A. __ Establishment of a new health care fraud statute in the criminal code. Providing
penalties or fines. or both for wilfully and knowingly executing a scheme to defraud a health plan
in connection with the delivery of health care benefits, as well as for obtaining money or property
under false pretenses from a health plan would help as a deterrent to fraud.

B. Provide for the creation of an Anti-Fraud and Abuse Collection Account. An
account subject to the congressional appropriations process would provide the Office of Inspector
General and the Federal Bureau of Investigation with the resources necessary to prosecute fraudulent
provider and suppliers, and to provide guidance to those who seek to comply with the law.

C. Clarify Anti-Kickback Statute. The current anti-kickback statute is vague and not
focused on fraudulent activity. By codifying the Hanlester Network vs. Shalala decision, the anti-
kickback law would be ensured of applying to those who intentionally defraud the government. (In
this case, the court ruled that “knowingly and willfully" commining a fraudulent act should be the
basis of federal prosecution.) and clarification of a long-standing issue that an action is illegal if a
“significant or substantial reason” for making a payment is to induce referrals.

D. __ Additional Enforcement Tools. In addition to criminal prosecution, regulators should
be given the following enforcement tools to punish those found to commit a health care fraud offense:

1) Exclusion from Federal and State Health Care Program. Mandatory exclusion
from state and federal health care programs to those convicted of a health care felony. Increase
exclusion and apply it o an officer in an entity that has been convicted of a health care offense, if that
officer is found to have “reason to know’ that the crime was comminted; and

2) Expand and increase existing monetary civil penalties. Expanding penalties
‘would serve as an appropriate deterrent.

TI. Health Care Fraud and Abuse Guidance

The vast majority of providers and suppliers seek to comply with the complex laws of
Medicare and Medicaid. Much of the "noncompliance" should be resolved with education and
guidance. The following provides mechanisms for further guidance to health care providers on the
scope and applicability of the anti-fraud statutes.


30

promises, less reputable home health agencies are not likely to qualify for a surety bond. This
pre-qualification process is a valuable service provided by surety companies. For example, a
surety company would have been reluctant to bond the two former convicts whose home health
agency, formed after their release from prison, collected $5.6 million from Medicare and then
‘went out of business.

Further, as I noted earlier, HCFA has been limited in its ability to detect inappropriate payments;
therefore, overpayments to fraudulent providers as well as to those simply with litle financial
backing may have already exposed the Trust Fund to substantial losses. In this testimony, I have
identified examples of both the most egregious as well as the more common types of cases We
have worked on. Losses stemming from the behavior of individual home health agencies and
medical supply companies can be in the hundreds of thousands and even millions of dollars. In
such cases, a $50,000 bond would have provided little deterrent to abuse and would offer little
with which to offset losses. Indeed, in some cases $50,000 would be a small drop in the bucket.

For example, consider a home health agency with Medicare payments of $3.5 million and
overpayments of $485,000, all uncollected. A $50,000 surety bond would have reduced this loss
to Medicare only slightly. If the bond were written for 15 percent of the $3.5 million, Medicare's
loss would have been eliminated entirely.

Prior to the suspension of the home health surety bond requirement, approximately 40 percent of
Medicare home health agencies were able to obtain bonds. If private creditors are unwilling to
provide credit to home health agencies without adequate financial backing, is it appropriate to
ask our taxpayers to step in and do so? There must be a middle ground, where legitimate home
health agencies can survive and compete in the marketplace, and where the Trust Fund is
protected from fraud and abuse. We must find a way to provide quality home health care to
those in need while not simultaneously funding the lavish lifestyles of those who would abuse the
program. Surety bonds are an excellent way to do this. However, because of industry conces
over particular elements in the surety bond rules, HCFA suspended the surety bond regulation
while these problems can be worked out.

‘We recommend the following general principles in redesigning the surety bond rules:
+ All home health agencies and durable medical equipment suppliers should be required to

obtain a surety bond.
+ The amount of the bond should be sufficient to discourage fly-by-night providers from
catering the program and provide for some continuing financial protection to the Trust

Fund from risks inherent in this program.

+ The amount of the bond should be related to the experience of individual home health
agencies or medical equipment suppliers as well as to these industries as a whole. For
example, if a home health agency has a history of overpayments, the amount of the bond
should be no less than the home health agency's recent overpayments.

+ The surety bond rule should be subject to periodic evaluation to gauge its effect on the
Medicare program and its beneficiaries and service providers.

House Comminiee on Government Reform and Oversight
‘Subcommittee on Human Resources; Hearing July 22, 1998 Page I


89

¢ NAHC also has raised serious questions regarding the authority and
appropriateness of HCFA’s waiver of rulemaking protections available under the
Administrative Procedures Act (APA), as well as HCFA’s compliance with the
Small Business Regulatory Enforcement Fairness Act (SBREFA). An opinion of
the Small Business Administrations Office of Advocacy (attached as Exhibit 1)
detailed HCFA’s complete failures in this area. Had HCFA properly undertaken
proposed rulemaking and performed the necessary impact analysis prior to the
implementation of the surety bond regulations neither the initial revisions nor the
revisions still in planning would have been necessary. The purpose and design of
the APA and the SBREFA are to achieve appropriate regulations as efficiently as
possible.

Surety Bond Recommendations
1. HCFA should develop the surety bond regulations based on the intended
principle and purpose of screening out inappropriate home health agencies

rather than as an insurance policy against overpayments.

2. Legislation should be enacted to allow recognition of the costs of a surety
bond.

3. The bond amount should be reduced below $50,000 for small home health
agencies.

4. HCFA should reduce the bond amount to no greater than $50,000.

5. HCFA should establish standards for waiver of the bond requirement for any
home health agency in good standing.

6. HCFA should establish objective criteria for the eligibility of a home health
agency for a Medicare repayment plan.

7. HCFA should postpone the bond compliance date for new subunits so that it is
consistent with the time standards for existing home health agencies.

8. HCFA should not implement or enforce the surety bond regulations until
completion of the notice and comment procedures required under the APA.

9. HCFA should comply with all procedural requirement of SBREFA, including
Congressional notice and the exploration and evaluation of alternatives.

The Home Health Agency Moratorium
On September 15, 1998, President Clinton announced the imposition of a moratorium on

new Medicare home health agencies. The purpose of the moratorium was to put a hold
on new agencies unti! HCFA could implement strengthened program admission


account requirements “as the Secretary finds necessary for the financial security of the
program.” Over the years, the Secretary did not exercise that authority. With the
Balanced Budget Act of 1997, the authority was altered from discretionary to mandatory,
as home health agencies are now required to have a surety bond, at a minimum of
$50,000, to participate in Medicare and/or Medicaid.

The surety bond mandate was triggered from a recommendation made by the Health and
Human Services Inspector General, based on the Florida Medicaid program’s experience
with the surety bond requirement for home health agencies and durable medical
equipment suppliers. That recommendation was presented out of the growing concern of
an increase in fraud, waste, and abuse within the Medicare home health benefit. The
Office of Inspector General (OIG) had engaged in several studies and issued reports
outlining concerns with the growth in home care expenditures, the utilization level of
home health services, and incidence of noncompliance with Medicare rules and
regulations, In addition, the OIG and the Department of Justice had successfully
prosecuted several home health agencies and their principals for Medicare fraud and
violations of federal antikickback laws. As home care has grown, the risks of abuses by
providers of care has also increased. This risk is especially heightened with new entrants
into home care where the original values of home care may not be shared.

‘The purpose of this testimony is to address the issue of whether a surety bond is a
valuable tool in addressing the problems of waste, fraud, and abuse that have been
identified in the home health industry. Further, NAHC will address its concerns
surrounding the published surety bond regulations over the past six months and their
impact on access to bonds for home care agencies nationwide. This testimony will also
address the relationship of the surety bond requirement to the earlier moratorium on new
home health agencies. Finally, this testimony will offer additional antifraud remedies
that could successfully contribute to efforts to eliminate fraud and abuse.

A Surety Bond: Does it Work as an Antifraud Mechanism?

If properly developed, a surety bond requirement for participation in Medicare and
Medicaid programs for home health agencies could have some value as a device to curtail
fraud, waste, and abuse. However, due to the nature of the bond concept, its true value
would be limited.

Hy contemplated, the surety bond requirement was intended to prevent
individuals and organizations that present high risk of abuse from participating in
Medicare or Medicaid. The expectation was that the bond requirement would act as a
screening device to insure that only reputable home care organizations secured the
privilege of participating in Medicare and Medicaid. However, due to the qualifying
criteria utilized by the bond companies in the evaluation of a surety bond applicant, the
actual value to the programs in achieving that notable goal is not significant.

Itis possible that a surety bond company may conduct a full background and character
screening of the applicant. Through that evaluation, an individual with a criminal record


12

from agencies that default from the program and fail to repay Medicare or Medicaid. The
regulations were promulgated in full compliance with the Congressional Review Act and the
Administrative Procedures Act.

On June 1, 1998, we made technical revisions to the regulation to address concerns the surety
industry had about the length of liability of the bonds. These changes are in keeping with standard
industry practice, and make bonds more affordable without weakening the purpose of the bond,
which is to keep unscrupulous and unstable agencies out of Medicare and Medicaid. These
changes:

+ limit tiability so bond companies are responsible only for determinations made during the
year for which a bond is written, so that the actual risk to the bond company is easier to
determine and they can offer them at more affordable prices,

+ place a limit on bond company liability by establishing that the bond company has liability
for two years after an agency leaves Medicare and Medicaid;

* give a bond company the right to appeal overpayment assessments if an agency has not
appealed itself, and has failed to assign its right of appeal to the bond company.

To date, about 40 percent of all home health agencies and 34 percent of small agencies, defined as

those with annual Medicare revenues under $200,000, have obtained bonds.

While we believe our course in implementing the statue was reasonable, we have pulled back the
date by which agencies must have bonds and are awaiting the findings of a General Accounting
Office report on the issues surrounding the surety bond requirement. As a result, home health
agencies no longer have a date by which they must obtain a surety bond. Once we review the
GAO report, we will consult with Congress about the surety bond requirements. Only after these
consultations will we issue a new regulation. Home health agencies will not have to obtain bonds
until 60 days after that regulation is published, and not before February 15, 1999.

‘We are concemed about faimess for agencies that in good faith have obtained bonds. Section
4312(b\(2) of the Balanced Budget Act of 1997 provides that any costs incurred by a home


54

far, in 1998, there have been 57 exclusions by our action, 14 of
which are home health agencies, and some of the remaining 43 are
executives or owners or accountants of the agency. So it has the
same effect, basically, of excluding them from the business. So
there has been a dramatic increase in that activity.

Mr. Suays. I think we are scratching the surface.

Mr. Snowbarger.

Mr. SNOWBARGER. Just a quick comment, and it goes to your
comment, Mr. Chairman. You have agonized about Republican
principles this morning and how they are getting confused here;
and I would like to say, I don’t think that it is any shock to you
or me that I am a little bit to the right of where you are in terms
of government and its role. I think the mixed feelings that we are
all getting here come out of the fact that this is not the free market
at work. The Federal Government created this market and has
interfered with it significantly as a third party payer.

I am concerned that when you get third party payers involved,
the market forces in the situation kind of go out the window. In
a sense it doesn’t bother me to be more involved in regulating a
program that we set up than what might be out there in the mar-
ket as a whole.

If there was a home health market prior to Medicare being in-
volved and it had developed at a pace where private suppliers could
handle the demand, that is one thing. But when you go out there
and you say, guys, we think home health care is great, here is a
pile of money, come get it, I think we have an obligation to say,
wait a minute, only one of you can come and get it, and we need
to make sure that they are providing the service that we are pay-
ing for and, ultimately, that the client, the patient, gets the benefit.
So I don’t see any complication here at all or any conflict at all.
n Mr. Suays. Do you want to talk about Republican principles, Mr.

‘owns?

Mr. Towns. I was just thinking, based on that, I can be associ-
ated with that.

Mr. SNOWBARGER. My guess is that he thinks that Republican
principles is an oxymoron.

Mr. Suays. I just want to ask, are there any other comments?

We are truly scratching the surface, but we have a lot of good
staff that are going to get into this deeper, and we are going to be
attempting to make some recommendations here. We value your
testimony, both vocal and written, and we will be able to use that
in helping us with our report. Thank you.

Ms. Thompson, we welcome you to HCFA, and one of the com-
ments that I am going to make to you is that it is refreshing, and
please don’t lose it the longer you are at HCFA, in terms of saying,
maybe we should have done this, especially when it is your deci-
sions that you are evaluating. Because, ultimately, we will do a
better job when that happens. I found that very refreshing and
want to encourage it. Thank you very much.

Mr. Suays. And now if the second panel will come forward: Lynn
Schubert, president, Surety Association of America; Bill Koniers,
senior vice president for business development, AMH Health
Group, Inc., Connecticut; William A. Dombi, vice president for law,
National Association for Home Care; Jayne F. Quinn, home care co-


171

FOR THE RECORD

‘The American Hospital Association (AHA) represents 5,000 hospitals, health systems and
‘oetworks, about half of which operate home health ageacies (HLAS). On behalf of these
hhome bealth agencies, the AHA was very pleased that HCFA agreed to suspend the surety
bond requirements in response to a variety of concems expressed by providers, insurers, and
Congress.

‘The AHA strongly supports the federal commitment to curb fraud and abuse in the delivery of
home health services, but we believe HCFA exceeded congressional intent in a number of
areas in promulgating its surety bond rules. We submitted formal comments to HCFA on
these rules and the following is a synopsis of the AHA's positions.

o/ seep tt
sores atin
fs oon
ae

Wehoge,
100 YEARS mn 00|


96

‘The surety bond issue had not been the subject of public hearings. and some members of
‘Congress expressed concern about the potential impact of the fraud and abuse provisions.

According to 2 floor statement by Senator Hatch, the fraud and abuse provisions found in
the amended Senate version were actually based on provisions contained in the
‘Administration's fraud and abuse legislation introduced earlier in 1997, ‘and on which no

provisions might have “unintended consoquences or implications that would penalize
innocent parties who are following the letter of the law” He further stated that, “As a
genoral rule, we in the Congress should not act without the full and open benefit of

affected business community hed no real opportunity to provide meaningful input or
comment.
‘After the legisiation was enacted, pallens enraseae poorer ioaia hati
requirement. However, the agency created additional bonding and
‘ebireennts and incorporated thom ito the instant Bra ue Net ey wer lew abiding
home health agencies denied an opportunity to comment during the legislative process,
they are now faced with additional burdensome requirements effective almost
‘immediately—with no true recourse (since the agency waived the notice of proposed
rulemaking and the 30-day interim effective date)
Congress clearly intended to eliminate or reduce waste and fraud in the
‘Medicare/Medicaid system and to preserve quality patient care. The presumably
unintended effects of the legislation and HCFA’s final rule are that legitimate, law abiding
home heslth agencies will be forced to file bankruptcy, go out of business or curtail their
business operations significantly Patient care will likely suffer when there ere not enough
home health agencies 10 meet increasing public demand in an aging population.
‘Moreover, the resulting lack of market competition and bloating of the large, hospital-
based and government-based home health agencies may lead to increased prices.

3 £63 Cosa, REC. S6LS9 (daily od. huly 24. 1947) (siatement of Sen. Hatch.
$14 S1S960.

* Those regmrements inctude basing the aucun of the bond on a fla rate in combination with the
$90,000 minima bond. The fat ratc is designated as 13 percent of the ancual amouct paid tothe HLA
‘by Medicare 2a reflecred ia the HLA’ eooat oocetly accpeed cust report. The other major roquiresscat
he new HOLA is for minimum capitalization. The amount of the reserve is to be determined by Medicare
‘amarmodiaries based on the frst vear expericnce of ether HOIAS, First the intormediary dermimes 28
‘average cost per via based on flrst-rear cout report deta fo at lens thos HHAS that it serves that are
‘compartbte 10 the HHA socking to enter the Medicare program. The average cost per vist is determised
{by dividing the nam ofthe tual reported costs of care forall pticats ofthe HHHAS by te saan of thei tal
visi, Then. the intcraucdiary multiplies the average cost per ves by the projected number of visits for all

. Modicard and ail other patients) for the first three moths of operation of the HELA

requirement (~fifty percem of the Funds required for capitaleration mest be non-borrowed funds).
‘Medicare expects those Funds 10 be available an cash or, im some cases. short torm, highly liquid cash
equivatents.


170

National Association of
Surety Bond Producers
5225 Wisconsin Avenue, NW, Suite 600

‘Washington, OC 20015-2014

(202) 686-3700 » FAX (202) 686-3656

‘The Honorable Christopher Shays
July 20, 1998
Page 2

NASBP believes that Congress's ntantin passing the surety bond provisions ofthe
Balanced Budget Actol 1997 vaso une the surety bonding process sureties’
‘of Medicare/Madicald

‘goal.
‘would be a surety bond that guaranteed against dishonesty and fraud of the HHA. This
find of ap ant fraud Dond wi’ be one for which reputable HAS will more easly qualify on
terms with which they wil be more

We further concur with SAA’s suggestion that HHA's be required to provide only one.
‘surety bond to cover their participation In both the Medicare and Medicaid programs.

NASBP applauds the Subcommittee for addressing this important issue and we
stand ready to work wih the Subba oa wales wih Ke General Accounting ice

and HOF to develop a revised rule for surely boring that wil aecompish Congress's
Intent without placing undue hardship on the nation’s smaller home health agencies.

cc: Lynn M. Schubert, President
‘The Surety Association of America


15

© —_ourexperience with the Health Care Financing Administration's efforts to implement the
durable medical equipment surety bond requirements of the Balanced Budget Act of
1997;

© the HME services industry's position on surety bonds as a means for controlling waste,
fraud and abuse; and

© our recommendations for addressing waste, fraud and abuse.

NAMES was supportive of the surety bond provision found in Section 4312 of the Balanced
Budget Act. By way of background, NAMES endorsed a $50,000 surety bond requirement for
new providers and on-site inspections to weed out “bad-apples” in the industry. Providers with
an established track record in the Medicare program and providers that were licensed by a state
or accredited by a nationally recognized accrediting body would have been exempt from the

bonding requirement under the NAMES proposal.

As you know, the idea for a surety bond for HME was originally tried in Florida in an attempt
to curtail home health fraud in the Medicaid program. NAMES was very much involved in 1995
in working with officials of the Florida Medicaid program to identify fraud and abuse in the

HME services industry, especially on what to look fori

ifying a legitimate HME provider.
Both the state of Florida and the HME services industry found the surety bond requirement to be

a reasonable and effective tool in combating fraud and abuse.

Mr. Chairman, the principal benefit of surety bonds is to discourage unethical or unscrupulous
2


36

sense regulations that do not unduly discourage or destroy competition in the marketplace.

‘The final rule is troubling for a numaber of reasons: 1) The proposal, although probably within
HCFA‘s regulatory and statutory authority, goes far beyond the requirements contemplated by
Congress when they enacted the BBA; 2) HCFA’s good cause exception and waiver of the
proposed rulemaking may be arbitrary and capricious under the Administrative Procedure Act
(APA); and 3) Nearty all of the significant procedural and analytical requirements of the RFA
were overlooked.

Action requested: Inasmuch as the rule is now final and in effect, the Chief Counsel of the Office of
petitions the agency, pursuant to 5 U.S.C. § 553(e), to amend
‘exclude the provisions concerning the 15 percent bond requirement and the capitalization
requirement until such time as a proper and adequate analysis can be prepared to determine the
impact on small entities.

I. Legislative History and Intent

Prior to August 5, 1997, there were no provisions in the law pertaining to a surety bond
alth agencies, Under the House bill The Balanced Budget Act of 1997,
ied no provisions for the surety bond requiremeat. Under the Sen:
{as amended) (347hvu requirement was introduced t@ provide state Mediead agencies with
surety bonds in amounts not less than $50,000. Finally, in the conference agreement, the final bi
was modified to require a surety bond of not less than $50,000, or such comparable surety bond as
the Secretary may permit (applicable to home health care services furnished on or after January
1, 1998).(2) Congress, therefore, intended there to be a $50,000 or "comparable" bond, but did not
intend the bond to be higher. The surety bond issue had not been the subject of public hearings,
and some members of Congress expressed concern about the potential impact of the fraud and
abuse provisions.

According to floor statement by Senator Hatchy the fraud and abuse provisions found inthe

te version were actually based on provisions conti '

ise legislation introduced earlier in 1997, and on which no hearings were held in the

Senate. Senator Hatch was concerned that the fraud and abuse provisions

“unintended consequences or implications that would penalize innocent parties who are following

ter of the law."(3) He further stated that, "As a general rule, we in the Congress should not

‘opportunity (

comment, and so that legislation can be modified as appropriate."(4) With regard to t

bond requirement, it seems that the affected business community bad no real opportunity to
provide meaningful input or comment.

After the legislation was enacted, HCFA had little choice but to implement the surety bond
requirement. However, the agency created additional bonding and capitatization requirements
and incorporated them into the instant final rule.(5) Not only were law abiding home health
agencies denied an opportunity to comment during the leisative process, they are now faced with
additional burd ts most i -with no true recourse (since the
agency waived the notice of proposed rulemaking and the 30-day taterim effective date)

Congress clearly intended to el
system and to preserve quality patient care. The presumably unintended effects of the legi
and HCFA's final rule are that legitimate, law abiding home health agencies will be forced
bankruptcy, go out of business or curtail their business of ificantly. Patient care wil
ikely suffer when there are not enough home health agencies to meet increasing public demand in
an aging population. Moreover, the resulting lack of market competition and bloating of the large,
hospital-based and government-based home health agencies may lead ¢o increased prices.

IL. Waiver of Administrative Procedure

20f9 1721/98 $10 PM.


48

There has been discussion about a so-called “fraud and abuse
bond” and a “compliance bond.” Again, I think those would be use-
ful for the GAO to weigh in on in its study as to whether those are
better models to use. Gur assessment was that a compliance bond
would not help us, and how would it add to what we are doing
through our enrollment and survey and certification process; and
the fraud bond would essentially protect only those who are fraud-
ulent and wouldn’t address some of the other issues of people mak-
ing improper claims against the government for money because of
the characteristics that Mr. Grob mentioned.

Mr. SNOWBARGER. It seems to me that going that route is, in es-
sence, an admission that the larger problem is the overpayment
which may be a result of the complexity of the system, errors in
reporting, errors in making claims as opposed to the fraud and
abuse. I think Congress is more concerned about the fraud and
abuse. We certainly don’t want overpayments and we—at least I
would think that we want to get at that system of overpayment.
But some of that is built into your process, and we ought to be
looking at that process to see whether or not it needs to be revised,
and then going after those for fraud and abuse where you think
that potential is high.

Thank you, Mr. Chairman, I yield back the balance of my time.

Mr. Suays. What is interesting about this debate is that views
that I might hold as a Republican in terms of a market system and
not wanting to see so much fraud and abuse come in conflict with
other so-called views I might hold as a Republican. I just wonder,
if we said that fraud was 12 percent, we would be outraged; 20 to
40 percent, we almost can’t comprehend it.

Mr. Towns.

Mr. Towns. Thank you very much, Mr. Chairman.

I am sort of listening and I am hearing something that seems to
me that you are structuring up to deal with somebody in terms of
fraud and abuse, but I don’t get the feeling that you want to do
something before all of this happens. I mean, the certification, I
don’t hear anything about certification. I don’t hear anything about
even qualifications in terms of a person having a health back-

yun

ground.

You talked about the two guys coming from prison; did they have
a health background? I mean, I am not hearing anything there on
that end. I am just hearing stuff on the back end.

Ms. THOMPSON. Then I have been remiss.

We do work very hard to make sure even before people come into
the program they are capable of providing quality services to bene-
ficiaries. We have conditions of participation which we are in the
process of revising. Those conditions of participation have existed
for home health companies since 1973. There are been changes and
they have not really reflected the changes which have occurred in
the marketplace itself, and so we are working to create ones that
focus on the patients and make sure that agencies are qualified to
provide those services and lay out qualifications for the kinds of
people who can be in various positions within home health agen-
cies.

Again, we have always said that now, before we certify a pro-
vider to come into the program, they have to have some experience


11q

‘TESTIMONY BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES
JULY 22, 198

One of the burdens of the moratorium on existing providers was the inability to open or move a
branch office location. For larger agencies covering expansive geography, a branch office
provides for more efficient and effective delivery of care. Limiting an existing provider's ability
to open or move a branch office results in a constraint that negatively impacts operations. For
example, if a lease is expiring for an existing office site that might be too large, too small, too
expensive or no longer strategically located, an agency could not relocate due to the moratorium.
This not only leads to inefficiency, but also puts the landlord in a very strong bargaining position
in negotiating a lease renewal. Any future moratorium should consider the needs and operational
requirements of existing providers.

Other Anti-Fraud Recommendations

In addressing the issues of waste, fraud and abuse, it is important that preventive measures be

given a higher priority. The following recommendations include practices and activities

implemented by providers in an effort to proactively address the issues of waste, fraud and abuse,

as well as selected initiatives that should be pursued by HCFA:

© Require screening and criminal background checks for all principals, executives and
employees.

© Require the implementation of an internally developed corporate compliance plan that
meets specific guidelines.

© Require providers to demonstrate competency in Medicare fiscal matters as well as home
health service delivery.

© Implement a prospective payment system, eliminating cost reimbursement.

© Eliminate the interim payment system. IPS rewards the past inefficiencies and over
utilization of certain providers, while creating a competitive disadvantage for the most
cost effective providers.

© Identify the reasons for the significant regional variances in visits per beneficiary and
costs per beneficiary.

© Determine the reason utilization increases when the percentage of for-profit agencies
increases or the ratio of providers per beneficiary increases.

Conclusion

‘Thank you for inviting me to present testimony on the surety bond issue and provide some
specific information regarding home care in New Jersey. I would be happy to address any
questions the Members have regarding any of the matters I've discussed. I would also welcome
the opportunity to work with the Subcommittee in the development of standards or the review of
any issues relevant to the home health industry. Please do not hesitate to involve me if I can be
of any assistance.


53

Ms. THOMPSON. Those reviews include things like are we billing
for a certain kind of service when the diagnosis doesn’t support
that.

Mr. Suays. They could have put in a fraudulent bill?

Ms. THOMPSON. That is correct. When you start to look at the
claims themselves, on the face of the claims everything looks fine,
lots of times. That does not mean that the service was actually pro-
vided. That does not mean that the information provided on the
claim is accurate.

Mr. SHays. Ten percent reviewed, you are saying if the paper-
work looks good?

Ms. THompson. A large part of it is if the paperwork looks good.
The OIG and the CFO audit has determined that our contractors
do a pretty good job of making the right determination based on
the claims that get submitted to the program. On the face of it, ev-
erything looks fine.

I think there was a comment earlier about, can’t we get ahead
of these people who are abusing the system? And it is true, when
we make a change, the people figure out what they need to say and
do in order to get their claims paid.

One of the things that we have done is increased the amount of
medical review and auditing, but, again, it is impossible for us to
get to a point where we are reviewing the majority of claims. We
are always going to be reviewing a small majority of claims.

Mr. SHays. How do you get the bad players out?

Ms. THOMPSON. We are trying to do more data analysis to exam-
ine those providers that look aberrant and launch exploration of
their billing patterns and to ask for more documentation. That is
part of what we call focused medical review. We are not an enforce-
ment agency.

Mr. SHAyYS. Once you do that, how do you get them out of the
system?

Ms. THOMPSON. One of the things that we have to do is refer
them over to the Office of Inspector General for an enforcement ac-
tion.

Mr. Gros. We are aggressively pursuing that. You have held
hearings in the past on our ability to pull people out of the pro-
gram when they are found to have been guilty of crimes against
the program, and we have made a lot of progress in that regard.
I can comment on that if you wish.

Mr. Suays. Yes.

Mr. Gros. Overall, in the Medicare program in 1996, we had ex-
cluded 1,400 individuals. In 1997, the number was doubled. It was
2,719. And so far in——

Mr. SHays. Did you say individuals?

Mr. Gros. It could be an individual or it could be a company. In
fact, I will say something about that in-home health. It is a com-
bination of both. To date, the number of exclusions is already
2,218, and that is only 7 months into the year.

Mr. SHAYS. Out of a universe of 100,000?

Mr. Gros. There are more providers than I can count.

Mr. Suays. Is this just home health?

Mr. Gros. No, overall. In home health, in 1996, there were a
total of 23 exclusions, 4 of which were home health agencies. So


138

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49

treating patients; and we want to see patient medical records be-
fore we allow them to come into the program. So that is another
kind of reform.

I think that we are taking steps. This is a recertification process.
There is a survey and certification every 3 years. We want to look
at problem agencies which are reflecting a problem in quality of
care or a problem in terms of evidence about their claims process;
we want to go to them more often so we can concentrate more of
our resources on those problem agencies.

Mr. Towns. Thank you. I am happy to hear you say that.

Some agencies have already secured a bond. What would happen
to the funds that they have paid if there was a postponement?

Ms. THOMPSON. We are talking about that now. I understand one
of the things would be to release the surety bond companies from
being liable, and the surety bond company would provide a refund
on a prorated amount. Another possibility is providing more relief
for companies with surety bonds in terms of repayment plans. So
those are under active consideration now. It is very much a concern
to us that we want to be equitable. People were getting bonds in
anticipation of a requirement to have a bond. We have now
changed course, and we want to do something for those agencies,
and we are looking at what we can do.

Mr. Towns. Let me throw it out and you might want to think
about this.

I believe that the reason this rule ran into trouble, I really be-
lieve it, is because it was enacted without public hearing or any op-
portunity for the affected people to comment on the issue. They
didn’t have an opportunity. And during the rulemaking process
what efforts were made to bring home Sealth care or the surety
bond agencies involved—did you talk to them?

Ms. THompson. We did have quite a number of consultations
with representatives of the home health industry, as well as with
surety bond company representatives, as I understand it.

I think that it is clear that we wanted to publish an interim final
rule with comments because we wanted to place the surety bond
requirement in place. We wanted to lift the moratorium with that
in place. We wanted to meet the deadlines in the BBA. I think, in
retrospect, we probably should have just done a notice and com-
ment period, but the reason that we didn’t do that is because we
wanted to move forward. And, in fact, we haven’t moved forward.
In retrospect, it was a mistake not to do that.

Mr. Town. My last question, I received a list from HCFA that
lists the number of home health care agencies with bonds as of
June 1998. According to this list, there was a wide variation of
compliance. Places like Texas, Mississippi and Arkansas have com-
pliance rates of under 30 percent, while places like Maine, Vermont
and Minnesota had compliance rates above 70 percent.

What do you believe accounts for the difference in compliance
rates?

Ms. THompSON. In terms of differences around the country and
people having bonds, I think that is difficult to tell. 1 think people
were operating under different assumptions and people were mak-
ing different business decisions in terms of what our rule would
look like and what our compliance date would be.


78

areas of Medicare, the ability to deliver HME services has been open to virtually anyone,
While the surety bond requirement will cause a significant percentage of the illegitimate HME
suppliers to leave the business — a result that we applaud - it alone will not restore confidence in

HME suppliers.

Mr. Chairman, NAMES membership and leadership are committed to working with the Health
Care Financing Administration and the four Durable Medical Equipment Regional Carriers to
prevent waste, fraud and abuse in the Medicare program. As an industry, we have recognized

for some time that aggressive steps were necessary to clean up this business.

NAMES leadership, therefore, has endorsed a process of certification for HME suppliers. We
have recently met with HCFA officials responsible for overseeing this area to present our ideas.
We are clearly in the early stages of development of these standards, but we hope to work in

partnership with the agency.

In addition to the program we are developing, a large voluntary HME accreditation process has
been in place for several years through national organizations such as the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO). And while we can encourage adherence to
industry-wide standards for our members, these efforts will have little overall impact until
adherence to these standards affects supplier's ability to participate in Medicare.

We are already seeing the private sector adopt HME accreditation standards as a condition of

5


88

Using the surety bond concept to insure against the loss from any program
overpayments, effectively creating an insurance against the program’s own
erroneous administration and failure to properly oversee expenditures.

HCFA set the bond value at the greater of $50,000 or 15% of previous year’s
revenues from Medicare and/or Medicaid programs.

The minimum $50,000 amount can raise serious problems from small, often rural,
home health agencies. Further, the 15% calculation could lead to a prohibitively
high cost for a home health agency. This cost is represented in both the
nonreimbursable bond cost as well as the level of obligation to present collateral
or personal indemnification. HCFA’s implementation of the 15% calculation is
sensible only if every agency incurred the maximum potential overpayment and
every agency failed to repay any part of the overpayment. The historical
recoupment of overpayments demonstrates that the level of protection sought in

unnecessary.
HCFA required separate bond requirements for Medicare and Medicaid services.
Ina post regulatory policy issuance, HCFA allowed for a single bond where the
combined revenue for the home health agency was $344,000 or less. However,
even with this exception, low Medicaid reimbursement rates nationwide may
discourage home health agencies from continuing participation as the result of the
cost and conditions of a separate Medicaid bond.

HCFA failed to consider whether the home health agency is in good standing with
the Medicare and Medicaid programs. HCFA exercised its authority to establish a
waiver of the requirement for government operated home health agencies on the
basis that the interests of Medicare and Medicaid programs are already adequately
protected in these agencies. A similar standard should apply to other home health
agencies that have demonstrated ongoing compliance and fiscal responsibility to
the programs.

As previously stated, HCFA intended to use the surety bonds to address
unrecouped overpayments. NAHC recommends that this standard be changed.
However, if HCFA retains this use, NAHC is very concerned that the surety
companies can become the payors of first resort, rather than allowing home care
agencies to establish a repayment plan for any overpayments. Currently, there is
no consistent, objective criteria established for determining whether a home
health agency qualifies for a repayment plan and what that plan might be. If
home care agencies are not first given an opportunity to repay the amount, calling
the bond could lead to the termination of the provider agreement even in cases
where the home health agency is willing and able to repay the amount.
Clarification is needed from HCFA regarding the requirement that new providers
secure bonds before being permitted to participate in Medicare and/or Medicaid.
It is unknown whether the requirement applies to existing providers with branch
offices that are transitioning to subunits under HCFA’s August 1997 policy
directive. These home health agencies should be allowed to achieve provider
status without securing a bond.

HCFA’s bonding requirement was continuous. Unlike the Florida bond standard
where only a first year bond is generally required, HCFA’s standards require a
continuous bond for the home health agency.


43

going to pursue this as a subcommittee and try to nail this down
as to why we are having a problem.

Mr. Pappas.

Mr. Pappas. Thank you, Mr. Chairman.

I think both or at least one of you threw out some figures, 20
percent in one State, 40 percent, and there were several other fig-
ures thrown out there. Can you tell us how many claims were re-
viewed, what regions of the country?

Mr. Grob. There were several different studies and each of them
follows a standard pattern for doing these audits. Let me take the
big one, which was the four-State audit in Texas, California, New
York and Illinois.

That was—there were about 3,500 services that were examined,
coming from 250 claims that were randomly drawn. The sampling
precision for that particular study, because the number of services
which was the unit of analysis was so large, well over 3,000, was
plus or minus 3 percent. It is one of the more precise surveys that
we have done. Ordinarily, in audits we may look at 100 claims with
the services, and this was 250. It gave us a lot more precision. So
from a sampling point of view it was rather precise.

The other question that might be raised about it is how accurate
was the information that we gathered. Because if you look at the
Medicare statistics and the payments that are made by the contrac-
tors to the industry, you see that they generally pay most of the
claims. They don’t deny most of the claims just because they are
doing it based on the evidence given to them when the claim is pre-
sented.

What we did in our work, we went out into the field. We talked
to the patients. We talked to the physicians. We had medical ex-
perts look at their medical records. So we had a much closer look
at this than would ordinarily be had, and so we found a much high-
er error rate than if you were just looking at the paper.

In the Chief Financial Officer's audit we found that HCFA cor-
rectly paid 98 percent of the claims, but when we looked behind
them, we found error rates of 11 and 14 percent across the board
in the Medicare program for pretty much the same reason.

Mr. Pappas. Any of these that were among those 3,500 services
or 250 claims, were any of those appealed and were there any re-
versals or any denials?

Mr. Gros. I don’t know the state. They were randomly drawn,
so each one could be allowed to be appealed. It is true that we
picked this up at the point where the payment had been denied.
If any of them are under appeal, it is possible that the final deci-
sions could be lower.

Mr. Pappas. So if the final decision was different, than the error
rates may differ from what you are originally stating?

Mr. Gros. It is conceivable that they could be lower.

In some of the other studies where this has happened given the
evidence in the studies, the appeals do not overturn the decisions.
If you look at the experience in the Medicare program, you see
when the providers appeal the decisions, a certain number of them
are overturned. But, again, the difference that we have with what
we are doing here, we have a lot of evidence on the ones because


129

Resume of Jayne Freedman Quinn Page Two

nt Contractor, Visiting Nurse Service of Southern Maine, York,
Maine, 9/89 - 1/90. Provided direct care and coordinated services.

Associate, Interqual, Incorporated, North Hampton, New Hampshire,

9/88 - 9/89. Consultant to health care providers for quality
assurance, utilization review and risk management programs.
Experience included direct consulting, assessment and implementation
of quality management programs, faculty for national educational
seminars, development and publications.

Medicare Administrator/Regional Director, Special Care Home Health
Services, Woburn, Massachusetts, 4/86 - 9/88. Executive Director of
the Certified Division with responsibilities focused on clinical,
administrative, regulatory, and fiscal operations. General Manager
of five of the ten Branch Offices in the Private Division directing
marketing and sales, service, personnel, purchasing, collections,
development and expansion, and budget .

Patient Care Coordinator, Samaritan Hospital, Troy, New York,
7/84 -~ 12/85. Responsible for administrative and clinical operation
of the medical surgical units (168 beds, 160 employees).

Patient Service Manager, Visiting Nurse Service of New York, New
York City, New York, 2/83 -7/84. Public Health Nurse, 9/80 - 2/83.
Coordinated comprehensive health care for patients in a community
setting.

Primary Nurse, University of Rochester, Strong Memorial Hospital,
Rochester, New York, 6/79 - 8/80. Responsibilities included primary
care delivery to medical/surgical patients, assessing and monitoring
cardiac patients on telemetry, conducting research and serving as a
peritoneal dialysis resource nurse.

RELATED INFORMATION:

Professional Organizations: American Nurses Association; Home Care
Alliance of Maine (Board of Directors 1997 - present); New Hampshire
Nurses Association; Portsmouth Regional Health Support Associates
{Board of Directors 1997 - present).

Nursing Registration: Maine; Massachusetts; New Hampshire; New York.

Certification: American Nurses Association Certification in Nursing
Administration (C.N.A.), since 1986 (current through the year 2000).


113

1998, subsidizing the Medicare interim payment system. The finan-
cial burden on these agencies is creating a significant access prob-
lem for community health services throughout the country.

With regard to the moratorium which I was also asked to speak
on, we have certificate of need in New Jersey, and as a result there
is significant scrutiny on new entrants into the market. I do not
believe that New Jersey experienced any problems with new en-
trants into the market. However, one of the problems of the mora-
torium was that you could not open or move a branch office. Which
means that if you have a branch office which is either too small,
too large, too expensive or not strategically located, you could not
move the office, which makes it very inefficient for an organiza-
tion’s operations. Also, if the lease is being renewed, it puts the
landlord in a very strong negotiating position when he knows that
you can’t move your branch office.

In closing, I would also like to thank Representative Pappas for
sponsoring H.R. 3567 to change the interim payment system and
for everybody who has spoken out regarding the interim payment
system and has cosponsored a bill.

I do have in my formal presentation some recommendations for
the future implementation of surety bonds as well as antifraud rec-
ommendations, and I would welcome the opportunity to work with
the committee on any activities where they feel my expertise would
be helpful.

Mr. Suays. The recommendations are found on page 7?

Mr. SCHNEIDER. It is on pages 3 and 4.

Mr. SHays. Thank you. I think we will come back to those in the
questioning. Thank you very much. I appreciate the recommenda-
tions.

[The prepared statement of Mr. Schneider follows:]


122

The fact that we were unable to acquire the full year bond for the fiscal year beginning April 1,
1998, was not because we had had Medicare deficiencies or had ever experienced overpayments.
In fact, we have never had any significant issue of any kind with Medicare but simply lacked the
financial assets desired by insurers to write the bond at the required dollar amount. Our very
‘existence was threatened because we had taken our not-for-profit status and our community-
mission seriously and had invested our resources in providing annually over $200,000 in
‘uncompensated care and free community health education. In the 17 years Ihave served as CFO
at SUN Home Health Services, we could have built a stronger asset base, however our mission
‘was homecare, not the padding of corporate or personal bank accounts. The truth is that much of
the homecare industry isa very capital poor industry with the exceptions of institutional based or
some large proprietary orgenizations. The financial assets shown on financial statements do not
censure quality cost effective homecare services. Homecare programs are built around caring
professional staff, not bricks and mortar, medical equipment or cash reserves.

‘During the months of April, May and June, we were presented to dozens of surety companies for
coverage. Some companies declined because they were not willing to write any home health
‘bonds in excess of a million dollars, as we required. Many other companies simply did not see us
as @ good credit risk upon review of our financial statements. A few companies at the time of the
bonding delay in late June had not provided formal responses. We cannot say with any certainty
that they would not have given us a bond but to that point they had not extended coverage even
though we were doing our best to sell ourselves to them for coverage. We sent them appraisals of
the one office we do own. We informed them of a life insurance policy naming SUN Home as
the beneficiary. We sent them impressive resumes of our senior management staff in an attempt
to document our home health expertise and personal integrity. None of these strategies resulted
in abond, We aggressively ried to get a bond and failed. We did not delay or wait to see what
happened as the industry has been accused of. That strategy was never suggested to us nor would
we ever take such a foolish risk to our patients and staff.

As a community based homecare provider we were and are committed to staying in business and
caring for the thousands of patients we care for annually. We have taken steps to try to bolster
ur financial base including the launching of an endowment fund campaign to ensure that we can
meet whatever future demands are placed upon homecare providers.

‘We do recognize that there are some bad apples in the industry and we commend HCFA for
addressing the issue. I personally believe that there are agencies that should not be providing
service. SUN Home also recognizes that change often creates winners and losers. However the
bonding regulations and the current IPS payment system does little to discriminate the bad from
the good and in many instances may actually penalize the cost-efficient, service-minded
providers white rewarding the more expensive less efficient providers. We believe the current
IPS structure is simply bad policy and needs Congress” immediate attention to avoid a national
homecare crisis.

‘We would make the following suggestion to HCFA for improvement of its fraud and abuse
campaign.

1, Further study the effects of bonds on small business entities before releasing new regulations.
2. Create capitalization and/or bonding requirements for new providers that would be relaxed or
climinated as the provider demonstrates their ability to serve patients and follow program

guidelines.


127

Quy un

York Hospital soseraoneve + von, ame ose som + rei. zersesanzt + eax arses

July 18, 1998

105th Congress of the United States

House of Representatives:

‘Committee on Government Reform and Oversight
‘Subcommittee on Human Resources

‘The Honorable Christopher Shays, Connecticut
Chairman

Room B-372 Raybum Building
Washington, DC 20515

RE: The Hearing-on “Medicare Home Health Agencies; Stil! No Surety Against Fraud and Abuse”

Dear Mr. Chairman:

‘Thank you for the invitation to testify at the hearing scheduled for Wednesday, July 22, 1998. It is an honor to
have been selected.

{In response to your request for information, ! am providing the following: :
‘+ this cover letter, including the disclosure statement regarding receipt of federal grants and contracts;
© my curriculum vitae;

‘+ the testimony;

‘© copies of two patient surveys and comments;

copies of two local newspaper articles about our Home Care program;

@ York Hospital brochure; and

* brochure about York Hospital Home Care.

DISCLOSURE STATEMENT : York Hospital Home Care was intially licensed by the State of Maine on
‘October 2, 1997, and approved as a Home Health Agency in compliance with Medicare

‘April 17, 1998. York Hospital Home Care has not received any federal grants, subgrants, contracts, or
subcontracts during the current fiscal year or either of the two previous fiscal years:

Jn closing | would lke to thank you, again, for this opportunity and honor. | look forward to meeting with you
‘and sharing York Hospital Home Care's experiences with the subcommittee members. Please contact us
‘should you have any further requests.

‘Sincerel;
* flerdnan Qiao Buen
Here aon BSN, RN.

cc: Tom Allen, Representative
John Baldacci,
‘Susan Collins, Senator
‘Olympia Snowe, Senator

‘A COMMUNITY HEALTH CARE CIOFTER SaNCE 1004


151

homes that are nonprofits that are going to try and cheat the gov-
ernment since there is no benefit derived unless there is embezzle-
ment occurring by the people, and that is a highly unusual set of
circumstances.

So I think there is a need to separate the profits and the non-
profits and, to a large extent, separate the areas of the country in-
volved. Growing areas of the country where for-profits are running
in to provide services in what otherwise is a vacuum or a void are
dangerous.

Florida is a perfect example of that. The extreme growth in popu-
lation. People coming from all over the country, rather than having
a community mind-set, and providers rushing in to fill the vacuum
that exists in the senior population down there.

Pennsylvania with a steady population, with a strong community
orientation, it is very difficult in Pennsylvania to commit a fraud
because everybody in town knows about it and you are soon out of
business.

The bond requirement it seems to me not to be the worst in the
world, but the way that it was handled is poor. What I suggested
in meeting with my folks, and I know that we have association peo-
ple here, I can’t really understand why there has not been an ag-
gressiveness by associations, private associations that represent
nonprofits particularly and those that represent for-profits, that
you find the vehicle to provide the surety system involved, rather
than just going to the professional marketplace.

Now, the professional marketplace has a role here, but it is as
a secondary insurer. The primary filtering system that would occur
by the association to put money together sufficient to cover the real
risk factor involved, and what I want to ask is, what is the experi-
ence—and I will start with you, Mr. Richard—in Pennsylvania?
What kind of fraud and abuse have we had in the home health care
field which gives us some idea what kind of protection the Federal
taxpayer needs?

ir. RICHARD. Fraud and abuse has been geographic, and I think
there has been a difference based on profit and nonprofit, and
Pennsylvania has been very minimal. In Pennsylvania, most of the
care is provided by traditional nonprofit visiting nurse associations
that have been around in business for a lot of years.

I would say that we have had some bad apples. One particular
bad apple which has been put away at this point remained in busi-
ness for a long time even though providers within Pennsylvania
were yelling and telling HCFA, here is a bad apple, you need to
do something.

Mr. KANJORSKI. Is that profit or nonprofit?

Mr. RICHARD. It was a proprietary agency. I am not aware of any
nonprofits in Pennsylvania investigated for fraud and abuse issues.

I read somewhere that the overpayments is only two-tenths of 1
percent.

Mr. KANJORSKI. I asked the question, why don’t you all get to-
gether and just form your own insurance capacity? We have seen
that happen in public housing and municipal workmen compensa-
tion and self-insuring, because of the specialty of the area, where
they come together very quickly and particularly in nonprofits.

Mr. RICHARD. Given time——


155

spections, have the bells and whistles go off when there’s some-
thing wrong.

Let me give you an example of something, Mr. Towns, that I ran
across in my district. I was struck why we couldn’t use Pap smear
tests. We had no laboratory that was providing it. And I went to
the Medical Association and discovered that the cost in my district
for a Pap smear was somewhere between $12 and $15 at various
hospitals, some of which were some of the foremost hospitals in the
country. But all the providers found a Texas laboratory that did it
for $5. And they just literally ate up Pennsylvania Pap smears. Ev-
erything went to Texas.

Now, just a year ago, we discovered that the reason they were
so successful in doing this is they didn’t do the Pap smears. They
merely pushed a button on the computer and sent a letter back,
negative finding, and $5 that’s not very expensive. So they were
able to undercut the market.

But what it proved is we didn’t have adequate inspection out
there, either on the Federal or the various State or interState lev-
els, to pick up on that type of product. We did away and destroyed
the laboratories. Our laboratories closed down that could have done
this, in the confines of Pennsylvania, because they couldn’t com-
pete. But nobody went to the next step to ask the question, how
in the hell are they competing for $5 when somebody else is charg-
ing 100, 150, 200 percent more? That’s a highly unusual thing.

That is happening in the health care field. And just because we
pass some rule or regulation, including a bond, if somebody can
come in the home health care field and put a $1 million bond over-
night and do all kinds of things, that doesn’t guarantee you're
going to have a good operator. You may just have a very sophisti-
cated operator that has figured out how he’s going to really bang
the system and bang it hard and get out.

We haven’t improved anything. We just created one way to take
out real, honest-to-God, merciful givers of health care and we’ve en-
couraged sometimes involved felonious thinking organizations that
are going to be into the field.

Mr. Suays. I’m almost attempted to allow the witnesses to ask
us some questions since we’ve been having a little dialog now.

Let me ask—first, I’m going to have our staff take all of your rec-
ommendations and put them in a grid form and just see where you
have parallel recommendations, and then we will see where you
don’t agree. And we may be back to you to have you expan
elaborate on those recommendations, because I think we will at-
tempt to incorporate some of your recommendations, if not in a for-
mal report, in a letter that Mr. Towns and I and the other commit-
tees members might send to HCFA as a possibility. Because we
want to weigh in quickly. And I don’t know if we want to have this
delayed too long.

Is there any last comment that any of you want to make? A brief
comment? I welcome each of you just to get it into—just as long
as you didn’t get Mr. Kanjorski back into this dialog. Don’t look at
him when you talk. You just make your comment.

Mr. Konters. A former Pennsylvanian, we had a landmark case
in Bridgeport, CT, about a year ago with a DME company that en-
tered the marketplace billing Medicare and Medicaid and certainly


CONTENTS

Hearing held on July 22, 1998 .
Statement of:

Schubert, Lynn M., president, Surety Association of America; Bill
Koniers, senior vice president for business development, AMH Health
Group, Inc., Connecticut; William A. Dombi, vice president for law,
National Association for Home Care; Jayne F. Quinn, home care coordi-
nator, York Hospital Home Care, York, ME; Steven Richard, CFO,
Sun Home Health Service, Northumberland, PA; and Steve Schneider,
CEO, VNA of Central New Jersey ... a

Thompson, Penny, director, program integrity, Health Care Financing
Administration; and George W. Grob, Deputy Inspector General, De-
partment of Health and Human Services .

Letters, statements, etc., submitted for the record b;

Dombi, William A., vice president for law, National Association for Home
Care, prepared statement of

Grob, George W., Deputy Inspector General, Department of Health and
Human Services, prepared statement of ...

Koniers, Bill, senior vice president for business development, AMH
Health Group, Inc., Connecticut, prepared statement of .

Quinn, Jayne F., home care coordinator, York Hospital H

repared statement of

Richard, Steven, CFO, Sun Hi
pr repared statement o

Schneider, Steve, CEO, "y:

Information concernin; ng interim payment system for Medicare
Prepared statement of

Schubert, Lynn M., president,
statement of

‘Thompson, Penny, director, program integrity, Health Care Financing
Administration, p prepared statement of ..

Towns, Hon. Edolphus, a Representative in Congress from the State
of New York, fetter dated April 15, 1998 ..

()

55

83
20
74
127
121

158
114

58
7
35


145

think that it would be very difficult and I would think that you
would get into a lot of value judgments with HCFA as to what
should have been paid and what shouldn’t have been paid.

And the example of the half a million dollars, was that yours,
Mr. Dombi?

Mr. Domsi. Yes.

Mr. SHays. That is a mouthful if you provided the service, and
it seems to me you need a good Congressman to help you out on
that bill with HCFA. Because it does seem that there must be more
to the story. You need a good advocate on that one.

Sorry for rambling here.

One of the things that I am gaining from this is that maybe we
should be looking at not just the faith performance bond to start
with and decide whether we want to move beyond that. What is the
reaction of all of you here? A short response, yes, no.

Mr. KONIERS. We agree with NAMES that perhaps a surety bond
gains you entry into the Medicare program but certainly there are
other vehicles in place today such as accreditation, licensure and
certification that are excellent tools in monitoring the providers in
the system, as some of our other witnesses had mentioned quite
well.

Mr. Says. If you were going to have a surety bond. You make
the argument that you don’t need a surety bond?

Mr. KoniERS. As you gain history within the system and become
qualified and certified under other private sector vehicles, such as

ICAHO or CHAP accreditation.

Mr. Suays. Right. Anyone else want to comment on this?

Ms. SCHUBERT. The surety bond requirement should be in addi-
tion to what you are talking about, in addition to certification. But
you have to keep in mind the second piece of surety bonds. If we
are wrong, then the claims and losses will be paid by the surety,
which this other program will not address.

Mr. Suays. First off, the product wasn’t being offered to the ex-
tent it should have been; and I understand why. But if you don’t
have many players offering the service, you are not going to get a
very competitive price?

. SCHUBERT. Mr. Chairman, I don’t know that we know that.
There are at least 54 companies that have written ——

Mr. SHays. I know that some had trouble getting this.

Ms. SCHUBERT. Certainly.

Mr. SHAYS. That says to me that it is difficult. For—it was dif-
ficult to know—there was not a large list of people that they could
go to to get these bonds, it appears—you can dispute it later—from
the testimony that we have had.

ied on wu efforts that the might hay

- QUINN. rts it surety company might have to
go through to evaluate whether or not the canaidave isa good risk
isa of shifting the burden of oversight from HCFA to a sur-
ety bond company. I think we should spend the money that we
have on the services that we have now and make them work right.
I think it is deterring us from the real problem.

Mr. Suays. I had a Baptist Church behind me that was lobby
against surety bonds I am hearing this voice in one ear from


106

HCFA

Heath Care Financing Administration
oe Soot beieet
‘akimore, MD 21244

September 17, 1997

‘Mr Michael Kinsiow

‘National Association for Home Care
228 7th Street, SE.
Washington, DC 20003

The following data is provided in response to your request for information on the percemage of
reversals for home health care at the reconsideration level and the ALS level for FY 96. Please
note that the information is for home health agencies and hospice care. Our data collection does
not separate these entities

Intermediary Part A Reconsideration Data, HHA/HOSP
Fiscal Year 1996 (Oct 95 thru Sep 96)

Total Reconsideration Requests Processed 48,537
Number with Increased Payments 18.962
Percentage of Reversals 39%

Imermediary Part A ALI Llearings, HHA/HOSP
Fiscal Year 1996 (Oct 95 thru Sep 96)

Total ALS Hearing Requests Completed 7.839
‘Number with Increased Payments 6,394
Percentage of Reversals 81.5%

If additional assistance is required, please contact me at (410) 786-7638.


66

We hope that this information is helpful as you continue your promulgation process.
Please do not hesitate to call us if we can be of assistance. We would be very pleased to
meet with you again. . an

Sincerely,
ne Meth .
Martha L. Perkins Martha Hamby
Fidelity and Surery Counsel Vice President
American insurance Association Public Affairs and Government Relations
(202) 828-7170 Surety Association of America

Hard Copy to Follow


52

particularly susceptible to exploitation compared to other types of
health services. This is because the care is provided in patients’
homes with no oversight; there is limited physician involvement;
there is no limit on the number of visits that a home health agency
can provide; there is no copayment; and, until a prospective pay-
ment system is implemented, it is a cost-based service.”

Congress designed this system and it seems to me it is almost
irrelevant whether they are profit or nonprofit. I know a lot of non-
profits whose agencies pay their employees more than the profit,
and the profit in a sense goes to the employees. I almost view it
as an employee-owned operation as opposed to a non-employee
owned operation.

Where I come down on it, I come down on the fact that we have
gone from less than $4 billion to $18 billion in a short period of
time and it is very clear that the fraud or waste in the system is
extraordinarily excessive. I look at opportunity costs, and I see if
we eat our health care dollars this way, we don’t get to spend it
somewhere else. The uniqueness about home health care is that
they are, in many cases, smaller operations; and we have lots of
contact from our constituents; and so we hear from those who are
trying to provide this service.

So what I want to know to start with is, what are we doing right
now—I have one question, whether certification is a better way to
do it than through bonding, but then I think of my Republican
principles of who the heck can go into this business because you
say that I have a certification.

What powers, Ms. Thompson, do you have to get the bad players
out right now? We have the issue of recouping our dollars, but can
we send them to jail? Can we fine them and hold them accountable
years later? What do we have?

Ms. THOMPSON. We do have authorities and some new authori-
ties because of the BBA in terms of things that we can do.

I would say, though, that with the volume of claims that Medi-
care processes, and this is a general proposition, this is not just
true of home health, with the volume of claims that Medicare proc-
esses for the amount of money at stake, for the number of provid-
ers billing us, for the number of beneficiaries in all sorts of dif-
ferent settings across the country, it is extraordinarily difficult to
administer that program in a way that assumes what is being
billed is incorrect.

The administrator made the comment before in the past that we
have gone around and said how wonderful it is we have low over-
head as compared to private sector insurance companies. Maybe we
don’t have enough money in our administrative overhead to make
sure that all of those claims are paid properly.

Mr. SHAYS. You review how many of the bills?

Ms. THOMPSON. Ten percent of the bills get reviewed for some-
thing or other. That 10 percent includes claims that are coming in
that are hitting a medical edit, not necessarily claims that are sus-
pended for a human review. The amount of resources——

Mr. SHAYS. That review—in other words, you are not really able
to track——


173

While we were encouraged that some of the original requirements were modified in the June 1,
1998 reissuance of the surety bond rule, HCFA’s changes addressed the concerns of the bond
market but not the providers. The AHA again urged HCFA to carefully consider requiring a
single bond of $50,000 for both Medicare and Medicaid program participation, granting
‘exceptions to HHLAS that have exemplary records with the programs, and exploring use of
other financial guarantee instruments in lieu of surety bonds, as HCFA indicated it would do.

Finally, while the AHA is pleased to see the reports that HCFA is again withdrawing the
surety bond rule, HCFA has not yet published an official Federal Register notice confirming
the agency’ intent and clarifying surety and provider responsibilities and recourse from these
financial obligations,

A Federal Register notice is necessary to clarify surety liability. Bond sellers must be released
from further liability in order to cancel existing boods. And, providers must have mcourse to
‘geL refunds on the purchase of bonds. Since the rule was first published in January 1998,
many HHAs, acting in good faith, have incurred considerable expense in securing bonds,
including pledging personal collateral, only to find out that they have made an unnecessary and
‘costly expenditure, and now at best, may be able to recoup prorated premiums for the
remainder of calendar year 1998. While we recognize that the BBA mandated the surety bond
requirement on home health agencies, HCFA’s exceeding the statutory authority has diverted
operating funds from patient care services to respond to costly, but ever-changing government
directives.

‘The AHA urges Congress to direct HCFA to issue an official notice in the Federal Register
that will allow providers to recoup monies speat for bonds no longer required during 1998.


101

6.928) have fewer than 20 employees and ear 6 3% of all annual receipts for the industry
‘Although it may be difficult to reconcile employment-based and receipt-based size
standards, itis still (arly clear from the available data that a substantial number of small
contities will be impacted by this final rule

Will there be a significant econumic impact? To devermine whether the final rule is
likely to have a significant economic impact. further analysis is required. It is not enough
to claim that elimination of fraud and abuse in the Medicare/Medicaid system outweighs.
the need for further analysis. It is not enough to assume that only those agencies with
“past aberrant billing activities” will be impacted. It is not enough to say thet reducing a
surety’s lisbility means that there will not be a significant economic impact on home health
agencies. The Office of Advocacy opines that the agency's “analysis” was doomed from,
‘the outset because of the agency's flawed assumptions about the number and type of small
entities likely to be impacted, and about the cost of comptiance.

Which small entities will be impacted? The agency did not take the basic and necessary
step of adequately explaining why other small entities (presumably those whose billing
practices are not “aberrant”) will not be affected or whether small home health providers
fare even the primary offenders. At the least the agency must consider the impact the

‘agencies
$pparently do wot have aberrant biting practices HCFA presents evidence that, in 1996,

Medicare overpayments were 7 percent of all claims paid to HAs, and of that 7 percent,
14 percent remained uncollected by Medicare, Fourteen percent of 7 percent is .0098."”
In other words, Medicare fails to collect overpayments less than one percent of the time.
Despite this extremely low occurrence of failure to collect overpayments, HCFA deemed
it necessary to place extremely costly and burdensome requirements on the entire industry.
‘However, HCFA did not identify what percentage of the industry is contributing to the
fraud problem, whether certain offenders were recidivist, or whether those offenders are
‘primarily large or small.

‘With regard to the capitalization requirement, HCFA states that, “An organization that is
‘earnest in its attempt to be a financially sound provider of home health services under the
‘Medicare program will already be properly capitalized without the need for Medicare to
‘require such capitalization" This statemem is basically true. However. the issue of

Frequsihosinerien plenie nibtniebis schacanushenanveet druneianahal wir

desire to be “earnest” in their efforts to be “sound providers”. The capitelization
requirement is a barrier to market entry for all new home health agencies and not just the
‘ones who enter the market for purposes of defrauding Medicare. A careful look st the
‘questions like the ones raised in this and the preceding paragraph would have yielded a

“* fu 1996, $14,357.$04.894 was pond to HHAS. $1.061.157.961 was overpaid, aad $153.628.056 was
ceacollected.


26

Prospective Payment System

The most fundamental reform brought about by the Balanced Budget Act is the establishment of
‘@ prospective payment system for home health. We have been, and continue to be, strong
advocates of such a system. The Act gives the Secretary of HHS authority to establish a
prospective payment system for home health services. Instead of open-ended billing, HCFA will
determine, in advance, what it will pay for a unit of service, how many visits will be included in
that unit and what mix of services will be provided. Payment for a unit of home health service
will be modified by a case mix adjustor to account for variations in cost due to differences in
patient case-mix. Under this system, it will no longer be profitable for home health providers to
provide unneeded services. Upon implementation of the prospective payment system, periodic
interim payments will be eliminated.

Enrollment of New Providers

Legislative Changes. The Balanced Budget Act addresses a number of serious vulnerabilities in
the process of enrolling home health agencies into the Medicare program. For example, it
authorizes the Secretary to collect Social Security numbers and Employer Identification numbers
from providers. The OIG, HCFA, and the GAO have been in general agreement in recent years
that this authority is critical to monitor provider billing activities effectively and to keep excluded
or other probleraatic providers from coming back into the program under the cloak of new
business arrangements.

Additionally, the new law authorizes HCFA to refuse to enter into contracts with felons. The
Secretary could stipulate, for example, that individuals convicted of embezzlement not be
allowed to enroll as a Medicare provider even if the conviction did not occur in connection with
a health care business. The OIG will also be able to exclude from the Medicare program entities
owned or controlled by the family or houschold members of excluded individuals. For example,
some excluded providers have been able to escape the impact of their sanctions by expediting
transfers on paper of their ownership and control interests in health care entities to family or
household members while retaining true, silent control of the businesses. We were also pleased
to see the new “Three Strikes, You’re Out” provision that mandates a lifelong exclusion from
participation in any Federal health care program for any provider who is found guilty of health
care fraud for the third time.

Administrative Remedics. From September 15, 1997 until January 13, 1998, the Administration

moratorium, Medicare was certifying an average of 100 new home health agencies each month.

‘The Department has also proposed a requirement for home health agencies to re-enroll in
Medicare every three years. As part of the re-enrollment process, agencies will be required to

rouse Committee on Government Reform and Oversight
Subcommittee on Human Resources: Hearing July 22, 1998 Page 7


22

‘New impetus was given to our work by Project Operation Restore Trust, the Secretary's two year
anti-fraud demonstration initiative. This was a crackdown on fraud and abuse in the areas of
home health, nursing home services, and durable medical equipment in five States~California,
New York, Florida, Texas, and Illinois that account for close to 35 percent of the nation's
Medicare beneficiaries and program expenditures. Audits of specific home health agencies in
Florida, Pennsylvania, and California revealed error rates in paid services from 19 to 64 percent.
‘These were due to visits that were not reasonable or necessary, patients who were not
homebound, visits which were not documented or even provided to Medicare beneficiaries,
improper or missing physician authorizations, and even forged physician signatures.

In our recent report, “Review of Medicare Home Health Services in California, Illinois, New
York, and Texas," issued in June of last year, we reviewed 250 claims accounting for 3,745
services from a randomly selected sample of home health agencies. For these cases, our auditors

personnel.
Tay found tha in thee for Staten. #0 pce ofthe teal servces provided dice the 13.
month period ending March 31, 1996 did not meet Medicare reimbursement requirements. The
explanations were similar to those of the earlier audits: unnecessary services, patients not
homebound, it physician authorization and lack of supporting documentation. This
represents $2.6 billion in charges, or 39 percent of the $6.7 billion of the universe of claims
represented by the sample.

Enrollment and Oversight

Medicare's initial survey and certification process was not designed to screen out potential
violators of Medicare’s reimbursement requirements, but primarily to assess whether a home
health agency is capable of delivering quality home health services. Practically anyone who has
met State and local requirements for starting a home health agency has been almost certain of
obtaining Medicare certification. According to a recent GAO report “Medicare Home Health
Agencies: Certification Process Ineffective in Excluding Problem Agencies” (GAO/HEHS-98-
29), it has been rare for a home health agency not to meet Medicare’s three fundamental
certification requirements: 1) being financially solvent; 2) complying with Title VI of the Civil
Rights Act of 1964, which prohibits discrimination; and 3) meeting Medicare’s conditions of
participetion. The GAO report concluded that “home health agencies self-certify their solvency,
agree to comply with the law, and undergo an initial certification survey that few fail.” HCFA is
currently revising its conditions of participation for home health agencies.

In other recent work, we have explored further program vulnerabilities associated with allowing
problem providers into the Medicare home health program. On the same day we issued the four-
‘state audit just mentioned above, we issued another report, "Home Health: Problem Providers
and Their Impact on Medicare.” This report was based on a statistical analysis of home health
agencies in New York, Florida, Iinois, Texas, and California which met our definition of a
problem provider—one that was identified by HCFA, an intermediary, a state certification or

overpayments,
services, services not rendered, significant certification deficiencies, and referrals to program
integrity or fraud units.

‘House Coounittce oa Government Reform and Oversight
‘Subcommitice on Human Resources: Hearing July 22, 1998. Page 3


A DEPARTMENT OF HEALTH & HUMAN SERVICES mth Care Fran Adriaan

Poche toro

March 26, 1998

Mr. Michael Kis

ional Association for Home Care

228 Teh Street, $E.

Washington, DC 20003

Dear Mr. Kinslow:

The following data is provided in response to your email request for information dated

March 9, and our telephone conversation on March 23, 199%. Please note that the data for
Intermediary

sry Part A reconsiderstion requests and ALJ hearing requests is for bome health

‘apd hospice care. Our data collection does not separate these entities. The date is for FY
1997 (Oct 96 thru Sep 97).

°

°

‘Total number of HHA bills processed = 22,690,828

‘Total number of HHA bills denied = $27,916

Total number of HHA/Hospice reconsideration requests received = 53,252
‘Total mmnber of HHA/Hospice reconsideration requests processed = 55,356

Total mumber of HHA/Hospice reconsideration determinations which resulted in
increased payments (full or partial) = 19,335

‘Total number of HHA/Hospice ALJ bearing requests received = 13,209
‘Total mumber of HHA/Hospice ALJ bearing requests completed = 12,092

‘Tonal number of HHA/Hospice ALJ hearing requests completed which resuited in
‘increased payments (full or partial) = 8,911

NOTE: An appeal request (reconsideration and ALJ hearing) may involve one or more
claims.


162

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165

Medicare Home Health Agencies:
Still No Surety Against Fraud and Abuse

Statement of
the American Insurance Association
to the
Subcommittee on Human Resources
Of the House Committee on Government Reform and Oversight

July 22, 1998

The American Insurance Association ("AIA") is a non-profit national trade
association representing over three hundred major insurance companies, most of
which issue surety bonds, along with property and casualty insurance.

We would like to thank the House Committee on Government Reform and
Oversight Subcommittee on Human Resources for addressing the important
issue of the new surety bond requirement for certain Medicare and Medicaid
providers mandated by the Balanced Budget Act of 1997 (“BBA”) and the equally
important issue of the efforts of the Health Care Financing Administration
(‘HCFA’) to implement the surety bond mandate.

From the beginning, AIA has supported the efforts of Congress and HCFA
to combat fraud, waste and abuse in the Medicare and Medicaid systems. In
fact, staff from AIA met with the sponsors of the surety bond requirement in the
BBA to assist them in this endeavor. We were pleased to see that Congress had
once again recognized surety bonds as a valuable prequalification mechanism
for entities being paid with tax dollars. AIA felt at the time and continues to
believe that a surety bond is an excellent tool to assist in the fight against fraud in
the Medicare and Medicaid systems.

Once the BBA surety bond mandate was enacted, staff members from AIA
began extensive discussions with staff from HCFA to attempt to provide technical
assistance to them as they wrote regulations to implement the directive of
Congress. Our assistance was offered due to our expertise in the field of surety
bonds. While AIA had had little previous experience with the Medicare or
Medicaid programs, bonds for this type of an obligation were not unheard of. We
believed at that time that we could assist HCFA as it drafted bond regulations
that both furthered the intent of Congress and provided a viable market for the
bonds.

Over the many months since those first discussions, the bond regulations
have taken a number of turns. Since HCFA determined that the bond should


169

National Association of
Surety Bond Producers
5225 Wisconsin Avenue, NW, Suite 600
‘Washinglon, Oc 20015:2014
(202) 686-3700 + FAX 202) 686-3656
woes nasbp.0rg

July 24, 1908

“The Honorable Christopher Shays

Chairman

Subcommittee on Human Fesources

Committee on Government Reform and Oversight
U. S. House of Representatives

8-372 Raybum House Office Building
Washington, DC 20515,

RE: Medicare Home Health Agencies:
Still No Surety Against Fraud and Abuse
Statement of the National Association of Surety Bond Producers

Dear Chairman Shays,

The National Association of Surety Bond Producers (NASBP) sa trade association
ofindependent agencies and brokerages which specialize in surety bonding and insurance.
for business and industry. NASBP's 500 member firms ~ most of which are small, closely
held businesses ~ serve as agents or brokers for virtually all of the companies currently
writing surety bonds in the United States. We submit this letter as our statement for the
record of the Subcommittee'’s hearing on July 22, 1998.

Regarding the surety bond requirement for home health agencies participating in
the Medicare and Medicaid programs, NASBP fully concurs with the statement submitted
to your Subcommittee by The Surety Association of America (SAA). SAA members are by
and large the surety companies represented by NASBP member firms.

NASBP representatives met with HCFA officials in October, 1997, to assist them
in understanding how surety bonds could work to rid the Medicare system of fraud and
abuse. For the most part, HCFA officials chose not to heed the surety industry's advice
and recommendations and instead promulgated in January, 1998, a very onerous financial
uarantee bond that was to cover overpayments routinely a part of HCFA's reimbursement
system. As SAA explained in their statement, this intial rule contained several provisions
that made underwriting of this bond very difficult.

The “technical corrections” that HCFA made in their June 1, 1998, revisions of the
bonding rule did allow a viable market to develop for these bonds. However, the
requirement stil was for a financial guarantee-type bond for which it would be difficult for
‘some smaller, undercapitalized home health agencies to quality.


34

and then to run away from their responsibilities, and almost al-
ways these programs would be small when they start.

So if we are successful in preventing the disreputable companies
from joining or staying in the program, they will be small busi-
nesses that will be affected.

So I think there is no question that small businesses will be af-
fected by the bonding requirement, and I think the statistics to
date show that they were having a harder time getting the bonds.
The larger ones might be associated with hospitals and have cap-
ital that the surety companies can fall back on, and they might
have other businesses. They might have been in business a longer
time and the surety companies felt more comfortable offering bonds
to them.

There is no question this is a special concern for small busi-
nesses, and the dilemma we have is to find a way to do it so that
those that are reputable and responsible and capable can partici-
pate and those trying to get a free ride and free money don’t get
in. We have to figure it out.

Mr. Towns. Thank you, Mr. Chairman.

I would like to enter a copy of a letter from the Office of Advo-
cacy in the record.

Mr. Suays. Without objection.

[The information referred to follows:]


175

In its proposed rule for additional supplier standards, HCFA, recognizing
the unique custom nature of orthotics and prosthetics, requested specific
comment on the advisability of exercising its authority to impose a surety
bond on all suppliers of orthotics and prosthetics to the same extent as
required for DME suppliers.

AOPA’s comments on the proposed rule reflected its belief that HCFA
certainly has a legitimate concern regarding the existence of false providers
and the problems associated with recoupment of monies incorrectly paid to
such entities. Surety bonds are one way to deal with this situation and
would probably by effective in most cases.

Recent recommendations by the HHS OIG regarding the desirability of
stricter standards on who can bill for orthotics serves to emphasize that a
problem exists that must be dealt with. AOPA feels that it is highly
desirable to put some restrictions on the types of providers who can bill for
custom orthotic and prosthetic care, thus greatly lessening the probability
for erroneous billings.

It is also clear from recent activity by the OIG in Florida, as a part of
Operation Restore Trust, that there is a problem with suppliers obtaining
Medicare provider numbers when they are not legitimate businesses. The
operation of such entities not only endangers patient safety and provides
poor patient care, but also besmirches the name of the many legitimate
providers who do their best to operate in a legitimate manner.

AOPA strongly recommends that the provision of custom O&P devices
be limited to facilities that are accredited by, or practitioners certified
by, the American Board for Certification in Orthotics and Prosthetics
(ABC). One of the benefits of this approach is that HCFA would be
assured that custom services would be provided either by, or under the
supervision of, practitioners certified by ABC.



115

‘TESTIMONY BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES
JULY 22,1998

‘Throughout the country, approximately 60% of home health agencies could not effectively or
reasonably secure a surety bond. This occurred for a variety of reasons, including the insufficient
net worth or collateral of the providers. Surety companies were also concemed with the financial
viability of providers based on the low reimbursement rates under the interim payment system.

New Jersey providers are in the unique, and unfortunate, position of being more successful in
securing surety bonds. The majority of New Jersey’s providers are nonprofit organizations with
long, stable and efficient histories. Most have been serving their communities for decades. The
surety companies recognized the long standing existence of these financially solvent
organizations, even though their net assets might not have been as significant as other providers.
New Jersey also has several hospital-based agencies that can rely on the net assets of the hospital
as a basis of securing a surety bond. However, some New Jersey providers, despite their
excellent history, have still been unable to purchase surety bonds due to lack of accumulated
assets Or reserves.

New Jersey's success in securing surety bonds has now created the problem of obtaining refunds
from the surety companies. Based upon information received from member agencies, the Home
Health Assembly of New Jersey (HHANJ) estimates that well over $200,000 has been spent on
the surety bonds mandated by HCFA this year. The costs range from a few thousand dollars for
the smaller agencies to more than $50,000 for VNACIJ.

Ata time when New Jersey providers are suffering from cuts in reimbursement and laying off
staff to respond to the interim payment system, they have wasted valuable funds in paying for
surety bonds that are now no longer required. As a matter of fact, the scenario is similar to the
interim payment system. Providers that complied with the requirements of the Medicare
program are now suffering the most. Once again, the industry's most efficient agencies are
paying the price.

Why isn’t the cost of a surety bond that is required by Medicare considered a reimbursable cost
under the Medicare program? VNACI is a nonprofit organization with limited net assets. The
only opportunity for generating surplus funds is through excess investment income or charitable
contributions. In 1997, VNACJ had a very good year. On gross revenue of more than $60
million, VNACJ generated an increase in net assets of $102,000. More than half of that amount
went to cover the $57,000 cost of the 1998 surety bond.

By setting the bond at 15% of Medicare revenues and making the cost of the surety bond a non-
reimbursable expense, Medicare is forcing community-based providers to reallocate funds that
would have otherwise gone to cover charity care, preventive health services, and, in 1998, to
subsidize Medicare’s interim payment system. The financial burden of an excessive surety bond
results in a significant loss of access to community-based services throughout the country. It is
imperative that the cost of a surety bond, or any amounts that are not refunded by the surety
companies in 1998, be considered a reimbursable expense under Medicare.


186

Personally, | have been # Registered Nurse for twenty years, working in the Home Care industry for
‘most of that time, in a variety of settings. First and foremost, however, ls my devotion to nursing and
focus on patient care. ! wanted to become a nurse to take care of people. Over the pest twenty
yeers, | believe that ! have been able to do that, but more time seems to be focusing on everything
‘but patient care. At least at York Hospital and York Hospital Home Care, | am part of a tam of
people who have demonstrated that an organization can be successful by doing the right thing 2s we
care for people, “THROUGH THE PATIENT'S EYES: Caring, Listening, Satisfying... One by One*.

| hope this has been helpful as you continue with your analysis of these Issues. Thank you for the
‘opportunity to participate.

‘York Moopital Home Care Testimony, JULY 22, 1998 PAGE = 10


58

Medicare Home Health Agencies:
Still No Surety Against Fraud and Abuse

Statement of
The Surety Association of America
to the
United States House of Representatives
Committee on Government Reform and Oversight

Subcommittee on Human Resources

July 22, 1998

The Surety Association of America (“SAA”) is a voluntary, non-profit
unincorporated association of companies engaged in the business of suretyship.
It presently has approximately six hundred-fifty member companies, which
collectively underwrite the overwhelming majority of surety bonds written in the
United States.

We would like to thank the House Committee on Government Reform and
Oversight Subcommittee on Human Resources for addressing the important
issue of the new surety bond requirement mandated for certain providers of
Medicare and Medicaid services by the Balanced Budget Act of 1997 ("BBA").
As clearly indicated by the title of this hearing, although the BBA required surety
bonds to be effective January 1, 1998, there currently is no date by which these
bonds must be filed, and no way for sureties or home health agencies (“HHAs")
to know what regulations ultimately will govern the bonds. This has resulted in
the situation described in the title, “still no surety against fraud and abuse.”

From the beginning, the SAA has supported the efforts of Congress and
The Health Care Financing Administration ("HCFA") to combat fraud, waste and
abuse in the Medicare and Medicaid systems. in fact, staff from the SAA met with
the sponsors of the surety bond requirement in the BBA to assist them in this
endeavor. We were delighted to see Congress once again recognize surety
bonds as a prequalification mechanism for entities being paid with tax dollars.
We ‘elt at the time and continue to believe that a surety bond is an excellent tool
to assist in the fight against fraud in the Medicare and Medicaid systems.

Once the BBA surety bond mandate was enacted, staff members from the
SAA began extensive discussions with staff from HCFA to attempt to provide
technical assistance to them as they wrote regulations to implement the directive
of Congress. These discussions involved the concept of regulations both for
HHAs and for suppliers of durable medical equipment (“DMEs”). Our assistance
was offered due to our expertise in the field of surety bonds. While none of our


112

Mr. Suays. Mr. Schneider.

Mr. SCHNEIDER. Thank you very much. Good morning.

Mr. Chairman and members of the committee, thank you very
much for inviting me here to testify this morning regarding the
surety bonds. I am the president and chief executive officer of the
Visiting Nurse Association of Central Jersey, or VNACJ.

Our organization is a voluntary, nonprofit organization that has
been serving the community with home-based and community-
based services for over 85 years. As one of the largest freestanding,
Medicare-certified home health agencies in the country, last year
we provided 444,000 home visits to 12,000 Medicare beneficiaries.

ly testimony today will focus on our agency as well as the expe-
riences in New Jersey.

New Jersey providers, unfortunately, are in the unique position
of being able to secure surety bonds more easily than the rest of
the country. There are several reasons for this. However, the pri-
mary reason is that the majority of our agencies are nonprofit orga-
nizations that have longstanding reputations of efficiency and qual-
ity services in the community. As a result, I believe that the surety
companies took into consideration the fact that we have been pro-
viding services for several decades, and even though we didn’t have
the assets that some of the other organizations had, we were able
to secure the bonds.

In addition, most of the remaining agencies are hospital-based
agencies that could utilize the assets of the hospitals to secure the
bonds. However, there are still a few agencies in New Jersey that
were unable to secure the bonds.

The success of New Jersey in securing the surety bonds has now
created the other problem of what do we do with it now that we
have it. Based upon the information received from member agen-
cies by the Home Health Assembly of New Jersey, more than
$200,000 was spent by the member agencies, and there are fewer
than 60 agencies in the State. Those amounts have ranged from a
few thousand dollars for the smaller agencies to over $50,000 for
our agency, and at a time when New Jersey providers are suffering
from cuts in reimbursement and laying off staff due to the interim
payment system, we have essentially wasted valuable funds that
could have been utilized for other purposes. Essentially, the sce-
nario is similar to the interim payment system in that the agencies
that have complied and been efficient are now paying the biggest
price.

I do have a concern that the surety bond is not considered a re-
imbursable cost under the Medicare program. Our organization has
limited net assets. The only opportunity for us to generate a sur-
plus is either through excess investment income or charitable con-
tributions.

In 1997, we had a very good year. On over $60 million of revenue
we were able to Benerate an increase in net assets of $102,000.
More than half of that increase in net assets had to be spent on
surety bonds in 1998.

By setting the bond at 15 percent of Medicare revenues and mak-
ing the cost nonreimbursable, Medicare is forcing the community-
based providers to reallocate funds that would have otherwise been
used for charity care, preventive services in the community or, in


76

individuals from entering a particular line of business -- whether HME or home construction.
As House Ways and Means Health Subcommittee Ranking Minority Member Pete Stark noted in
his comments on HCFA’s proposed rule, “The purpose behind my legislation was to stop the
fly-by-night companies and make sure that precious Medicare dollars go where they belong - - to

provide health care for our seniors.” NAMES members couldn’t agree more.

Unfortunately, it appears from the outside, that the HCFA officials who were charged with
implementing the surety bond requirement failed to recognize that while surety bonds may be

effective at preventing fraud, they are not appropriate for addressing overpayment concerns.

Because HCFA tried to accomplish too much with its surety bond proposal for home health and
HME, the agency ran into a buzz saw of opposition from the affected industries and bipartisan
Members of Congress. As we recently saw, HCFA has withdrawn its surety bond proposal for
Home Health Agencies and in conversations with HCFA staff, we have been led to believe that

the HME final rule may be delayed while HCFA and the GAO study the issue further.

As we said in our comments on the proposed rule, “NAMES continues to believe that a $50,000
surety bond is a reasonable requirement to enter the Medicare program.” However, increasing
that requirement to 15% of a company’s Medicare business up to $3,000,000 went far beyond
Congressional intent. More importantly, HCFA took a surety bond requirement that would have
imposed a reasonable cost on the HME services provider and multiplied that cost to a level that
was prohibitive. In addition, by failing to exercise the authority Congress gave HCFA to waive

3


28

The Florida Medicaid program has experienced success with its required $50,000 compliance
type surety bond. Such a bond guarantees compliance with the rules and regulations mandated
by the Medicaid Provider Agreement. All home health agencies operating less than one year,
brand new enrollees and home health agencies with a history of “questionable claims” were
required to obtain a surety bond as part of this re-enrollment process. The State claimed that this
approach has worked as an effective screening mechanism to weed out unscrupulous providers.
State budget officials estimate that the surety bond requirement, combined with additional anti-
fraud measures, resulted in savings of almost $200 million over a two year period for Florida.
‘According to the Florida Agency for Health Care Administration, the number of Medicaid home
health agencies declined by 32 percent as a result of the State’s initiatives. However, the State of
Florida has received no complaints from physicians regarding access to care problems.

As designed, the Medicare home health surety bonds are considered financial guarantee bonds
which obligates the surety to pay a certain amount of money if the home health agency does not
perform its obligation. The bond must guarantee that within 30 days of receiving written notice
from HCFA of an unpaid claim or unpaid civil money penalty or assessment, the surety company
will pay HCFA, up to the stated amount of the bond, the full amount of the unpaid claim plus
accrued interest and the full amount of any unpaid civil money penalty or assessment imposed by
HCFA on the home health agency plus accrued interest. These types of bonds are considered
hazardous and must be carefully underwritten. If an underwriter is unable to approve a bond
request based on the qualifications given by the home health agency, the company may suggest
depositing some form of collateral as an inducement to write the bond.

On June 1, 1998, HCFA revised the regulation to address concerns by the surety industry that
they could assume high financial risk because of the uncertainty of the scope of their liability
under the regulation. On June 26, 1998, HCFA announced that it would suspend the surety bond
regulations and await the findings of a General Accounting Office investigation on surety bonds
for home health agencies. °

DURABLE MEDICAL EQUIPMENT

The situation with durable medical equipment suppliers is also risky for the Medicare and
Medicaid programs. In December of last year we issued a report entitled “Medical Equipment
‘Suppliers —Assuring Legitimacy.” This report summarized the results of unannounced visits
which we made to a sample of medical equipment suppliers who had recently received Medicare
billing numbers or had open applications for them. This review was carried out in the 12 large
cities in California, Florida, Dlinois, New York, and Texas (except Miami where previous studies
had already revealed serious problems). We discovered that 31 out of the 420 approved
suppliers and 4 of the 35 new applicants did not have the required physical address. Some
addresses were for businesses that had closed, some without leaving behind any forwarding
address or other business information. For example, one landlord told us thet a pair of physicians
had suddenly closed their office and vanished, breaking their lease. Others had highly
questionable addresses. Residents near the listed address were unable to say whether or not a
supplier had ever been located there. For example, in Brooklyn, New York, a supplier’s address
shown on the application form was in a building that consisted of four apartments over a
Laundromat. The DME company name was not shown on mailboxes or other parts of the

‘House Commie on Government Reform and Oversight
Subcommittoe on Human Resources: Hearing July 22, 1998. . Page 9


94

U.S. SMALL BUSINESS ADMINISTRATION
Wassawoton, 0.6. 20418

‘errocs or ewer coveees ren anvessas

‘Health Care Financing Administration
‘of Health and Human Services
‘Atta: HCFA-1152-FC
P.O. Box 26688
Bahimore, MD 21207-0488

Deas Dockets Managenient Clerk:

On January 5, 1998, the Heath Care Financing Administration (HCFA) published a final
tule with comment period concerning surety bond and capitalization requirements for
fhome health care agencics (HAS). This regulation implements the suresy bond
‘requirement for such agencies established in the Balanced Budget Act of 1997 (BBA).
‘The regulation also imposes additional minimum capitalization requirements on the
agencies and includes an additional 15 percent surety bond requirements not contained in
the BBA. The goal of the BBA and this final rule is 10 reduce Medicare/Medicaid fraud by
regulating HHAs that do not or cannot reimburse Medicare/Medicaid for overpayments, -
‘To address complaints by the surety bond industry and the HHA industry regarding the
compliance deadline for obtaining surety bors, HCFA published a final rule on March 4,
1998 deleting the February 27, 1998 effective date forall HHAs to furnish « surety bond.
‘The new compliance date is on or about April 28, 1998, or 60 days afler publication of the

fra! rule.
In addition, 10 address complaints by the surety bond industry and members of the Senate
* Finence Committee regarding the potentially unlimited liability of sureties under the Gnal

tule, HCFA published a Notice of Intent to Amend Regulations on March 4, 1998
(concurrently with the final cule to extend the compliance date). The notice announces
HCFA’s intent to amend the final rule 30 a to limit the surety’s liability under certain
circumstances. It also establishes that « surety will only remain liable on a bond for an
additional two years after the date an HHA leaves the Medicare/Medicaid program: and
{sives a surety the right to appeal an overpayment, civil money penalty or an assessment if
the HHA fails to pursue its rights of appeal. HCFA claims that the changes will hetp
smaller. reputable HHAs. tike non-profit visiting nurse associations, to obtain surety
bonds.

EXHIBIT

ma Ga


intermittent basis; physical and occupational therapy; speech language pathology services; medical
social services; personal care related to treatment of an illness or injury on a part-time or
intermittent basis; and medical supplies and durable medical equipment (beneficiaries must pay 20
percent of the cost of durable medical equipment).

GROWTH AND WASTE, FRAUD AND ABUSE

Unfortunately, this important benefit has been subject to widespread waste, fraud and abuse and
unsustainable growth. Home health care accounted for just 2.9 percent of all Medicare benefit
payments in 1990 but now accounts for nearly 9 percent. Total home health spending rose from
$4.7 billion (in 1994 dollars) in 1990 to $17.2 billion in 1997.

During the same time period, the number of beneficiaries receiving home health doubled from two
million to four million, and the average number of visits per beneficiary jumped from 36 to 80.
The mumber of home health agencies providing services to Medicare beneficiaries has grown
about 20 percent each year, from 5,656 in 1990 to 10,500 in 1997.

While some of this growth is due to changing demographics and medical advances, studies by the
HHS Inspector General and the General Accounting Office document that a significant amount is
due to waste, fraud and abuse.

Ina July 1997 report, Results of the Operation Restore Trust Audit of Medicare Home Health
Services in California, Illinois, New York and Texas, the Inspector General evaluated a sample of
3,745 services in 250 home health claims in four states and estimated that 40 percent of the
made appropriate payments based on the documentation submitted by the home health agencies.
‘However, investigation beyond the documentation revealed that the services billed for should not
have been paid for by Medicare because they were not medically necessary or not covered under
the Medicare home health benefit.


a7

the surety bond requirement for providers that met comparable surety bond requirements,
imposed by a state, the provision became even more onerous and costly. As a result, HME
providers that also participate in state Medicaid programs would be required to obtain two surety

bonds.

We believe there are several steps HCFA can take in both the short term and long term to address
‘our mutual concerns about fraud and abuse in the Medicare program:

1. Require all HME providers to obtain a surety bond of $50,000 in order to enroll or
re-enroll in the Medicare program. (Providers that are certified or licensed would
be exempted from this requirement.)

2. Permit a waiver of the federal surety bond requirement in states where a
comparable state surety bond requirement for HME exists. In other words,
require providers to obtain only one bond for both the Medicare and Medicaid
programs.

3. Require participation in an HME certification program in order to enroll in the
Medicare program. (Providers that are certified would be exempt from the surety

bond requirement.)

While we believe the bulk of the fraud and abuse in the HME services industry is being
committed by a small number of suppliers, NAMES has been and remains committed to
working with Congress and the Administration to eliminate all fraud and abuse in the HME
services industry. The Medicare HME benefit has been ripe for fraud because unlike most other

4


83

Mr. Chairman,

‘Thank you for the opportunity for the National Association for Home Care (NAHC) to
provide testimony on issues related to the Health Care Financing Administration's
(HCFA) efforts to implement the home health and durable medical equipment (DME)
surety bond statutes.

The National Association for Home Care is the largest national organization representing
home health care providers, hospices, and home care aide organizations. Among
NAHC’s nearly 6000-member organizations are every type of home care agency,
including nonprofit agencies such as the visiting nurse associations, for-profit chains,
hospital-based agencies and freestanding agencies.

NAHC is deeply appreciative of the attention the Chairman and Members of the
subcommittee have shown in efforts to combat fraud and abuse in federal health care
programs. All parties involved, including the providers of health care services, must
continually work to preserve the integrity of these programs and to eliminate any and all
waste. Through a cooperative interchange between government and the private sector,
crucial programs like Medicare and Medicaid will have a bright future as a means of
meeting the health care needs of our citizens. The home health care industry has been
and intends to continue to be in the forefront of these efforts.

I would also like to take this opportunity to acknowledge several members of the
Subcommittee who have called for reform of the interim payment system (IPS) that is
having a devastating impact on home health providers and beneficiaries. Specifically,
NAHC would like to commend Rep. Mike Pappas (R-NJ) for sponsoring H.R. 3567, the
“Medicare Home Health Equity Act” which would restore the home health cost limits to
112% of the mean and establish a more equitable per-beneficiary cap. In addition,
NAHC would like to thank Reps. Snowbarger, Gilman, Towns, Allen, Lantos, and
Sanders for cosponsoring IPS reform legislation and taking a stand in support of home
care providers and the beneficiaries they serve.

As part of its effort to stem fraud and abuse in health care, Congress set out a mandate in
the Balanced Budget Act of 1997 (BBA) for Medicare and Medicaid participating home
health agencies to maintain a surety bond. However, as a result of HCFA’s failure to
promulgate rational and appropriate regulations to implement the legislation, the
protection to Medicare and Medicaid that could be secured through the surety bond has
been delayed. It is our hope that through hearings such as the one being held by the
‘Subcommittee, the development and implementations of sensible regulations can be
advanced.

Background
HCFA has long had the authority to institute a bonding requirement for participation of

home health agencies as Medicare providers of services. As part of the Omnibus
Reconciliation Act of 1980, authorization was provided to establish bonding or escrow


5

include their written statements in the record, and, without objec-
tion, so ordered.

At this time, I recognize our first panel: Penny Thompson, direc-
tor of program integrity, Health Care Financing Administration.
You have been in office 2 months?

Ms. THOMPSON. Yes.

Mr. SHays. And also George Grob, Deputy Inspector General, De-
partment of Health and Human Services.

As you know, we swear in all witnesses when they testify, so if
you would stand and raise your right hand.

[Witnesses sworn.]

Mr. SHays. For the record, our witnesses have responded in the
affirmative; and I would like to say, to give you some guidance, we
request your statements be 5 minutes. It is important for our first
panel to be able to put on the record what needs to be put on, so
we allow you to go up to 10 minutes. So you will see the green light
go on and then a red light and then we will turn it to green for
a second round. If you can finish between 5 and 10. The second
panel we would like to keep their testimony as close to 5 minutes
as possible, except for the gentleman from Connecticut.

STATEMENTS OF PENNY THOMPSON, DIRECTOR, PROGRAM
INTEGRITY, HEALTH CARE FINANCING ADMINISTRATION;
AND GEORGE W. GROB, DEPUTY INSPECTOR GENERAL, DE-
PARTMENT OF HEALTH AND HUMAN SERVICES

Ms. THOMPSON. Chairman Shays, subcommittee members, thank
you for giving us the opportunity to describe our efforts to protect
the integrity of the Medicare home health benefit and implement
the BBA provisions requiring home health agencies to obtain sur-
ety bonds.

The home health benefit is essential to millions of Medicare
beneficiaries. Unfortunately, this benefit has also been subject to
widespread waste, fraud and abuse and unsustainable growth.
Until this year, home health agencies had to meet few standards
to participate in Medicare. The bond requirement is one of several
steps to raise the bar for home health agencies.

Because of the problems documented by the HHS IG, we declared
a moratorium on new home health agencies entering the program
last fall. The moratorium helped turned the tide of unsustainable
growth. The moratorium also sent a message to the industry that
we are serious about stopping waste, fraud and abuse.

During the moratorium, we developed the bond regulation, dou-
bled the number of home health cost audits and increased medical
review of claims. We have also established new minimum capital-
ization requirements for new agencies to ensure that we have
enough funds on hand to operate responsibly.

We instituted a new requirement that agencies treat 10 patients
at least before they are allowed to enter the Medicare program. We
look at the care they provide before they are allowed into the pro-
gram.

We have increased survey frequency for problem agencies. We
now have authority to exclude providers who have been convicted
of health-related fraud. We can require new agencies to disclose re-


1

HOMECARE

‘The Honorable Newt Gingrich
‘August 22, 1995
Page 4

B. _ Mandate Freedom of Choice Information as Part of the Discharge Planning
Process or Consumer Information Resources. Hospitals, nursing homes, payors, and consumer
‘groups (e. AAAS) shouldbe required give prospective home care patient ful information abou
the availability of qualified Medicare certified home health agencies serving their area.

C. __ Provide Detailed and Appropriate Explanations of Benefits to Users of Home Care
Services. Informing the user of the level of billing of a home health agency in a proper manner will
allow beneficiaries to join in the enforcement effort.

D. _Ban Assistance by Home Health Agencies to Physicians Regarding Physician Care
Billing. Home Health agencies should be prohibited from providing record keeping and bill
Preparation services to physicians regarding the physicians billing for his/her care to Medicare
patients.

E. Require Home Health Care Administrators to Meet a Standard of Certification
and Accreditation. The last several years have seen unbridled growth in the rise of Medicare
‘certified home health agencies. Inadequate standards are established for qualifications of home care
administrators beyond those affecting the quality of care. Administrators should be certified relative
to all standards of operation for a home health agency.

T hope that this information is helpful to you, Please let me know if I can be of further
assistance. I look forward to working with you and thank you for your leadership on this vital issue.

With best regards,

Sincerely,



81

If I am a home health agency, I cannot guarantee not only that
my employees do not fail to comply with the rules but, more impor-
tantly, that HCFA doesn’t change those rules retroactively, that
HCFA doesn’t reinterpret those rules retroactively, and even third
parties beyond that.

An illustration of that is out of the State of Florida. A home care
agency was subjected to a demand of half a million recoupment for
claims that were not properly certified by a physician. A require-
ment of Medicare coverage is proper certification. This agency
brought the claims to the physician’s office. The certification state-
ment was signed by somebody identifying himself as the physician,
dated appropriately as well. Only months later the agency finds out
that it wasn’t the physician who signed it but the office manager
trying to shortcut for that doctor all of the time necessary to com-
plete that paperwork. No repercussions to the physician, all victim-
ization being the home health agency. They were forced into the
position of paying back nearly a half million dollars for services
they delivered.

So overpayments are not necessarily just the fault of the home
health agency, but they are the fault of others who they cannot
control, and you can’t insure against that. I am not going to stake
my child’s education fund, my ‘Tome that I keep my family in, my
livelihood on the actions of people that I can’t role control. My own

can.

Years ago, I was an altar boy. I found out what values can bring
where we had to find our way into this clique of altar boys only
by shoplifting on Friday afternoon. If that is the sense of value
within altar boys, I am scared for the rest of the country. At that
point, I chose not to shoplift. I chose to go to law school instead.

We would recommend that the bond requirement be revisited
and, as stated by previous witnesses, be limited to true fraud and
abuse, that it be set at a $50,000 maximum and that agencies be
evaluated as to whether or not they are in good standing so as to
then waive the bond requirement for those agencies.

It was somewhat disconcerting to hear Ms. Thompson indicate in
retrospect that they wished they had gone through the rulemaking
procedures under the Administrative Procedures Act and the Regu-
latory Flexibility Act. We see nothing in their promise to revise
these regulations which indicate an intended compliance with those
rules in the next revision. We do not want to have to revisit this
problem again. That would be another one of our recommendations.

Mr. SHAYs. We will followup on that.

Mr. DomslI. Finally, we would encourage the committee to work
with us and others to continue to strengthen program admission
and participation requirements, to establish certification programs
on competency on all elements of program operation, claims and
coverage and reimbursement and the like.

We also encourage the establishment of appropriate standards
for operation for the government agency and its agents as well. The
appeal reversal rate is outstanding. Eighty percent of all claims re-
viewed by an ALJ are reversed. That is an error rate well beyond
allowability.

Finally, we think that it is important that a mandatory compli-
ance plan be required of home health agencies. The Office of the


107

cee ening Admunste

Se 7500 SECURITY BOULEVARD

[BALTIMORE MD 21248-1850
war 20 1996

‘Mr Michael Kinslow

‘National Association for Home Care
228 7th Street, SE

Washington, DC 20003,

Dear Mr. Kinslow

This office received your request for information on the percentage of reversals for home health
‘care at the reconsideration level and the ALJ level. The following data is provided in response to
‘your inquiry. Please note that the information is for home health agencies and hospice care Our
data collection does not separate these entities

Intermediary Part A Reconsideration Data, HHA/HOSP

Fiscal Year 1995 (Oct 94 thru Sep 95)

Total Reconsideration Requests Processed 40,107 .
‘Number with Increased Payments 18,691

Percentage of Reversals 46.6%

Intermediary Part A ALJ Hearings, HHA/HOSP
Fiscal Year 1995 (Oct 94 thru Sep 95)

Total ALJ Hearing Requests Completed 5,08
Number with Increased Payments. 4440
Percentage of Reversals 80.6%

hope the above information is helpful If additional assistance is required, please contact Beverly
‘Sgroi, of my staff, at (410) 786-7638.

Sbge dy

Manager, Appeals


92

reimbursement as well as the opportunities to commit cost report related
fraud.

5, Improved consumer information regarding Medicare home health services.
The consumer should become an active partner in securing the integrity of the
home health benefit. This can only be done through adequate information
regarding Medicare standards.

6. Improved government performance standards. Currently, HCFA has limited
and inadequate standards for determining internal performance quality and the
quality of performance of its agents, the intermediaries.

7. Competency testing of program administrators to complement that of provider
participants.

8. Establishment of collaborative education where both providers and the
intermediaries can be trained and educated in a consistent manner.

9. Establishment of outcome based compliance standards. HCFA has long
operated through a series of prescriptive requirements which ultimately have
little bearing on outcome performance. For example, a claim may be denied
for a technical reason such as lack of a physician's order, forcing the provider
of services into an appeals process to prove the existence of that physician’s
order. A much less expensive and time consuming reopening could easily
accomplish the same result. On a positive note, HCFA is moving toward
‘outcome based compliance standards for quality of care controls. These
regulations are expected in 1999.

10. Issuance of rules in plain English and compliance with the APA. In the last
two years, HCFA has shown an increasing tendency to avoid public
rulemaking. This can lead to disastrous results as shown with the surety bond
rule,

A Changed Environment at HCFA

NAHC, since its inception in 1983, has worked with HCFA. HCFA has adopted various
philosophies in dealing with providers of services over that time. At one point, HCFA.
viewed providers as both partners and customers. That relationship no longer exists.
Instead, it appears that HCFA views providers as adversaries and presumptively
fraudulent. Handling of the surety bond rule promulgation evidences this attitude.

From the enactment of the surety bond requirement under the Balanced Budget Act of
1997, NAHC attempted to open a dialogue with the policy makers at HCFA. At every
tum it was apparent that they heard but did not listen to what home care had to say about
the developing surety bond requirements. While HCFA officials were willing to meet
with NAHC and receive NAHC telephone calls, these meetings and calls did not lead to
open discussion. Crucial pleas to expedite the timely issuance of implementing
regulations were ignored, leading to the initial promulgation on January 5, 1998 with an
effective date of January 1. Prior to that time, home care agencies from across the
country experienced high anxiety over attempting to comply with yet to be issued rules
where failure to comply meant risk of program termination.


60

Through significant discussions between the surety industry and HCFA,
HCFA determined that certain technical corrections to the regulations would
assist in making this bond more available, while still preserving the protections
HCFA desired, i.e., a bond to secure overpayments. A notice of intent to make
those changes was published in March, and the actual changes were made in
June. It appears that the drafters of the HHA regulations did not anticipate the
effect of a financial guarantee-type surety bond on the interest of sureties to write
the bonds and the requirements which would be imposed on HHAs to obtain the
bonds by those sureties that remained in the market.

It is our understanding that very few bonds were written for HHAs prior to
the publication of the March notice of intent, despite the original deadline for
submitting bonds of February 27, 1998. Between March and the publication of
the June 1% technical corrections, many surety companies individually
determined that, based on the regulatory changes enumerated in the March
Notice of intent, they would be able to be a viable market for these bonds after all.
Companies established entire departments devoted to this new product and
marketed it aggressively. As the date by which bonds were required to be filed
approached, more and more HHAs obtained bonds. It is our understanding that
by June 11, 1998, forty-one percent of all HHAs required to get bonds had filed
them with a fiscal intermediary. Prior to publication of the June technical
corrections, thirty-three percent already had obtained bonds. According to a
listing produced by the fiscal intermediaries, approximately sixty-five separate
surety companies have written bonds for HHAs under the existing regulations.

It is impossible to estimate how many applications for bonds have been
submitted, and how many rejected. We have been told that some HHAs have not
submitted applications since the date for filing the bonds continued to be
postponed. Further, we have been told that some have not submitted
applications because of a belief that Congress will change its mind and eliminate
the surety bond requirement. We do know that some HHAs have chosen not to
purchase a bond because they are not willing to comply with the requirements of
the surety offering the bond. Certainly there are HHAs who cannot obtain a bond
because they do not have the necessary financial capacity, either in the business
or personally.

Two things particularly have affected the availability of these bonds for
small HHAs: the type of obligation, i.e., financial guarantee; and the requirement
that the bond be in an amount of not less than $50,000 each for both Medicare
obligations and Medicaid obligations. These two factors may have combined to
make the implementation of the bond requirement problematic for some small
businesses. However, that is very difficult to determine at this point.

It is our belief that if the date to provide bonds had not been postponed
indefinitely, a significant percentage of the HHAs required to have bonds would
have filed them by the July 31“ deadline. Surety companies were writing these


56

surety’s pocket. Those are the two benefits, prequalification and
then the claims-paying process.

From the government’s perspective, what the surety guarantees
is that the principal; in this case, today’s discussion, the HHA, will
provide the services that they say they will provide, and they will
only take dollars from the taxpayers for services that are actually
provided.

The availability of a bond and the underwriting terms of a bond
will depend totally on the obligation that is being guaranteed. The
potential amount of the loss must be balanced with the likelihood
that there will actually be a loss and that the surety will be called
upon to perform.

The Surety Association has worked with HCFA staff beginning
in the late summer or early fall of 1997 to provide technical assist-
ance from our experience in the surety industry as they worked to
implement the BBA surety bond mandate. We explained how sur-
ety bonds worked, what types of surety bonds there are, what kind
of provisions normally would be in a surety bond, what type of pro-
visions normally would adversely effect the marketplace if they
were included in a surety bond requirement, and we even went so
far as to provide a sample bond form to HCFA back in October of
last year, an antifraud bond which I believe we have attached to
the written testimony.

In January 1998, a final rule was published, and the type of
bond that was required under that final rule was what we would
call a financial guarantee surety bond, a bond that would guaran-
tee repayment of overpayments, not just repayment of losses to the
Medicare system caused by fraud or abuse. This financial guaran-
tee type bond is more difficult to underwrite from a surety’s per-
spective than a simple antifraud bond.

Again, you go back to what is the obligation and what has to be
considered. The potential of loss, as we understand the overpay-
ment system and the repayment system, is particularly high. Now
that the IPS has been put in place, it appears from our limited un-
derstanding of the Medicare system that overpayments are vir-
tually insured at some point. Certainly they are very commonplace
in the system.

So, first, you have to evaluate, are there going to be overpay-
ments? Second, you have to evaluate, is the HHA going to be able
to repay those overpayments in the regular routine process of the
HCFA system or is there going to be a loss caused by that? If there
is a loss caused by that, meaning the surety comes in and repays
those overpayments, the surety then has to evaluate, will the HHA
be able to repay the surety its losses?

It is important to understand the primary principle of suretyship,
and that is: the surety is secondarily liable. In other words, the
surety guarantees that someone else will perform what he or she
promises to perform. That person remains liable. What we do as a
surety is guarantee that that person’s failure does not cause losses
to the taxpayer. That does not mean that we then don’t go against
the person who is primarily liable to recover our losses.

We understand that some HHAs are very uncomfortable with the
underwriting criteria for the financial guarantee bond. Again, it is
a continuum. If you have a bond with a lesser obligation, you are


18

Twenty percent of the suppliers were absent from their business
addresses at the time of our inspection. In those cases where we
were able to interview a representative, we found obvious failures
to meet Medicare supplier requirements. Forty-five percent pro-
vided no consumer information, 20 percent did not allow for return
of unsuitable items, and 17 percent did not provide for warranty
repairs.

For both home health and medical equipment, the ease of acquir-
ing a Medicare or Medicaid billing number is a serious pro-
grammatic vulnerability. At the time of our study, there was little
or no investment required and very little verification of application
information. Applicants needed no health care credentials and were
not required to demonstrate financial integrity or fitness for man-
aging a business.

It is conceivable that the cause of these errors could have ranged
through the following spectrum: They could be due to innocent er-
rors, perhaps incompetent management, perhaps irresponsibility
and recklessness, perhaps abuse and exploitation, perhaps outright
fraud. But the result is the same. It is a loss of programmatic and
tax dollars and the risk of even more loss.

We have made numerous recommendations to overhaul these
programs and tighten up entry to and oversight of them. One of the
recommendations was for surety bonds. This was included in the
recently enacted Balanced Budget Act.

The Health Care Financing Administration issued a final rule for
home health and a draft rule for medical equipment in March of
this year. However, because of concerns raised by the home health
industry and Members of Congress, HCFA announced it would sus-
pend the home health surety bond requirements and await the
findings of a GAO study of the issues.

Prior to the suspension of the rules, approximately 40 percent of
the Medicare home health agencies had obtained bonds. This may
be seen as an indication that it is possible for home health agencies
to obtain bonds or that it is not possible. If the latter interpretation
is correct, then Medicare and Medicaid are facing a serious di-
lemma. If private sector surety companies are unwilling to back
these agencies, is it appropriate to expect Medicare and Medicaid
programs and taxpayers to step in and do so? There must be a mid-
dle ground where legitimate agencies can survive and compete in
the marketplace While the Medicare trust fund and State Medicaid
programs are protected from risk.

We offer the following principles for consideration.

First, all home health agencies and medical equipment suppliers
should be required to obtain surety bonds.

Second, the amount of the bond should be sufficient to discourage
fly by-night providers from entering the program and to provide
some continuing financial protection to Federal and State programs
from the risks inherent in the program.

Three, the amount of the bond should be related to the experi-
ence of individual home health agencies and medical suppliers as
well as these industries as a whole.

And, four, the surety bond requirement should be subjected to
periodic evaluation to gauge its effect on Medicare and Medicaid
programs and their service providers.


47

I think now it is more difficult. We are really beginning to tight-
en that up and get that under control. I am heartened to see those
reforms and those mechanisms put into place where we can do
background checks on people, have more stringent requirements for
their medical care ability, as well as their business ability; so I am
heartened by what has happened in the years right before the law
was passed.

Mr. SNowBarGER. Is the agency doing more to investigate these
applications before they are put into the payment system?

Ms. THOMPSON. Yes, we are. We have a new provider of enroll-
ment process. We have established new capitalization require-
ments.

Mr. SNOWBaRGER. I understand that we have raised the bar, and
somehow we think that screens folks out, which I am not sure is
the case. Apparently, it didn’t screen out the $5 million loss; maybe
that was before this was put in place.

Ms. THOMPSON. Yes, it was.

Mr. SNOWBARGER. I have concerns that any time the Federal
Government sets up a new payment program—by now we should
have figured out somebody somewhere is going to figure out a way
to take advantage of that, and you would think at some point in
time the Federal Government would get ahead of them and prevent
that entry.

Mr. Grob, you indicated in answer to Mr. Pappas’ question, even
if most of this 20 percent that you found in the four States was the
result of innocent error, you would be concerned about a system
that has that kind of error rate?

Mr. Gros. Yes.

Mr. SNOWBARGER. I am, too. I think we ought to be looking at
the system and seeing whether or not that is operating appro-
priately as long as we are looking at all of these things and intend-
ing to call it “fraud and abuse,” which I doubt.

Let me go to a different kind of question. Surety bonds come in
different ways. One, you might say, is sort of faithful performance
in the sense that they assure that there is not fraud and abuse. A
second level gets you to financial guarantees, which may more di-
rectly impact the overpayment situation.

It seems that HCFA has gone more toward the latter—of finan-
cial guarantee, as opposed to surety bonds that go more toward the
fraud and abuse. Could you explain why we have gone that direc-
tion as opposed to just trying to protect the fraud and abuse—
against the fraud and abuse?

Ms. THOMPSON. Our interpretation of what Congress intended
was that we were to use the surety bond as a protection from both
the unscrupulous and the fraudulent and the irresponsible. I think
there are figures in my testimony on the amount of overpayments
uncollected from home health agencies and the amount is growing
as a percentage of overpayments.

We decided that the goal was to provide both a screening mecha-
nism to prevent unacceptable home health agencies from entering
the program and also to provide security for the program in the
way that—the financial protection against defaults owed to the
government, and so we thought that a performance bond gave us
what we needed.


51

Next question, in the committee brief there was a reference made
that HCFA had notified Congress on June 25, 1998, attachment 7,
and it is this document here, and I just tried to skim it to see if
I could find where within this this might be contained. But the
committee memo states, “Because of the need to focus far more re-
sources on the year 2000 computer problems, several of the BBA-
mandated changes, including a prospective payment system for
home health, were being postponed until after January 1, 2000,”
and I am wondering if you can elaborate on that.

Ms. THOMPSON. That is correct. What the administrator has done
at the advice of a number of different people is to take a hard look
at our year 2000 problem priorities and establish a list of things
that we can and can’t do. The private and public sector are strug-
gling to make sure that all of their systems are compliant by Janu-
ary 1, 2000. That is the top priority for HCFA.

‘We have gone through a very difficult process and I might say
painful process of looking at all of the things that we need and
want to do that affect our systems and our ability to accommodate
those changes and meet our Y2K needs.

The administrator has decided and on the list of things that we
cannot do is home health prospective payment, in part because of
the timing. We have been given the advice that the last thing that
we want to do in the last quarter of 1999 is introduce significant
new system changes, and that will disrupt us from potentially
meeting our goal on January 1.

Mr. Pappas. I don’t mean to be out of order, Mr. Chairman, and
insert another subject into this hearing, but the agencies are hav-
ing to deal with both of these issues. And Mr. Schneider represents
one agency, and I am sure that there are others who do or work
with other agencies, and that is something that we are responding
to because we are representing these folks.

Mr. Suays. If the gentleman will suspend, the longer you are
here, you realize you seize the opportunity when you have it, so
feel free.

Mr. Pappas. I just want to work with you and your agency. The
IPS I view as very problematic. Agencies are going to find it very
difficult, and Mr. Schneider will probably talk about the over
$50,000 expenditure that they are having to make which is affect-
ing the ability to provide service. And with the IPS possibility of
having to lay off people, all of this is affecting the citizens that we
are trying to serve.

And if they are being forced into an institution which could re-
quire greater reimbursement by Medicare, what we are saving?

at are we accomplishing? So the left hand is not necessarily
knowing what the right hand is doing and what is that accomplish-
ing in the bigger, overall scheme of things?

Thank you, Mr. Chairman.

Mr. Suays. I am going to read just a paragraph from Mr. Grob’s
testimony on page 2. He wrote, “When Medicare was established,
it was not designed with potentially abusive billers and defrauders
in mind. The structure of Medicare’s claims system is based on the
assumption that providers normally submit proper claims for serv-
ices actually rendered, that are medically necessary, and that meet
Medicare requirements. However, the home health benefit has been


80

Mr. Suays. Mr. Dombi.

Mr. Domai. Thank you for the opportunity and support that this
committee has given to the very difficult efforts to address fraud
and abuse in health care, and in particular I thank Mr. Pappas for
his support on the IPS issue of trying to deal with the difficult bal-
ance of efficient program management while retaining access to
care.

Mr. Suays. You are not from New Jersey and you want to thank
the gentleman?

Mr. Domai. No. In that respect, I am a Connecticut native, a
graduate of the University of Connecticut, undergraduate and law
school, a diehard UConn Husky fan.

Mr. Suays. Say no more. You have 10 minutes.

Mr. Dost. And I drove through New Jersey on my way to
Washington.

Mr. Pappas. Right through my district.

Mr. Suays. Start his clock over. I interrupted him.

Mr. Domsi. Thank you for that.

We heard Mr. Grob speak in terms of the various percentages of
waste, fraud and abuse in home health care. We don’t care whether
it is 40 percent or 5 percent. Zero tolerance is the standard.

The major problem that came to home care was its massive over-
night growth, both in terms of the numbers of providers, the utili-
zation of services, the selection of patients, the marketing tech-
niques and everything else. The only right value that works with
home care when dealing with Medicare and Medicaid is the value
of caring. If someone comes into the Medicare program with a
value different than that, they are sadly mistaken as to where they
will end up. If they intend to commit fraud, it is a victimization of
all of those good providers as well as the Medicare program, its pa-
tients and the American people at large.

Is a surety bond the solution to that? Unfortunately, we believe
it is an inadequate solution. It does not address the character of
the people who come into the program, and even more importantly
perhaps, it doesn’t address their competency. We have long advo-
cated for very strong admission standards into the Medicare pro-
gram, and as Ms. Thompson indicated, there have been changes
along that direction but the changes to date are still inadequate.

It is important that a home health agency demonstrate its capac-
ity to deliver quality of care. We believe that it is also important
that they demonstrate their ability to financially manage the orga-
nization, to make a determination between covered and non-cov-
ered services, and to ensure compliance with the myriad of rules
and regulations that govern the Medicare program.

Caring has to drive the home health agency because, with the
Byzantine nature of the Medicare structure, it is the only way that
you can retain your sanity. It is because you see what is important
at the end of that effort.

The surety bond itself was intended as a device to keep out the
fraudulent and abusive providers of servicers. It can be strength-
ened to accomplish that end, but as a device to deal with overpay-
ments, with the nature of the bond generally requiring personal
guarantees of that obligee, we are looking at something which can-
not work.


142

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~~ 9MOY ay 081d ou $,279q1,
suepy uijeung ig

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185

4, The total aggregate maximum liability of the Surety under this Bond, including interest, is
the Penal Sum stated above without regard to the number or amount of unpaid claims and
the number or amount of unpaid civil money penalties or assessments asserted against or
\mposed upon the Principal

5. The Additional Requirements set forth in 42 C.F.R. section 489,66 on the date the Surety

cecutes this Bond are hereby incorporated by reference and are binding on the Principal

and Surety to the same extent as if set out verbatim herein.
6. HCFA is the sole Obligee of this Bond, and no action may be brought on it by, or for the
use or benefit of, any person or entity other than HCFA or its fiscal intermediaries,

* Because ofthe recent suspension of the surely bod requremont, we are ateming to cance!
the second Medicare bond we purchased, and recover the $500.

4. __Antifraud recommendations that we believe may help to ensure fewer problems of
waste, fraud and abuse in the home health industry.

Many of the “new requirements" for initial applications and recertification appear to be sound and
reasonable in their effort to prevent waste, fraud and abuse. However, | am extremely concemed
about the use of the surety bond under the current regulations. In addition, the moratorium only
‘caused a painful and costly delay in our obtaining Medicare certification as a Home Health Agency. |
do not believe it has anything to do with preventing waste, fraud and abuse , and should not be a tool
to utlize in the future.

But why waste our precious resources adding new conditions, processes and regulations in fighting
fraud and abuse, when we have good systems in place in some states and regions that appear to do
that job already? | am speaking about the individual state licensing and certification programs, with
multiple and complex tools in place. The New England region, and the state of Maine in particular do
‘not appear to have these horrific problems that continue to be sensationalized and applied to the
Home Health industry as a whole. Yet, we are being punished, driven out of business and
persecuted by these McCarthy-lke tactics that are evident in the Wedge surveys, HCFA mandates
like sequential billing, and a general attitude of WE" versus “THEY”.

Where is the patient in all of this?

Instead of reacting, we need to work togather to strengthen the systems we already have in place
that are working. When there is evidence of actual fraud and abuse there should be severe
consequences, including fines, criminal prosecution and elimination from the Medicare program,
when appropriate. But if there are unintentional errors due to human mistakes, do not call this fraud
and abuse.

In closing, it seems important to remind everyone that what we are really trying to do is provide the
right care and services to the patients without bankrupting the Medicare program. Hopefully, the
prospective payment system for home care will help address the financial aspect. As for the patient
‘care issue, we all need to embrace the vision of York Hospital and “Patient Approach To Health”.

PAGE

‘York Hospital Home Care Testimony, JULY 22, 191



13

health agency in connection with bonding may not be reimbursed by Medicare. We are evaluating
‘our options to see if there is any way to accommodate these agencies.

Higher Standards

Medicare has taken other steps to raise standards for home health agencies and protect program
integrity, We established new minimum capitalization requirements for new agencies to ensure
that they have enough funds on hand to operate responsibly. We instituted a new requirement that
agencies have treated at least 10 patients before they are allowed to enter the Medicare program.
We now look at the care home health agencies provide before they are allowed into the program
We have increased survey frequency for problem agencies. We have authority now to exclude
providers who have been convicted of health care-related fraud, and we can require new agencies
to disclose related party ownership so we can determine whether any principals have a history of
questionable practices. And we have proposed new regulations which require agencies to use a
standardized system to assess patient needs and improve quality of care.

‘The minimum capitalization requirements ensure that new agencies are financially sound and able
to finance their services for the first few critical months after entering the Medicare program, The
requirement that agencies serve at least 10 patients before entering Medicare allows us to evaluate
the quality of care they provide, not just their administrative set-up as did the old survey process.

During the moratorium, we instructed state survey agencies to focus on home health agencies that
have egregious deficiencies or that are repeat offenders. Any home health agency identified in any
State, regional, or national fraud and abuse initiative is now surveyed at least once a year, versus
every three years for HHAs with good performance records.

‘We now have authority to refuse to let a home health agency owner participate in Medicare if
they have been convicted of a felony. If they have been convicted twice for a health related crime
for which a mandatory exclusion can be imposed we can exclude them for a minimum of 10 years,
and upon a third conviction we can exclude them permanently. We can also exclude their family


Thankyou for 's Hogpe Care. I
Tt i Pa Hospials Howe herent

OF Social Worker

PATIENT CARE- (Did we mect your expections?) -
© Were vies kept as schehaled? Bre “Ono ' *
+ Did we provide he services cha you expec? Wes Osomewkt No

Were your care providers :
nowiedgesble about healthcare?

+ Were your cae providers oqurteous
snd professional?

‘+ Were you pleased with your involvement
in the planning of your care?

‘© Would you recommend us toa friend? ©
© Overall, were you pleased with the service? Wey C Somewhse © Oi Dissatisfied



55

ordinator, York Hospital Home Care, York, ME; Steve Richard,
CFO, Sun Home Health Service, Northumberland, PA; and Steve
Schneider, CEO, VNA of Central New Jersey. Welcome all of you.

Tam going to do it in the order that I called, so it is going to
be Schubert, Koniers, Dombi, Quinn, Richard and Schneider; and
I ask you at this time if you would stand and raise your right
hands, please.

(Witnesses sworn.)

Mr. Suays. For the record, all six of the witnesses have re-
sponded in the affirmative.

We will let you go over the 5 minutes a little bit. Frankly, I wel-
come witnesses using some of their time to talk about the questions
that we asked the previous panel because those are obviously
things that we are focused in on, and you are probably in some
cases eager to respond to them since this is your field and your
area.

We will start with you, Ms. Schubert.

STATEMENTS OF LYNN M. SCHUBERT, PRESIDENT, SURETY
ASSOCIATION OF AMERICA; BILL KONIERS, SENIOR VICE
PRESIDENT FOR BUSINESS DEVELOPMENT, AMH HEALTH
GROUP, INC., CONNECTICUT; WILLIAM A. DOMBI, VICE
PRESIDENT FOR LAW, NATIONAL ASSOCIATION FOR HOME
CARE; JAYNE F. QUINN, HOME CARE COORDINATOR, YORK
HOSPITAL HOME CARE, YORK, ME; STEVEN RICHARD, CFO,
SUN HOME HEALTH SERVICE, NORTHUMBERLAND, PA; AND
STEVE SCHNEIDER, CEO, VNA OF CENTRAL NEW JERSEY

Ms. SCHUBERT. Thank you. The Surety Association is a nonprofit
trade association of companies that write surety bonds. Our 650
member companies write the overwhelming majority of surety
bonds written here in the United States and around the world, in-
cluding bonds that protect the Federal Government such as Cus-
toms bonds or contract bonds that are written for Federal construc-
tion projects. In that instance, the Federal Government is the per-
son that is protected or the party that is protected, what we call
the obligee on the bond. On a bond that has the Federal Govern-
ment as the obligee, we think one of the major benefits is that it
protects taxpayer dollars.

From the beginning, the Surety Association has supported the ef-
forts of Congress and the Health Care Financing Administration to
combat fraud in the Medicare and Medicaid systems. We were
pleased to see Congress again recognize the value of surety bonds
in the BBA of 1997. We believe that surety bonds are a valuable
tool.

And in answer to the chairman’s question to Mr. Grob, there are
two major things that surety bonds do: First, they provide
prequalification. They prequalify parties being paid with taxpayer
dollars to ensure that they will be parties that will properly apply
those taxpayer dollars; that they will be paid for services that they
are actually providing.

The second thing they do is pay claims. If the surety is wrong
in its prequalification process, which unfortunately does happen in
the surety industry, the surety guarantees that those moneys will
not be paid from taxpayers dollars but instead will come out of the


2

sions and other safeguards to bar unqualified and predatory pro-
viders.

But now, almost a full year later, we still face very troubling

uestions: Was the moratorium an effective antifraud tactic? What

laws in HCFA’s implementation strategy resulted in the recent
suspension of the surety requirement after 40 percent of home
health agencies had obtained bonds? And what will HCFA do now
to address the continuing vulnerability of Medicare home health
and durable medical equipment payments?

To some, the moratorium was little more than HCFA’s well-pub-
licized admission the home health program was out of control. It
indiscriminately harmed qualified and unqualified applicants alike,
while the bad actors already in the program got 4 more months
with additional legitimate competition.

Meanwhile, HCFA ventured clumsily into the complex field of
surety bonds, issuing two versions of regulations still widely criti-
cized as: beyond the statutory mandate; unrealistic under prevail-
ing underwriting standards; and harmful to small and minority-
owned businesses.

Surety in express of $50,000, up to 15 percent of prior year Medi-
care billings, was beyond the reach of some agencies, particularly
nonprofits. In demanding bond coverage for overpayments, as well
as losses to fraud and abuse, HCFA apparently failed to consider
the effects of the new home health Interim Payment System [IPS]
on providers. According to home health agencies, the IPS makes
overpayment far more likely, while severely restricting the cash-
flow needed to qualify for a bond to cover overpayments.

Still, almost 40,000 home health agencies obtained surety bond
coverage before HCFA announced suspension of the implementa-
tion date, pending a General Accounting Office [GAO] study. De-
layed implementation punishes those who complied and rewards
those unwilling to incur the expense of a bond. Going forward,
HCFA must reverse those incentives.

Our previous hearings and oversight reports on health care fraud
concluded HCFA needs stronger tools and better management to
keep problem providers out of Medicare. If properly managed, sur-
ety bonds could be such a tool. Today we ask HCFA, providers and
insurers how that tool, and others, can be used to assure the finan-
cial responsibility of those who care for Medicare beneficiaries.

The bottom line: This is not just a financial issue. Unqualified
providers affect the quality of care.

We welcome the testimony of our witnesses today as we continue
to pursue oversight findings and recommendations to fight health
care fraud and protect the quality of Medicare.

At this time, I recognize my partner in this committee, the rank-
ing member, Mr. Towns.

ir. TOWNS. Thank you very much, Mr. Chairman, for holdin;
this hearing today on home health care agencies and the propose:
Federal bonding requirement. Recently, the Health Care Financing
Administration decided to postpone the implementation of its sur-
ety bond rule, and this decision was met with relief by the indus-
try, concern by regulators and confusion by everyone else. Hope-
fully, today we will clear up some of the confusion and discuss the
role of surety bonds in combating fraud, waste and abuse.


174

Statement
of the
American Orthotic and Prosthetic Association
Submitted to
The House Committee on Government Reform and Oversight
for the July 22, 1998
Human Resources Subcommittee
Oversight Hearing
on
Medicare Home Health Programs

The American Orthotic and Prosthetic Association (AOPA) is pleased to
submit this statement on the issue of surety bond requirements for the
record of the July 22, 1998 Oversight Hearing on Medicare Home Health
Programs.

The American Orthotic and Prosthetic Association represents nearly 1,900
orthotic and prosthetic patient care facilities, manufacturers, and suppliers.
O&P suppliers do not simply “supply” products, they deliver a complex set
of health care services that include patient assessment, custom fabrication
and fitting of artificial limbs and orthopedic braces for specific patient
needs. They also provide significant training evaluation, and follow-up
care as a part of the rehabilitation process.

Section 4312(a) of the Balanced Budget Act of 1997 (BBA °97), Pub. L.
105-33, which was enacted on August 5, 1997, amended section 1834(a) of
the Social Security Act by adding a new paragraph (16). That new
paragraph requires the Secretary, as a condition of providing for the
issuance or renewal of a provider number for a DME supplier for purposes
of payment under the Medicare statute, to provide the Secretary, on a
continuing basis, with a surety bond. Section 1834(a)(16), as amended by
section 4312 (c) of the BBA ’97, further provides that the Secretary may,
at the Secretary’s discretion, impose a surety bond on some or all providers
or suppliers who furnish items or services under Medicare Part B other
than physicians or other providers.


163

Mr. SHays. You've got the last word.

Thank you very much. You all were very helpful, and we appre-
ciate it. And we’re going to try to weigh in I think before we write
a formal report and see if we can write a letter based on the hear-
ings and the testimony today. Thanks so much.

‘his hearing is closed.
(Whereupon, at 1:10 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record follows:]


72

Mr. Chairman, the principal benefit of surety bonds is to discour-
age unethical and unscrupulous individuals from entering a par-
ticular line of business, whether HME or home construction. Unfor-
tunately, it appears from the outside that the HCFA officials who
were charged with implementing the surety bond requirement
failed to recognize that, while surety bonds may be effective at pre-
venting fraud, they are not appropriate for addressing overpayment
concerns.

Because HCFA tried to accomplish too much with its surety bond
proposal for home health and HME, the agency ran into a buzz saw
of opposition from the affected industries and bipartisan Members
of Congress. As we recently saw, HCFA has withdrawn its surety
bond proposal for home health agencies and in conversations with
the HCFA staff we have been led to believe that the HME final
rule may be delayed while HCFA and the GAO study this issue

‘urther.

As we said in our comments on the proposed rules, NAMES con-
tinues to believe that a $50,000 surety bond requirement is reason-
able to enter the Medicare program. However, increasing that re-
quirement to 15 percent of a company’s Medicare business up to $3
million went far beyond the congressional intent. More impor-
tantly, HCFA took a surety bond requirement that would have im-
posed a reasonable cost on the HME services provider and multi-
plied that cost to a level that was prohibitive.

In addition, by failing to exercise the authority Congress gave
HCFA to waive the surety bond requirement for providers that met
comparable surety bond requirements imposed by a State, the pro-
vision became even more onerous and costly. As a result, HME pro-
viders that also participate in State Medicaid programs would also
be required to purchase two surety bonds.

We believe that there are several steps HCFA can take in both
the short and long term to address our mutual concerns about
fraud and abuse in the Medicare program.

One, require all HME providers to obtain a surety bond of
$50,000 in order to enroll or reenroll in the Medicare program. Pro-
viders that are certified or licensed would be exempt.

Two, permit a waiver of the Federal surety bond requirement in
States where a comparable State surety bond requirement for HME
exists. In other words, require providers to obtain only one bond.

Three, require participation in an HME certification program in
order to enroll in the Medicare program. Providers that are origi-
nally certified would be exempt from the surety bond requirement.

While we believe that the bulk of fraud and abuse in our services
industry is being committed by a small number of suppliers,
NAMES has been and remains committed to working with Con-
gress and the administration to eliminate all fraud and abuse in
our industry. The Medicare HME benefit has been ripe for fraud
because, unlike most other areas of Medicare, the ability to deliver
HME services has been open to virtually anyone. While the surety
bond requirement will cause a significant percentage of illegitimate
HME suppliers to leave the business, and we applaud that fact, it
alone will not restore confidence in HME suppliers like the AMH
Health Group.


27

submit an independent audit of their records and practices. If the agency does not meet the strict
new enrollment requirements, they will not be renewed as providers in Medicare. This will help
to detect fraudulent practices. Additionally, HCFA now requires agencies to serve a minimum of
10 private-pay patients prior to seeking Medicare certification. Serving private-pay patients will
demonstrate experience and expertise in the field before an agency is allowed to serve Medicare
and Medicaid’s vulnerable populations. Further, HCFA will increase the number of claim
reviews from 200,000 per year to 250,000 and the number of home health agency audits will
double.

‘One key change that has been implemented by HCFA is a requirement that home health agencies
supply information about related businesses they own. Often, unscrupulous home health
agencies funnel fraudulent activities through subsidiaries or front companies that don’t really
exist. Home health agencies are also required to provide information pertaining to individuals
and entities deriving financial benefit from the Medicare program. For example, information is
required as to the identity of each person with an ownership or control interest in the enrolling
entity or in any subcontractor that the enrolling entity has a direct or indirect ownership interest
of 5 percent or more. Similar information is required for managing and directing employees.
‘Home health agencies will have to file the form for the every-three-years recertification HCFA is
planning.

Regional home health intermediaries will now be required to develop information systems which
will enable them to scrutinize related business interests far more closely than in the past. For
‘example, intermediaries will check on the accuracy against information such as state and local
business registrations, bankruptcy, lien and judgement records. A history of related business
problems, including bankruptcies, serious legal actions, felonies, a lack of business activity and
slow payment to creditors would trigger medical reviews or audits of the home health agency in
question and effectively serve to screen out prohibited providers. Knowing that a related
business has a history of bankruptcy, for example, could help HCFA make certain the home
health agency doesn’t walk away from an overpayment debt owed Medicare.

Surety Bond Requirement

To establish the financial stability of home health providers serving Medicare and Medicaid
patients, and to implement the Balanced Budget Act mandate, HCFA issued its final rule
requiring surety bonds for home health agencies on January 5, 1998. This rule requires home
health agencies to post a bond obtained from an acceptable authorized surety compeny in an
‘amount that is the greater of $50,000 or 15 percent of the annual amount Medicare pays the home
health agency as reflected in the home health agencies most recently accepted Medicare cost‘
report. The 15 percent standard was adopted to allow HCFA more protection by permitting if to
apply the standard to more recent payment history. Additionally, HCFA has the optiod to
substitute the amount of prior overpayments as the bond amount when the overpayment amount
exceeds 15 percent of payments. In addition to the surety bond requirements, a home bealth
agency entering Medicare or Medicaid on or after January 1, 1998 must demonstrate that it
actually has available sufficient capital to start and operate the home health agency for the first
three months. In the final rule, HCFA said that it also intends to explore the possibility of
allowing home health agencies to furnish a government security in lieu of a surety bond, as
authorized by the Department of Treasury regulations.

‘House Commitee oa Goverment Reform and Oversight
‘Subcommittee on Human Resources: Hearing July 22, 1998 Paget


70

extension thereof shall be effective immediately upon HCFA's receipt

of the written notice;

(b) immediately upon the furnishing by Principal and acceptance by

HCFA ofa replacement Bond;

(c) immediately upon Principal ceasing to be an approved Medicare

provider; or

(d) immediately upon HCFA learning that Principal or any of its

officers, directors, stockholders or employees has committed a dishonest

or fraudulent act in connection with any federal or state government
contract including, but not limited to, any contract for Medicare or other
health care services or equipment.

'

3. The total aggregate maximum liability of the Surety is the Penal Sum
stated above without regard to the number of claims, the number of dishonest
or fraudulent acts, the number of officers, directors, stockholders or employees
involved, or the number of years this Bond may have been in effect.

4. HCFA is the sole Obligee of this Bond, and no action may be brought on it
by or for the use or benefit of any other person or entity.

5. No action may be brought on this Bond more than two (2) years after
termination of the Bond pursuant to paragraph 2 above.

In witness whereof we have set our hands and seals on this day of
1997.

By:

Surety:


146

one of my staff and one of Mr. Towns’ staff, but I did not think that
a $10,000 to $15,000 cost was a significant cost.

Mr. RICHARD. In our situation, the cost was not an issue. We
were prepared to pay the cost, 1¥2 to 1 percent, whatever that may
be. Our situation was that it simply was not available.

And what has been said here today and in talking with surety
companies, they will tell you that we look at the credibility and the
integrity of the agency and the owners and the management. And
that is OK. But you can have a stellar agency as far as credibility.
If you do not have financial assets, it still is not an insurable risk
for that surety company.

Beyond that, I think HCFA is looking at the bonds as not only
an issue of fighting fraud and abuse but also to preserve the Medi-
care trust fund, to preserve overpayments that are not recouped,
and they are looking at it from a very financial perspective. They
want to be able to recoup overpayments, which I must tell you
takes on a new light with the interim payment system.

Overpayments are a guarantee. They will happen. They are hap-
Pening and will continue to happen as long as that system is in
place.

Mr. SHays. I am going to come back, but let me give Mr. Towns
the floor. But before I do, I gather—I am going to summarize what
I think I am hearing you say, and then I want anyone to jump in,
anyone here.

That if you were going to have a surety bond, it would clearly
be one over faith versus financial, but you are not advocating any
bonds. Let me understand, among the ive who may be purchasers
of these, obviously if you are the association you want to sell them.
But, Mr. Koniers, what is your position on surety bonds?

Mr. Koniers. Our position is that a minimum surety bond re-
quirement of $50,000 may be reasonable, but that over time, as you
become accredited, certified and/or licensed and you do have a his-
tory behind you, that that surety bond requirement be waived.

Mr. SHAYS. So, basically, a history of good service should make
it less likely for you to have one?

Mr. Koniers. Exactly.

Mr. Domsi. Mr. Chairman, our position would be of similar na-
ture to Mr. Koniers, a faith bond focused in on fraud and abuse for
a period necessary to demonstrate good-faith operation. But we
would have to agree with Ms. Quinn. Much of what goes into that
analysis should continue to be done by HCFA, rather than having
to spend money taking it from charity care to support that kind of
a cost by a private organization.

Ms. QUINN. I don’t think that we should have a bond but, if we
did, I think the cost should be covered as part of our reimburse-
ment for Medicare services.

Mr. SHays. You would, obviously, go for the faith versus the fi-
nancial?

Ms. QUINN. Yes.

Mr. Suays. Mr. Richard.

Mr. RICHARD. I certainly question the bond’s effectiveness in ac-
complishing what HCFA set out to do. A minimum bond for new
entrants may make some sense in terms of solidifying the require-
ments to get into the program.



63

It is our understanding that the date by which bonds must be fumished to
HCFA by HHAs has been postponed yet again, and that the Senate Committee
on Finance plans to request the General Accounting Office ("GAO") to conduct a
study on surety bonds and HHAs. While we are heartened by the intent to
include GAO in this issue, we do have some concern about bonds which already
have been written for and purchased by providers. Although the existing rules
allow surety bonds to be canceled, it is unclear what liability the surety will have
‘on any canceled bonds for the time during which they were in effect. Only if the
obligee on the bond, HCFA or the state Medicaid agency, provides a full release
of the bond can the surety be sure that no claim might be made on that bond. If
the bond were released, then any question of a prorated return of premium or
release of collateral would be governed by applicable state law. This issue must
be addressed as soon as possible.

It is our understanding that the discussions in Congress surrounding the
proposal of the surety bond requirement in the BBA centered on an existing
‘similar requirement by the State of Florida Agency for Health Care Administration
(‘Florida Agency”). As implemented, that requirement assisted Florida in
weeding out many fraudulent providers. It is important to note that the
implementation of that requirement in the field was not identical to the written
requirement. As successfully implemented, the requirement was as follows:

1. The bond required was essentially a faithful performance bond.
As implemented, the Florida Agency never used this bond to
guaranty repayment of overpayments. Rather, it was used to
guaranty against fraud or dishonesty of the provider.

2. The bond was required for all providers.

3. The bond was required to be continuous and was required until
the Medicaid provider agreement expired.

4, The bond amount was $50,000, and it clarified that the
aggregate liability of the surety was $50,000.

A similar requirement could be created for the federal bond mandate. We
would be delighted to work with Congress and HCFA in crafting a similar bond
requirement to address the intent of Congress to use surety bonds in the fight
against fraud in the Medicare and Medicaid systems.

Again, we applaud you for your efforts in examining why the surety bond
mandate of the BBA still has not been implemented, and we stand ready to assist
Congress and HCFA in moving this forward. We would be very pleased to
discuss further these issues with you.


Testimony of

George F. Grob

Deputy Inspector General

for Evaluations and Inspections
___Department of Health and Human Services

Good Morning Mr. Chairman, | am George F. Grob, Deputy Inspector General for Evaluation
and Inspections of the Department of Health and Human Services, 1 am here today to discuss
surety bonds for Medicare and Medicaid home health agencies and durable medical equipment
suppliers. I wish to emphasize the importance of the recently enacted requirement for these
bonds. We see them as an integral element in any strategy to reduce the vulnerabilities
associated with the program.

HOME HEALTH

‘Through audits, investigations, and evaluations done by the Inspector General’s office, we have
found the home health benefit to be a program that grew too quickly with inherent vulnerabilities
and inadequate controls. The result has been estimated annual losses to the Medicare program in
billions of misspent dollars. Although I will focus on our experiences with the Medicare
program, most of the concepts and concerns apply to Medicaid as well.

Over the last several years, we alerted the Congress and policy officials about our concerns. In
fact, Inspector General June Gibbs Brown testified on this subject before this Subcommittee in
March 1997. In our most recent reports, we recommended a threefold approach to correct these
problems: }) reform the payment method, 2) prevent entry of abusive providers, and 3) tighten
oversight. These and similar recommendations proposed by the Health Care Financing
Administration (HCFA), the Congress, and the home health industry itself, were adopted in the
Balanced Budget Act of 1997 and in the regulatory and administrative initiatives of the
Department of Health and Human Services, following a moratorium on enrollment of new home
health providers--an approach which we had also recommended. They are now being
implemented through the development of a prospective payment system, increases in the number
of audits, more thorough enrollment and re-enrollment procedures, and various new penalties for
abusive actions.

One of our recommendations was to require home health agencies to obtain surety bonds. This
‘was intended to prevent potentially problematic providers from entering the program and to
prevent the Medicare trust fund from incurring losses due to their activities. The Balanced
Budget Act contains a surety bond requirement. It requires home health agencies to post a surety
bond of a minimum of $50,000 as a condition of participation. To implement this provision,
HCFA issued a final rule on January 5, 1998 requiring home health agencies to post a bond
obtained from an acceptable authorized surety company in an amount that is the greater of
$50,000 or 15 percent of the annual amount Medicare pays the home health agency as reflected
in their most recently accepted Medicare cost report. On June 26, 1998, HCFA announced that it
would suspend the surety bond requirement and await the findings of a General Accounting
Office investigation on surety bonds for home health agencies.

House Committee on Government Reform and Oversight
Subcommittee on Human Resources: Hearing July 22, 1998 Page |


37

‘Am agency is subject to the notice and comment requirements contained in 5 U.S.C. § 553 unless
the agency rule is exempt from coverage of the APA, or the agency establishes "good cause" for
not complying with the APA and waives notice and comment. When an agency waives the notice
and comment procedures required by the APA, however, there should be compelling reasons
therefor. In fact, courts have held that exceptions to APA procedures are to be "narrowly
Sonstrucd and only reluctantly countenanced.” New Jersey». EPA, 26 F.2d 1038, 1045 (D.C.cir.
1980).

In the instant case, the agency waived both the notice and comment requirement and the
requirement to allow a 30-day interim period prior to a rule's effective date. The agency based its
“good cause" waiver on three factors: 1) Issuing « proposed rule would be impracticable because
Congress mandated that the effective date for the surety bond requirement be January 1,
1998-five months after Congress passed the BBA of 1997; 2) Issuing a proposed rule i
unnecessary with to Medicare regulations because there is a statutory exception when the
implementation deadline is less than 150 days after enactment ofthe statute fa which the deudline
is contained; and 3) A delay in issuing the regulations would be contrary to the public interest.

First, with regard to the impracticability of issuing a proposed rule, as a general matter, "strict
congressionally imposed deadlines, without more, by no meaus warrant invocation of the good
éause exception." Petry ». Block, 737 F.2d 1193, 1303 (D.C.Cir. 1984), ln ation, there is 0 good
cause exception where "an agency unwilling to provide notice or an opportunity to comment could
simply wait until the eve of m statutory... deadline, then raise up the ‘good cause’ banner and
promulgate rules without following APA procedures. Council of Southern Mountains, Inc.
Donovan, 653 F-2d 873, $81 (D.C.Ci. 1981)

By way of example, in Petry v. Block, the court concluded that the passage of a complex and
extraordinary satute concerning changes in administrative reimbursements under the Child Care
Food ‘Program {at imposed » 0-day deadline forthe promulgation of interiay rule justified the

invocation of the good cause exception. Also, in Methodist Hospital of Sacramento v.
Shetales 8 Fd 1228 125 (B.C. Cie, 1990) he court stated that the ‘agency had good cause to
waive notice and comment because Congress imposed a statutory deadline of about 4 1/2 months
“to implement a complete dical overhaul of the Medicare reimbursement system.
(Emphasis added). Moreover, "[o]nce published, the interim rules took up 133 p: the
Federal Register: §5 pages of explanatory text: 37 pages of revised regulations, and al pages of
new data tables.

In the instant case, HCFA had five months to implement a relatively simple provision to require a
$50,000 or comparable surety bond from home health agencies, After HCFA added additional
bond requirements and capitalization requirements (never requested or contemplated by
Congres) the regulation took up 63 pages inthe Federal Register: 18 pages of explanatory text, 6
pages of revied regulations, and 39 ages of spplication documents. The final rule appeared in
the Federal Register on January 5, 1998-four days after the mandatory effective date.

9t included the additional requirements, which

The Offi of Advocacy opines that if HCFA had
tended to be implemented within the five

were not intended by , and therefore not

Tmonth window, there would have been ample time to follow proper notice aad comment
Based on the circumstances of this king and pointed case law, HCFA cannot
rely on the impracticability argument to demonstrate that it had good cause to waive notice and

comment.

Second, HCFA also based its good cause exception to notice and comment on the fact that they
hhave the statutory authority to do so with regard to this particular type of rule. The agency states:

“Issuing a proposed rule prior to issuing a final rule is also uanecessary with respect to the
Medicare surety bond regulation because the Congress has provided that a Medicare rule need
not be issued as a proposed rule before issuing a final rule if, as here, a statute establishes a

30f9 72198 5:10 PM.


157

Mr. SHays. Thank you. It’s the first time that Mr. Towns didn’t
say, and when I’m chairman.

Mr. Schneider.

Mr. SCHNEIDER. OK, I would just like to touch on the one point
where you mentioned that the industry had gone from $4 billion in
1990 to $18 billion, and even though you told me not to look at
him, Mr. Kanjorski did bring up a lot of factors as to why that hap-
pened, and probably the majority of it is for very good reason——

Mr. Suays. I agree with that.

Mr. SCHNEIDER [continuing]. And saving a lot of dollars in the
total health care system. And I wouldn’t want that to be lost.

And also one of the comments that was made about the percent
of overpayments and denials, I think that, again, those have to be
looked at, net of the appeals, and what actually was the net
amount of the overpayments.

Mr. Suays. I think your net point is well taken, because it could
be just 5 percent rather than 100 Percent of the billing.

T would just comment that with the Florida 18, what concerns
me is that we don’t wait 3 years and find we’re wrestling with a
$100 billion problem. That’s my biggest concern.

Mr. SCHNEIDER. Correct.

dust one final issue with regard to the utilization rates. I did do
an analysis, which I will be glad to fax to the staff, but based upon
looking at experiences of various States, if you look at the increase
in number of agencies per beneficiary, you'll see a definite increase
in utilization. a

And to pick up on what Mr. Dombi said, if you look at the per-
centage of proprietary agencies as a ratio of the total—and again
it may just be the new agencies, because most of the new agencies
are proprietary, not necessarily saying that proprieties are bad—
if you do look at those two factors and those two comparisons,
you'll see a definite increase in utilization and increase in per bene-
ficiary costs as those two numbers increase.

[The information referred to follows:]


57

going to find it easier to obtain and you are going to find the un-
derwriting criteria a little less strict. If you have a bond with a
stronger obligation such as financial guarantee, you are going to
find it less available and with stronger underwriting criteria.

What we found most interesting is that bonds have been avail-
able under the financial guarantee regulation. We don’t know if
they would be more available under an antifraud regulation, al-
though our members tell us that would be true. And the HHAs who
we have spoken with tell us they would be more comfortable mak-
ing a guarantee back to the surety that they will stand behind
their promise if they are promising their own integrity and honesty
versus compliance with the payment system which is currently in
place with HCFA.

Mr. SHays. Thank you.

[The prepared statement of Ms. Schubert follows:]


23

Here we began to see a picture of a group of providers who were able to generate large profits
with very little risk to themselves or their businesses. We are greatly concerned that
irresponsible home health agencies pose a threat to the home health program and the Medicare
trust fund. One illustration of this is that 60 problem agencies, selected at random in our study
and analyzed in detail, had a combined outstanding debt to Medicare of $321 million; their
individual agency overpayments ranged from $100,000 to several million dollars. Of that
amount, at least $63 million will never be recovered, because eleven of these home health
agencies are no longer in business, have no assets, or have filed for bankruptcy.

Recent evidence suggests that the vulnerabilities uncovered in our sample are likely to be
reflected in the program at large.

‘The inability of Medicare to effectively identify improper claims before payment combined with
the ease of entry of home health agencies into the program makes the Medicare trust fund
especially vulnerable to losses from the home health program. In its January final rule on surety
bonds, HCFA cited recent statistics indicating that the home health industry-wide ratio of
overpayments to payments has risen dramatically over the past five years. In 1996, HCFA
reported that 7 percent of payments to home health agencies represented overpayments. This
amounted to approximately $1 billion. Of this, close to $154 million (14 percent) has still not
been collected. Further, in 1996, 89 home health agencies left the Medicare program and
currently still owe $66 million in overpayments.

We believe, however, that these numbers represent only the tip of the iceberg. As noted earlier,
because of limited funding, regional home health intermediaries have only been able to do a very
small number of in-depth claims and cost report audits. Our four-state audit of home health
agencies which involved close scrutiny of a random sample of home health claims, revealed that
40 percent of these claims, representing $2.6 billion, should not have been paid. This error rate
was discovered only by conducting intensive in-person interviews with patients and their
physicians and by carefully examining the underlying medical records. Improved claims and cost
report reviews would undoubtedly reveal far greater amounts of overpayments, and thus of
potential non-recoveries, than HCFA is currently reporting.

Examples of Damage and Vulnerability

The examples below shed light on how easy it has been to defraud the Medicare home health
program and how much irreparable damage can be caused. Here is a synopsis of some of our
recent audit and investigative cases involving serious losses to the Trust Fund:

+ Ourreview of home health claims submitted by St. Johns Home Health Agency during
the fiscal year ending June 30, 1993 showed that 75.5 percent of the claims did not meet
‘Medicare guidelines. Of the $45.4 million claimed by St. Johns during this period, we
estimate that a minimum of $25.9 million did not meet the reimbursement guidelines. By
suspending program payments, HCFA recovered approximately $1.6 million of the $25.9
nillion overpayment, However, St. Johns declared benkruptcy leaving most ofthe
remaining overpayment unrecoverable.

‘House Committee on Government Reform and Oversight
Subcommittee on Human Resources: Hearing July 22, 1998 Page 4


M4

Mr. Suays. Let me just have an assessment of our panel here a
second. .

Ms. Schubert, you basically represent the Surety Association, so
you can speak to the whole issue of, the products that you provide
and so on.

Mr. Koniers, you are basically a supplier of equipment, medical
equipment under Medicare?

Mr. KoNIERS. Correct.

Mr. Suays. Mr. Dombi, you basically represent the association of
home health care providers, the basic—not the nurses, but the
businesses that provide the services?

Mr. Domai. The not-for-profits, for-profits, hospital based, all of
the above.

Mr. Suays. Ms. Quinn, you are a hospital providing services?

Ms. QUINN. Hospital-based certified home health agency.

Mr. SHays. So you represent a bigger player in this process. You
are connected to an institution that provides other services?

Ms. QUINN. Correct.

Mr. Suays. Mr. Richard, you are providing a service. I have no
sense of your size.

Mr. RicHarD. We have a $12 million budget.

Mr. Suays. That is not insignificant. How would you be ranked
among your peers, large or small?

Mr. RICHARD. I would say medium to large agency.

Mr. Suays. I think that is fair.

Mr. Schneider, you again represent an association on a State
level but not for the businesses themselves but nurses who provide
these services?

Mr. SCHNEIDER. No, I am actually from a provider, the Visiting
Nurse Association of Central Jersey.

Mr. SHAYS. You are a provider.

Mr. SCHNEIDER. Nonprofit, freestanding.

Mr. SHays. So we have a pretty good mix of witnesses here.

You started us off, Ms. Schubert, and made the suggestion that
the surety bond would be more likely to guarantee protection
against fraud and abuse than financial reimbursement? You were
moving in that direction?

Ms. SCHUBERT. Toward the end of my time, yes.

Mr. Suays. That is one of the bottom lines?

Ms. SCHUBERT. There is certainly a continuum. Certainly the po-
sition of most of our members is that it is up to the obligee to de-
termine what kind of bond they want. You tell us the type of bond
you want, and we will do what we can to provide that bond if pos-
sible.

Mr. Suays. I understand, and the government is stepping in and
we mandated a protection that they may not have wanted. But
what I am hearing you say and what I am really getting a feeling
from all of our witnesses is that it obviously is going to be different
for members of your association to determine whether they want
to get into the marketplace of providing financial guarantees and
having to deal with a system that sometimes isn’t understood by
the participants.

In other words, I would think that it would be very difficult to
put a cost to a bond that is placing financial guarantees. I would


90

standards, including the surety bond rule. Subsequently, HCFA issued program
guidelines establishing certain admission standards, such as the minimum number of
patients that needed to be served (generally ten), before Medicare participation could be
considered. The issuance of these guidelines and the publication of the surety bond and
initial capitalization rule led to the lifting of the moratorium.

While NAHC had generally supported a moratorium, the manner in which it was imposed
was unacceptable. The lack of advance warning left many organizations that had
committed significant financial investment to advance an effort toward Medicare
certification at great risk. In some instances, the moratorium blocked certification for
agencies that had proven compliance with the qualifications only a few hours too late.

The implementation of the surety bond requirement made only a minor difference for
applicant agencies when the moratorium was lifted. In fact, a new home health agency
often had an easier time securing a surety bond than a long time agency. A new agency
brought no accumulated risk of liability for the bond company as its Medicare slate was
empty and clean.

As an antifraud tool, the moratorium accomplished very little. ‘The strengthened program
admission standards — the surety bond, capitalization and minimum patient requirements
= still failed to address core issues of competency and compliance. It should be seriously
questioned as to whether the moratorium benefits outweighed its harm.

Additional and Alternative Antifraud Remedies

As discussed above, the value of a surety bond as a tool in addressing fraud, waste, and
abuse is extremely limited. Generally, it offers only a screening process regarding the
financial viability and solvency of an organization. It does not act as an adequate screen
for the prevention of fraud by the home care organiztion, its principals, or employees.

As implemented, the surety bond requirement creates a protection for the Medicare and
Medicaid programs from their own negligent administration or administration by their
agents. An overpayment to a provider of services cannot presumptively be attributed to
the fault of the provider of services. For example, in the administration of the Medicare
program, the regional home health intermediaries have erred in reimbursement and
coverage determinations leading to overpayments that are not readily uncovered by the
provider of services. In addition, these intermediaries reject claims for payment,
wrongfully leading to additional costs such as appeals.

A noteworthy illustration of intermediary error which lead to overpayments occurred
during the administration of the cost limit freeze in 1994 and 1995. A former regional
home health intermediary, Blue Cross and Blue Shield of New Mexico, notified
numerous providers of their annual cost limits. The intermediary set the limits at levels
greater than that set out in the federal regulation. These cost limit levels are calculated by
the intermediary on an annual basis. Individual notice is sent to the provider of services
prior to that provider’s fiscal year. Interim payment rates are set based upon these cost


172

‘The across-the-board requirement for surety bonds for all but governmeat-operaied agencies
ignores the successful track records of a large majority of agencies in good standing with the
Medicare program. ‘The AHA believes that HCFA has the authority to develop waiver
standards; in fact, the rule published in January 1998 solicited comments on appropriate
criteria for waivers. The AHA recommends that any agency in good standing that bas
demonstrated ongoing compliance with Medicare program requirements should be
eligible for a waiver. Alternatively, the AHIA believes that it is reasonable to include a
provision that would allow hospital-based agencies to be exempt from holding a separate bond
if the hospital already holds other bonds that meet the requirements of the nule.

‘Section 4312 of the Balanced Budget Act of 1997 (BBA) included a requirement that home
health agencies, among other providers, purchase a $50,000 surety bond on an annual basis,
HCFA's rule, however, sets the amount at $50,000 or 15 percent of the HHA's Medicare and
Medicaid revenues, whichever is greater. The AHA recommends that HCFA reduce the
bond requirement to the $50,000 amount legislated by Congress and recommends that
home health agencies providing services under both Medicare and Medicaid be required to
obtain only one bond in the amount of $50,000.

‘The AHA also has concems about the potential for HCFA to use surety bond instruments as a
‘means to recoup program monies without first pursuing appropriate administrative recoupment
processes. The AHA recommends that objective and reasonable standards for repayment
arrangements be established and that agencies be given the opportunity to make restitution
for any overpayments before the surety company is required to pay. All administrative
appeals should be exhausted, including judicial review, before any penalties or assessments
are levied

‘The AHA agrees with the Small Business Administration's counsel that HCFA under-estimated
the financial effects of the surety bond rule on smaller HHAs, many of which are operated by
AHA members in rural areas and often represent the only source of home health services in a
large geographic area.


44

we are so intense in our review, so they are not as likely that they
will be overturned because of the evidence that we have.

Mr. Pappas. Are there any differences between the for-profit and
nonprofit in the reviews?

Mr. Gros. We did not make those distinctions. We randomly
drew the claims, and the sample was not large enough for us to
make those distinctions with precision.

What we found in some studies earlier that we had done—and
I am not going to claim that the studies were an indication of fraud
and abuse—but where we saw a very rapid increase in the number
of claims, where we saw an above-average number visiting the
homes and being reimbursed, we tended to find these in the free-
standing for-profit a bit more than those attached to a hospital or
large institution. So the entrepreneurial spirit we believe may be
accounting for some of that.

Mr. Pappas. Were there any realizations through your study that
some of these errors may have been unintentional violations of ap-
plying regulations which obviously are complex and error rates—
if you can elaborate on that. Are some of them misdirected re-
sources or are some of them actual, conscious decisions to defraud
Medicare?

Mr. Gros. In our investigations, those are clearly demonstrated
to be deliberate and systematic. In these audits that we do, we
don’t make a judgment about that. It is conceivable that these
could be due to errors.

The spectrum I use is innocent errors, incompetent management,
irresponsibility or recklessness, abuse and exploitation or outright
fraud. And we can’t tell from the audits where they lie in that spec-
trum, but we know that people lie across that spectrum.

Our concern is that it hardly matters in the end, if 40 percent
should not have been paid. We are paying something that we
should not have paid for. Let’s suppose that they were all innocent
errors. I am not comfortable that we would misspend 20 to 40 per-
cent of my money because someone made mistakes.

Mr. Suays. Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

I would like to followup on this discussion. To give you my expe-
rience from Maine, from the agencies that I talked to, what strikes
me is that this surety bond, however much sense it may make in
trying to stop new agencies who may be at risk when applied to
nonprofits who have been in existence for years who can’t put—
who can’t recover the cost of the bond in their—as part of their re-
imbursement, it is simply a financial burden that seems to make
no sense, and that is really what I am hearing. And I wanted to
followup, Mr. Grob, with your comment.

There is a difference, it seems to me, between nonprofit agencies
or agencies that have been in the health care business for a sub-
stantial period of time and people who are coming into this arena
to make money. And whereas in one case the for-profits—I don’t
know if this is your experience or not—the for-profits coming in as
they do with some capital and intending to make money, it seems
to me may be better able to bear the cost of a surety bond than
some of the nonprofits. I’m not sure about that. But, at the same
time, they may be the ones where HCFA should be most concerned


or a history of financial and business abuses might be uncovered. More often, the surety
bond company will screen applicants based primarily on financial criteria, reviewing the
organization’s profit/loss ratio, cash flow, and net worth. In addition, the surety bond
company would look to secure its risk through collateral and personal indemnification.

This financial review and security arrangement may be appropriate for the bond company
to determine its risk of a financial loss, but it does not necessarily relate to whether the
applicant creates a risk of fraud and abuse within the Medicare and Medicaid programs.
Tt may very well appear that the financial circumstances of an applicant organization are
risk worthy due to the accumulation of assets and net worth through fraudulent activity.
This is particularly the case with home health services. Since the Medicare benefit
operates on cost reimbursement, any profit for a home health agency is either attained
through alternative revenue sources or dishonesty. A reputable home health organization
which has not accumulated assets, shows no profit, yet has been fully compliant with
Medicare program requirements may either not qualify for a bond or, if qualified, be
required to post unavailable collateral or assume extensive personal indemnification at
two or three times the face value of the bond.

While a few surety bond companies might engage in the background screening of the
principals of a home care organization, it is less likely that the bond companies will
analyze and evaluate the background of agency management and employees. The
findings and conclusions of the OIG and the General Accounting Office indicate that
fraud and abuse in home care is not limited to owners and operators of home health
agencies. Both the federal programs and the home care organizations have been
victimized by fraud and abuse perpetrated by staff. Accordingly, the value of the surety
bond as a tool to prevent this type of abuse is insignificant.

HCFA Implementation Oversteps Congressional Mandate

Surety bonds were meant to serve as a deterrent to “fly by night” providers in Medicare
and Medicaid - to screen out entities that pose a significant risk to the integrity of the
programs. In its January 5, 1998 initial regulatory promulgation, HCFA significantly
altered the purpose and concept of surety bonds for home health agencies in stating its
intent to also use surety bonds to insure against the loss of any program overpayments.
As such, HCFA implemented the surety bond requirement in a manner which not only
protected the programs against the financial losses occasioned by fraud and abuse, but
also to serve as an insurance against any overpayments that could occur through the
honest human error of a home health agency or the errors of the program administration
by HCFA and its agents. This approach was taken despite the fact that HCFA, in its
January 5, 1998 regulation promulgation, stated that less than 2/10 of 1% of program
revenues for home health services result in unrecouped overpayments. Therefore, the
burden of imposing a bond obligation and its corresponding qualifications or limitations
orf access was both unnecessary and excessive.

The results of HCFA action were immediate. Upon review of the standards set out in the
January 5 regulation, surety bond companies withdrew from the Medicare market, home


176

AOPA has offered this alternative to surety bonds for the O&P field
because the facility accreditation program of ABC ensures that facilities
really do exist, through on-site inspections and an extensive documentation
requirement. For this reason, we feel it would be very appropriate for
HCFA to not only allow such accreditation to equal meeting the supplier
standards, but also to take the place of a surety bond. If however, a facility
were not accredited by ABC, it could still qualify for a provider number by
satisfying all of the standards and obtaining an appropriate bond.

Accepting ABC accreditation would therefore meet HCFA’s needs
regarding verifying that a business exists and meets patient care and
documentation standards (in some cases more rigorous that the proposed
standards), while at the same time relieving HCFA or the DMERCs of
having to perform on-site audits and still allow non-accredited facilities a
way to qualify. Thus HCFA and/or the DMERC could be spend more time
on other program integrity issues.

Conclusion

For all of the above reasons, we feel it would be in the best interest of
patients, the Medicare program, and O&P facilities, to:

« allow accreditation by the ABC to serve as the equivalent of
meeting the Medicare provider standards, and

¢ limit the provision of custom orthotic and prosthetic care to ABC
accredited facilities

AOPA welcomes the opportunity to work with the Committee and HCFA
to eliminate waste, fraud and abuse in the health system and to ensure that
Medicare is paying the correct price for care provided to its beneficiaries.

Thank you.


62

on the financial strength of the principal or someone willing to stand in for the
principal in the event of a default.

Turning back to the HHA bond situation, the obligation being guaranteed
is the likelihood of overpayments by HCFA or a state Medicaid agency and the
ability of the HHA to pay them back. The ability to repay the surety if the surety
makes payment on behalf of the HHA remains the third basis of analysis.

When this new bond requirement was enacted, sureties began to
investigate how Medicare and Medicaid systems operated. As sureties learned
more and more about the HHA reimbursement system, it became clear that
overpayments are commonplace. As they learned more about the new interim
payment system, overpayments appeared to be almost ensured. Thus, the surety
first must consider whether or not an HHA will be able to repay those
overpayments to HCFA, and if not, after the surety makes payment, whether or
not it will be able to repay the surety.

Since many of these HHAs provide only services reimbursed by Medicare
or Medicaid, and the HHA is not entitled to make a profit on those services, the
HHA itself often does not have the capital to repay the surety. In cases like this
in all areas of suretyship, for all types of surety bonds, a surety often will ask for
the personal indemnity of the owner of the business or perhaps the posting of
collateral.

It is imperative to understand that these two underwriting tools are part
and parcel of the surety industry and often are the only tools that will allow
certain bond applicants to obtain the bonds which it needs to stay in business.
Sureties often require and rely on personal indemnity in order to issue a bond.
For some other bond applicants, collateralization is the only tool that permits a
surety to issue the necessary bond. Elimination of these two underwriting tools
would interfere with the traditional underwriting process and dramatically reduce
the availability of bonds.

We have been told by representatives of HHAs that many HHA owners
would not have the same reluctance to sign a personal indemnity agreement or
post collateral if they were guaranteeing their own honesty and compliance with
licensing requirements rather than the return of overpayments under the HCFA
system.

This situation clearly needs to be addressed as expeditiously as possible.
A different type of bond obligation, in other words, a bond that guaranteed
against the dishonesty or fraud of the HHA, and an allowance that the HHA
provide one bond only to cover both Medicare and Medicaid payments, should
allow many HHAs a much better opportunity to provide the bond on terms with
which they would be more comfortable.


health agencies were rejected by bond companies nationwide, and still other home health
agencies were put in a position where acquisition of a bond was not reasonable or
rational. Ultimately, HCFA indicated its intention to amend the rule and it withdrew the
February 27 compliance date.

On June 1, 1998, a revised regulation was issued by HCFA that modestly modified the
January 5 requirements. Those modifications specifically addressed only concerns raised
by the surety bond industry: bond company appeal rights, the risk of cumulative liability,
and the length of time which a bond company held a risk of liability. No real substantive
changes were made in the bond requirements which would have the effect of increasing
reasonable access to bonds by reputable home care agencies.

In the first iteration of the regulatory implementation, NAHC’s analysis concluded that
about two-thirds of the home health agencies which were required to obtain a bond could
not effectively or reasonably do so. The amended regulation issued on June 1 improved
matters only slightly, and in NAHC’s estimation, approximately 60% of home health
agencies could not effectively or reasonably secure the bond with these revisions.

With both regulatory standards, the home health agencies that were able to secure a bond
fell into common categories. These categories were:

Hospital based home health agencies

‘Some large chain home health agencies

Home health agencies with significant non-Medicare/Medicaid revenue sources
Certain not-for-profit long-standing community based visiting nurse associations

cove

Similarly, home health agencies which had difficulty or impossibility in securing a bond
included:

© Small, rural providers of services
© Freestanding, privately held home health agencies
© Certain not-for-profit community based home health agencies

The differences between the two categories of home health agencies were purely
financial. For example, the hospital based home health agencies were able to obtain a
bond by securing that bond with the collateral of the hospital facility or the ability to
demonstrate positive net worth for the entire health service organization. The chain
organization home health agencies were publicly held corporations that had positive net
worth, With certain not-for-profit visiting nurse associations and other community based
agencies, bonds were available because of accumulated assets, reserves, endowments, or
the willingness of the bond company to recognize the long standing existence of a
financially solvent organization even in the absence of accumulated net worth.

‘The second category represents providers where bonds were either inaccessible or
effectively unavailable due to the conditions of the bonding companies. The prevalent
reason for this result was the requirement of bond companies to demand a personal


121

sian ornice
A Triton of Dedication, Excellence and Vision “Sithied Pes

Bn0 3.8292

HEALTH INFORMATION

Crs Pernsyranas VNR. =
REFERRAL CENTER,
eth SUN

July 23, 1998

Congressman Chris Shays
Chairman, House of Representative Goverment Reform & Oversight
Subcommittee on Human Resources

United States House of Representatives

Washington, DC 20510

Dear Chairman Shays and Subcommittee members,

Thank you for the opportunity to share our Medicare bond experiences. I am the Chief Financial
Officer for SUN Home Health Services, a mid-sized, traditional Visiting Nurse Association
serving a large portion of Central Pennsylvania for the last 30 years. Our staff of 425 employees
providing service from 1 offices has built our reputation as a traditional not-for-profit VNA
‘who has always done whatever was necessary to ensure care for all those in need in Central
Pennsylvania. We are members of several National and State associations including the National
Association of Homecare, Visiting Nurse Association of America, National Hospice
Organization and Pennsylvania Association of Home Health Agencies.

‘We are one of 50 agencies selected nationwide to participate in the OASIS demonstration
project, funded by HCFA through the Center for Health Policy and Research. This project has
been ongoing for several years and is designed to measure patient care outcomes and set
standards for all Medicare-certfied home care providers in the coming months. We were
selected because of our good provider reputation and demonstrated leadership in the industry.
‘Our continued high quality and effective and efficient outcomes have been commended by the
Center for Health Policy, and a recent letter from project director Dr. Peter Shaughnessy is
enclosed.

‘The Joint Commission also documents our quality in our accreditation with commendation since
1994,

Because SUN Home Health is a community-based, not-for-profit provider we have always
provided care to alt in need regardless of their financial situation in lieu of building financial
reserves. That community mission almost got us dismissed from the Medicare program because
‘we did not have the financial asset base required to obtain the $1,000,000 plus bond that was
required of us by July 31°

Because our fiscal year begins April 1” the bonding regulations required us to get a Medicare
bond for the three-month period of January through March. This required bond of approximately
a quarter of a million dollars that was acquired just prior to the February 27th deadline after
having been denied by several companies.

ACCREDITED NETH COMMENDATION BY THE JOINT COMMISSION ON ACCRHOFTATION OF HEALTHCARE ORGANIZATIONS
sot nna WEN Mn chron Caan



124

The National Medicare Quality Assurance and Improvement Demonstration

June 26, 1988

Jane £. Hyde, COO.

SUN Home Health Services, Inc.
61 Duke Street

Northumberland, PA 17867-0232

Dear Ms. Hyde,

‘The purpose of this leiter is to acknowledge and compliment you on SUN Home Health
Services’ participation in the National Medicare Qually Assurance and Quality
Improvement Demonstralion since 1995. As you know. the purpose of this national
demonstration pragram is to test and refine a methodology lo evaluate and then improve
the patient outcomes of home health care. This entails data collection on every adult
Patient, outcome reporting. and outcome enhancement We at the University of
Colorado who designed the approach and are administering the demonstration were
extremely impressed that SUN Home Health Services lowered its hospitafzation rate by
over six percentage points within just one year after beginning participation in the
demonstration - an indicator of potentially outstanding care and of dedication to
positively impacting the weil being of your patients,

‘This national demonstration project has been the precursor to and set the national
standard for the saan-to-be-implemented approach Medicare is adopting to collecting
‘Outcome and Assessment Information Set (OASIS) data and implementing a national
approach to Outcome-Based Quality Impravement (BQ!) throughout the United States,
SUN Home Health Services has played an important part in the demonstration by
tone of the 50 original participating agencies, collecting and submitting data as required,
‘and by developing and implementing pertinent quailty improvement plans for SUN'S
targeted outcomes. Your agency's conscientious involvement in the demonstration
reflects a clear and strong commitment to providing quality care to your patients,

Ce

Cartes Cah) Pro,
Professor and Director

ants tr Hast Pay Ratch 1255S. Coen Birk. Site 396 Dr, Celende HZ?? 786 Eon: (00) 759-8196


31

Beyond these general principles, we recognize that many important details need to be worked
out. [look forward to working with the Congress, the Administration, and the industry in
designing a fair and effective surety bond requirement.

In closing, I must reemphasize our belief that surety bonds are an essential tool in reducing the
inherent vulnerabilities in the Medicare and Medicaid home health and medical equipment
benefits. This concludes my prepared statement. I welcome any questions that you may have.

‘House Commntie on Government Reform and Oversight
‘Subcommittee on Human Resources: Hearing July 22, 1998 : Page 12


156

became a very fraudulent company. They weren’t around that long.
And we now know that the system works, because the perpetrators
are now in i .

I will tell you that, again based on my perspective, that if there
was accreditation and licensure required by either the private sec-
tor or something having to do with a mechanism set in place with
the State of Connecticut, this would have absolutely never hap-
pened.

Mr. Suays. Let me just say that any additional recommendations
you all want to make you can send to our committee, fax it, e-mail
it, whatever, in the next day or 2 or next 3 days. We will try to
incorporate that into our——

Ms. Schubert, any comment you want to make?

Ms. SCHUBERT. Just very briefly. Most everyone else has talked
about the 15 percent requirement. If I can just make a comment
on the $50,000 minimum. I’m very concerned, our association is
very concerned, about small businesses, and the disparate impact
that the $50,000 has on very small HHAs. And so if you're going
to look at the 15 percent, I would request that you also look at the
$50,000 and how that impacts the very small HHAs and their abil-
ity to get a bond.

Mr. Suays. So some variation for a small agency.

Mr. Dombi.

Mr. Domi. In terms of the agency that came up for-profit, not-
for-profit and issues of risks there, the more common factor that
has been found is whether it’s a new home or old home health
agency. The tendency is that the new agencies are for-profit, but
we find more that the new agency is the high-utilization agency,
is the high-cost agency, and, more often than not, the new agency
or the new owner of an agency is the agency that finds itself sub-
ject to oversight and prosecution in the end. So we would suggest
focusing in on that rather than for-profit and not-for-profit.

Mr. Suays. Ms. Quinn.

Ms. QUINN. I would just like to say on the regulation issue, again
try not to create, reinvent the wheel and look at what we have in
Place. I think there’s a lot of systems in place that work in a lot
of places.

I don’t know any home health agency—a person in the home
health industry that would go to Connecticut and try to open up
a home health agency with the intent to be fraudulent, because the
regulations there are just enormous. And it’s got a reputation, as
well as the other States in New England.

Mr. Suays. It varies from State to State, as you pointed out.

Ms. QUINN. Yes.

Mr. Suays. Mr. Richard.

Mr. RICHARD. The only comment I would make, I think it’s ve
clear that the home health agencies have as much at stake in ail
of this discussion as anyone, and I would encourage HCFA to look
at home health agencies as a part of this process and that somehow
we need to get passed the adversarial relationship that is involved
in this process, as well as some other issues, in order that we can
work these things out. Because if we don’t work them out, the
truth of the matter is that when we get together again some time
in the future, you’re going to have half the agencies to represent.


Testimony of Penny Thompson
Director of Program Integrity, Health Care Financing Administration
before the
House Government Reform and Oversight Subcommittee on Human Resources
“Medicare Home Health Agencies: Still No Surety Against Fraud and Abuse”
July 23, 1998

INTRODUCTION
Chairman Shays, Committee members thank you for giving us the opportunity to describe our
efforts to protect the integrity of the Medicare home health benefit and implement the Balanced

Budget Act provision requiring home health agencies to obtain surety bonds.

The bond requirement is one of several steps to raise the bar for home health agencies Until this
year, home health agencies had to meet few standards to participate in Medicare, That contributed
to unsustainable spending growth, widespread waste, fraud and abuse, and in some cases

questionable quality of care for the vulnerable beneficiaries who rely on this benefit

Because of problems documented by the HHS Inspector General and the General Accounting
Office, we declared a moratorium on new home health agencies entering the program last fall,
based on authority to take necessary steps to protect program integrity. The statute at section
1891(b) emphasizes that the duty of the Secretary is to assure that the requirements for home
health agencies promote the effective and efficient use of public money, Section 1861(0)(7)
similarly requires agencies to meet whatever requirements the Secretary finds necessary for the
effective and efficient operation of the program. The moratorium was necessary because there
was not an adequate system of requirements for home health agencies to ensure the kind of
financial viability and accountability needed for the Medicare program.

‘The moratorium went into effect on September 15, 1997, and was lifted on January 13, 1998. It
has had a marked impact on home health problems

‘The moratorium helped turn the tide of unsustainable growth in the number of home health


Were vss kept as scheduled? Ges

+ Didweprovidethe servos te youepecm? «Yes

4+, Were pour are provider, -
[knowlegesble above belie?

Were your care providers arenas”
sod professional? “

«© Were you plesed with your iaalvemise —"~
in the planing of your care?

© Would you recommend usto a friend? =~

Overall were you pleased with the service?



147

Mr. SCHNEIDER. Going last, I will say that I agree with every-
thing that they have said, and the cost should be a cost-reimburs-
able expense, and it should be kept to a minimum.

Mr. Suays. Mr. Richard, we were talking about Mr. Kanjorski,
who is a very seasoned Member of Congress. We are happy to have
you participate in this dialog.

Mr. KANJORSKI. Thank you.

Mr. Towns. Thank you, Mr. Chairman.

Ms. Schubert, the type of bond that they are asking for, isn’t that
sort of unusual in the business? Is that traditional for the indus-
try? This is basically—isn’t this new, the type that they are asking
for?

Ms. SCHUBERT. To specifically repay overpayments, that is not
something that we have done before. A financial guarantee is a
typical surety bond, but you have to remember there are hundreds
of kinds of surety bonds. This bond is unusual only in the sense
that it has never been applied to the home health agency business
before. It is a much more difficult bond to obtain than other types
of surety bonds.

Mr. Towns. I am concerned about the capitalization require-
ments, and I have not been convinced that it has a lot to do with
the delivery of service in terms. Can the panel explain the dif-
ference between capitalization and effective service delivery? Can
you help me with this? I am struggling.

Mr. Domai. If there is a connection, it relates to the ability of the
agency to make it the first several months before payment is made
by the Medicare program and there already had been a capitaliza-
tion requirement. Because no home care agency could open its
doors to Medicare patients without having sufficient funds to meet
payroll and pay the rent for several months, because that is how
many months it would take before payment started coming from
the program already.

If you have sufficient

Mr. Towns. Timely payment would actually solve that problem?

Mr. Domai. If you have sufficient resources to do that, then your
agency remains stable.

The difficulty with the capitalization requirement is that it didn’t
look at what resources. It restricted the resources. It had to be no
more than one-half of the amount in a credit line, and the rest had
to be personally controlled liquid assets, and that makes a big dif-
ference in your ability to operate your home health care agency and
to open the doors.

But capitalization—as Ms. Quinn stated in her testimony, they
capitalized by over a quarter of a million dollars before they opened
the door, because that is what it took for startup costs.

Mr. RICHARD. And the home health industry is not a capital-
asset-intensive organization. We are a very staff-intensive organi-
zation. It is people, human resources that make home health agen-
cies go.

Mr. Towns. So, in other words, if the payment comes, then you
don't have the problem. That is the point that I am trying to un-

lerstand.

We talk about fraud. We talk about all of this. And it seems to
me, if you raised this, that you are asking people to do other things


153

You have an elderly couple that doesn’t belong in a hospital or
nursing home situation but without proper laboratory tests to de-
termine their blood level and diabetic conditions. It is just a matter
of time with that disease that you are now going to have kidney
failure or malfunction, blindness or heart disease, some. radical,
very expensive cost analysis.

Now, you know, there is a certain sensitivity that arises with
home health providers, and some have picked up those costs on
their own. Even though they are not getting compensated to pro-
vide those services, they just see the necessity for it.

But, ultimately, that is what was happening over the last 4 or
5 years. Rather than that senior citizen staying in the hospital or
being admitted to a nursing home to get laboratory care and medi-
cation provided to them, they are now removed to a home health
setting atmosphere at maybe one-tenth the cost. So you are not
seeing the savings on the side that they haven’t assumed. You are
seeing the cost of providing the service.

But, long term, we have a healthier, less costly population being
treated. And if we just look at the numbers—now, I will agree
there is abuse in the system. Don’t get me wrong. But I think it
is targeted to regions, and it is targeted to who is getting into the
field to do it. Some people have seen opportunities for abuse.

Mr. SHays. Would the gentleman yield? I don’t know how long
it would take to discover it, but I think there are two issues that
we probably would want to look at, and that is the efficiency of
profit versus nonprofit and the abuse based on fraud and the abuse

ased on allocation of resources.

The other area that you bring up as well is, when we do call it
overpayment? Is it overpayment that individuals would concur was
not going to the agency but going to beneficiaries who really need-
ed the service? That is still wrong because it is not according to the
law, but it is a different kind of overpayment or mispayment. And
I think it would be helpful to see if it hasn’t been done, and if it
hasn’t we should ask the Inspector General to isolate the kinds of
abuses that are taking place, because those are very valid points.

Mr. KANJORSKI. And the regions, Mr. Chairman.

Mr. Suays. And the regions. I think that they already have some
of that, but in the case of their four hospitals, they took the four
States, they took the four biggest States where the biggest increase
is, Illinois, California, Texas and Florida.

Mr. KANJORSKI. And Pennsylvania is among those.

Mr. Suays. No.

Mr. KANJoRSKI. Mr. Chairman, I want to point out that Mr.
Richard’s organization ——

Mr. Suays. Sure, you have the floor.

Mr. KaNuvorsKI [continuing]. Has been identified as one of the
most efficient, effective providers of health care. And it’s interest-

that——
i, Suays. It just so happens that it’s in Pennsylvania.

Mr. KANJORSKI. It is and on the limits of my district, not quite
in my district, but the fact that he has difficulty when his organiza-
tion has been a model organization, for example, across the country
of how to provide service that he can’t get a bond. It’s pretty clear
that the average organization couldn’t, could not hope to. And it


46

something to do with measuring the efficiency and the professional-
ism of the agency?

Ms. THOMPSON. Indeed, and I think that is also a good question
for you to pose. And I know that we have a surety bond representa-
tive in the next panel, but my understanding is that indeed those
are the kinds of issues that they would examine in deciding wheth-
er or not to write a bond. It is not a question of the financial re-
sources or assets of a company, but also the character of the people
running the business, their reputation in the community, the expe-
rience that they have in providing those services and their manage-
ment philosophy and management practices. So indeed I think that.
a surety bond can reflect considerations of exactly those kinds of
qualities.

If I can comment, as well, on the comments that Mr. Grob made
about the nonprofit versus for-profit, we simply don’t have the data
to say, these are the good guys and these are the bad guys. That
is part of the problem. I don’t think that we can characterize a cer-
tain kind of agency as always good or another kind as always bad.
Some of the data is striking as to the differences among agencies
and between like kinds of agencies and among different parts of
the country, and even within a part of the country, within a certain
kind of provider, as to how much money they receive from Medi-
care and: what their average reimbursement for each beneficiary is.

So I don’t know that in any of the data that we have before us
about errors, et cetera, that we can say, these are the kinds of pro-
viders that make most of the errors and these are the sources of
the errors. I don’t think that we have that available to us right
now.

Mr. ALLEN. Thank you.

Mr. SHays. Thank you.

Mr. Snowbarger.

Mr. SNOWBARGER. Thank you, Mr. Chairman.

First of all, I am concerned—coming from a rural State, I am
concerned about the availability of these kinds of bonds, the afford-
ability of those bonds and, very frankly, the expertise of the surety
companies to investigate and provide the kind of information that
you are asking for. I am not sure that exists in all of my commu-
nities, and if you are looking for someone who is going out into the
community to find community reputation, you are bringing them in
from Chicago or New York, they are not going to have any better
feel than you would for it.

I heard—Mr. Grob, you were the one who made two comments
that I find fascinating. One of them, I think you indicated, it is too
easy for these companies to apply?

Mr. Gros. Yes.

Mr. SNowparGER. And who controls that?

Mr. Gros. This was true at the time we conducted our studies.
And because of what we found, that it was in fact just that easy,
there was almost no review, no certifications, no review of business
practices, it was extraordinarily easy to join. But the Congress and
the administration and the industry, I think, banded together to
develop some reforms and came up with a lot in the Balanced
Budget Act, and through the administrative action that Ms.
Thompson has referred to, gave a long list of reforms.


6

lated-party ownership so we can determine whether any principals
have a history of questionable practices.

We have proposed new regulations which require agencies to use
a standardized system to assess patient needs and improve quality
of care. Home health agencies are now held to higher financial and
quality of care standards both before and after they are allowed to
enter the Medicare program.

Surety bonds use a private sector mechanism to screen agencies
that provide care to Medicare’s home-bound beneficiaries and en-
sure that they are financially responsible. They also help make
sure that the government can recoup taxpayer money from agen-
cies that default on their obligations and fail to repay Medicare or
Medicaid, which has been a problem.

We will collect on surety bonds only as a last resort after a home
health agency defaults on its obligations to repay Medicare money
owed. Without this ability to collect on otherwise uncollectible over-
payments, money owed by these home health agencies will never
be returned to the Medicare trust fund.

We strongly believe that surety bonds are a necessary protection
for the Medicare home health benefit. However, we have put the
bond requirement on hold while the General Accounting Office
studies its impact. We will review the GAO findings and consult
with Congress before proceeding. As a result, home health agencies
no longer have a date by which they must obtain a surety bond.

Once we review the GAO report we will consult with the Con-
gress. Only after these consultations will we issue a new regula-
tion. Home health agencies will not have to obtain bonds until 60
days after that regulation is published and not before February 15,
1999.

To date, about 40 percent of all home health agencies have ob-
tained bonds. We are concerned about fairness for those agencies
which have obtained bonds. The Balanced Budget Act provides that
any cost in connection with bonding may not be reimbursed by
Medicare. We are evaluating our options to see if there is any way
to accommodate these agencies.

We are also working toward implementing a Balanced Budget
Act requirement for all durable medical equipment suppliers to ob-
tain surety bonds. Like the home health bond, the DME bond uses
private sector market forces to screen providers. We will take the
GAO findings on the impact of the home health bond requirement
into account as we proceed with the DME bond requirement.

The BBA makes much-needed reforms to the Medicare home
health benefit to curtail unsustainable growth and fight fraud and
abuse. But with change comes challenges. We will continue to work
with Congress and home health providers to fine-tune these
changes so that taxpayers and beneficiaries are protected from un-
scrupulous or unstable providers, so tax dollars are used wisely
and so reputable agencies can provide the care that we all agree
is so important.

Mr. SHays. Thank you.

(The prepared statement of Ms. Thompson follows:]


40

With regard to the capitalization requirement, HCFA states that, “Au organization cht is earnest
in its attempt to be a financially sound provider of home health services under the Medicare
rogram will already be propery capitalized without the need for Medicare to requir such
tatement is basically true. However, the fnue of adequate cap

gible because its based on a numberof factors lke varying overhead Ea
prof rrgins, competition in the area, etc. Surely some e home hetih agencies canoot

italization requirements set by HCFA, but desire to be “earnest” in their efforts to be
‘sound providers". The capitalization requirement is a barrier to market entry for all new home
health agencies and not just the ones who-enter the market for purposes of defrauding Medicare.
‘Acareful look at the questions like the ones raised in this and the preceding paragraph would
ihave yielded a conclusion thatthe rule would have » significaat economic impact on a substantial
‘number of small businesses.

Congress weighed in onthe ise of impact after the final leis published. Even members of
Congress recognized that HCFA went beyond its mandate a 9d significant economic
burden on home health agencies. S arian group of three seaators om the
Senate Finance Committee, on January 26, 1998, asked HCFA to delay and modify the
requirement that all home health agencies secure a surety bond. The Senators believed that home
health agencies would not be able to obtain bonds by the original February 27 deadline. According
toa recent news article, the senators reportedly wrote that:

“HCFA bas imposed conditions that go beyond the standard in the surety bond industry, Some of
the biggest problems include cumulative I short period of time in which to pay claims,
and bond values of 15 percent of the previous year's Medicare revenues with no maximum, the
letter said.

"The cumulative effect is that many surety companies are opting not to offer bonds to
Medicarefhome health agencies] a ally the lerter said, "Those companies which are offei
bonds are doing ao ate cont whch t prohibitive, or with demande for collateral or personel.
guarantees that HHAs cannot provide.’

The letter said Congress enacted the surety bond requirement to keep risky agencies out of the
Medicare program. However, HCFA’s rule seems to use the bonds as security for overpayments 10
providers, the letter said.

‘We simply doubt chat i ig realistic to expect bonding companies to embrace a role as guarantors
for overpayments from HCFA,' the senators wrote."(11)

At should be fairly obvious to HCFA, as it was to these members of Congress, that obtaining «
550,000/15 percent bond in addition to the 3-month reserve capitalization requirement (where
there mere no such requirements before) is likely tbe probibiively costly for smell home health
are providers particularly new provers or providers operation only 8 ew year that typically
ttave few hard assets and relatively litte eredit(12) Moreover, most bome health paticats are
Medicare patients, If'a home health agency is not Medicare certified, then it is very difficult to
is

t in many states (pursuant to "
have a minimum number of patients prior to o
home health agencies absorb losses on these ten patients (—possibly loug term patients requiring
amutiple serces several times per week-), neve be reimbrad for services to chete patients and
tof all the

1 siglficaat Ccononc inpact on s substantial numberof swallenifes Therefore, oder the
RFA, HCFA should have prepared a final regulatory flexibility analysis with all the required
elements for that analysis.

60f9 7298 5:10 PM


120

So I can assure you that we have done and are continuing to do
everything that we can to get a bond, but the bonding regulations
as they exist with the 15 percent limit do effect small businesses
and they do effect nonprofits who have been out there providing
care and not padding their bank accounts.

Mr. Suays. I thank you very much, and this has been very help-
ful testimony from all of you.

[The prepared statement of Mr. Richard follows:]


19

Beyond these general principles, we recognize that there are
many details that need to be worked out; and we look forward to
working with the Congress, the administration and the industry in
designing a fair and effective surety bond requirement.

Mr. SHays. Thank you very much, Mr. Grob.

[The prepared statement of Mr. Grob follows:]


14

members or members of the household if ownership or control is transferred in anticipation of, or
following, a conviction, assessment or exclusion related to the Medicare program. And we can
require that home health agencies disclose the identity of each person with an ownership or
control interest in the home health agency or any subcontractor in which the home health agency
directly or indirectly has a 5% or more ownership interest. This addresses situations documented
by the HHS Inspector General in which home health agencies used complex business
arrangements to misappropriate Medicare funds and thwart efforts to recoup overpayment efforts
and impose sanctions.

We are developing proposed regulations that would require agencies to be recertified every three
years, and to submit an independent audit of the records and practices as part of the re-enrollment
process.

We expect to soon publish final regulations requiring home health agencies to use a standardized
system called OASIS, the Outcomes and Assessment Information Set, to monitor patients’
conditions and satisfaction. This will be required as a Condition of Participation, the health and
safety standards that providers must meet in order to receive Medicare payments, Home health
agencies would be required to conduct systematic and continuous patient assessment with
OASIS. Within 48 hours of the home health referral agencies will have to use OASIS to
determine the immediate care and support needs of the patient. They must continuously update
this assessment until a patient is discharged to reflect changes in the patient’s condition and to
measure patient and family satisfaction. And they must apply OASIS data to their continuous
quality improvement programs. The OASIS data will allow us to better assess and improve
quality, and to detect instances where patients may be receiving too many or too few visits. A
determination of the patient's “homebound” status also is required in the OASIS assessment in
order to address what has been a significant problem with widespread violation of the requirement
that a patient be generally unable to leave the home in order to receive Medicare home health
services.


3

Let me make it clear that I have always opposed bonding re-
quirements and still do. In every industry in which they have been
used, small and minority businesses have been adversely affected
and excluded from the business that they are otherwise qualified
to perform due to bonding.

efore we start this technical discussion on the advisability of
the rule, we should first recall the reason that we required home
health care services. Many of the 4 million people who rely on the
system of home-based care providers would be hospitalized or re-
ceive care in an institutional setting if these services were not
available. Home health care allows people with long-term illnesses
to receive care at substantially lower cost than hospitalization or
institutionalization.

By allowing people to return home and still receive the care they
need, I believe that we provide not only a more sensible alternative
but also a more cost-effective one. So before we start the discussion
on the amount of money that we spend on health care, let’s not for-
get the amount of money we are saving on hospital costs.

Under the Balanced Budget Act of 1997, Congress directed
HCFA to have a surety bond rule in place by January 1, 1998. The
statute required providers to obtain a bond as an antifraud screen-
ing device. Home health agencies which participate in Medicaid
were required to obtain a bond in the amount of $50,000 or 15 per-
cent of an annual Medicaid payment, whichever is greater. The
regulation specified that HCFA would collect on the bond if the
agency defaults from the program and has failed to repay Medicare
or Medicaid. Without this new regulation, HCFA can recover any
money it may be due.

After publication, the rule was changed several times. But it still
suffered from one fundamental flaw. No one has yet shown a rela-
tionship between provider bonding and the reduction of fraud,
waste or abuse. However, we do know that bonding requirements
have always decreased the number of businesses in a field. That
is a fact.

Mr. Chairman, we should not be fooled about the effect of these
regulations. They will result in fewer businesses which will reduce
the level of service to the elderly. I oppose any reduction in the
level of care available for home-bound senior citizens.

I understand that we are here today to decide what should be
done next. Let me make a few suggestions before we move forward.

It is my understanding that the GAO will undertake a report on
bonding and home health care. I believe members of the sub-
committee should meet with the GAO to determine the focus and
direction of that study and assure that the Florida bonding experi-
ment is carefully, carefully reviewed.

Second, in its future rule we should ask HCFA to carefully, care-
fully, carefully consider whether the bond requirement should
apply to all providers or only those who have demonstrated some
instability. Based on this kind of information, we can have a rule
that really works for everyone. I think that is what we should be
about.

On that note, Mr. Chairman, I am happy that you are holding
this hearing; and I yield back.

Mr. Suays. I thank the gentleman very much.


182

deeply caring about and understanding each patient’s unique needs and
concems.

‘+ meeting each patient's expectations by providing value through their eyes.
responding to each patient with clear information, personal attention and

respect.

+ allowing patients to make their own decisions about thelr treatment and
care.

‘+ nurturing an enduring relationship with each patient and their family that
begins prior to their hospital experience and continues after they return
home.

Our unique spirit of dedication to patient satisfaction sets us apart. It Is the promise on which
‘our current patients rely, to which new patients are attracted and by which each one of us
lives,

We share this vision statement with all of our patients when they recelve care at York Hospital, At
discharge from the hosplal the patient will always receive a follow-up call and up to three home visits
by one of their path nurses. At this time, the nurse is evaluating the patient in their own environment,
‘assessing their understanding of their medications, and other instructional activities. This is done at
1n0 charge to the patient,

Other services such as telephone calls to patients following a visit to a specialty area like Emergency
Care, Physical Therapy, Cardiology, Surgery, or Special Procedures, are all part of our patient
program. We have a TeleNurse Program that provides medical advice 24 hours a day, every day of
the week for anyone who calls in with questions on health and/or treatment options. This service is
available to those who reside anywhere in our area and even beyond, through our toll-free number.
‘We offer free transportation to patients and their families to come to the hospital, to retum home, to
physician offices, and other off-site healthcare faciities. We have a home meal delivery program in
‘our service area and also a delivery service from our retall pharmacy. There is a nominal charge of
‘$2.00 for this service.

For three years we have been working on a comprehensive home care program. As previously
stated, we fee! this is a vital part of our total patient care commitment. We know our patients and fee!
we can best sarve them in attaining @ quality of life that ls optimal for the patient and the family.

‘not Medicare certified, and to start a new Home Health Agency that would participate In the Medicare

‘York Moepital Home Care Testimony, JULY 22, 1998 PAGE


110

HOMECARE

The Honorable Newt Gingrich
August 22, 1995
Page 3

A. Safe Harbors. Update existing safe harbors and create new ones.

B. Fraud Alerts. Establish a formal process for the request and issuance of special fraud
alerts.

C. Advisory Opinions. Advisory opinions assist providers and others engaged in the
delivery of health care to ensure that they remain in compliance with health care statutes and
regulations.

IH]. Medicare Claims Processing

‘The General Accounting Office (GAO) in its report entitled "Medicare Claims-Commercial
Technology Could Save Billions Lost to Billing Abuse” (May 1995) stated “Flawed payment policies,
weak billing controls, and inconsistent program management have all contributed to Medicare's
vulnerability to waste, fraud, and abuse.” The following provisions would improve that process.

‘A. Medicare Transaction System (MTS). Downgrade the priority or terminate the
development of the Medicare Transaction System.

B. Commercial Automatic Data Processing Equipment (ADPE). Require Medicare
carriers to acquire commercially made Commercial Automatic Data Processing Equipment.

C. Reduce number of Medicare Carriers to ten. Upon implementation of the ADPE,
HCFA should be required to study and report to Congress on reducing its 32 Medicare Part B carriers
to 10 such as the Durable Medical Equipment Regional Carriers (DMERCs) that were reduced to
four. This would help to foster beter communication between HCFA and the Regional Carriers.

D. __Contractor/Provider Relationships. Prohibit Medicare carriers and intermediaries
from reviewing claims of provider organizations when the Medicare contractor has an investment in
that organization.

E. _ Study Fraud and Abuse Under Managed Care. The rise in managed care brings
new forms of fraud and abuse. For example, the goverument and beneficiaries may be defrauded
through withholding necessary services. The Instinute of Medicine should undertake a study on the
types of fraud that it may encounter under managed care and to begin ways to detect and combat such
fraud.

SPECIFIC HOME CARE FRAUD AND ABUSE RECOMMENDATIONS
‘A. Limit Use of Subcontract Care by Medicare Certified Home Health Agencies.

Establish limits on Medicare-certified home health agencies’ use of subcontract care for the dominant
hhealth care services, such as nursing or home health aide, which it may provide.


69

KNOW ALL MEN BY THESE PRESENTS: that subject to the terms,

conditions and limitations of this Bond, _. as Principal, and

, as Surety, are held and firmly bound unto the United States of

America, Health Care Financing Administration (hereinafter “HCFA”, as Obligee,

in the Penal Sum of Dollars ($___) for the payment of which

Principal and-Surety bind themselves, their heirs, executors, administrators and
assigns, jointly and severally, by these presents.

WHEREAS, Principal desires to act as a provider of Medicare services or
equipment, and

WHEREAS, the Secretary of the Department of Health and Human Services
(hereinafter, the “Secretary”), pursuant to the Medicare Anti-fraud Amendments of
Bed er arpeabe ews or Regulations, requires chat Peincipal provide a Surety

NOW THEREFORE, the condition ofthis Bond stat the Principal shall re
pay to HCFA any and all amounts which Principal obtained through fraudulent or
dishonest acts as a medicare provider, including fraudulent or dishonest acts
committed by Principal's officers, directors, stockholders and employees, subject,
however, to the following:

1, That said fraudulent or dishonest acts must have been committed during the
term of this Bond and discovered during the term of this Bond or within one year
thereafter.

2. That the term of this Bond shall commence upon the delivery of a fully
executed original of the Bond to HCFA and shall terminate on the earliest of the
following:

(a) sixty days following the receipt by HCFA of written notice from the
‘Surety that it is canceling the Bond except that cancellation for non-
payment of any premium due for this Bond or for any renewal or


24

In 1992, two men who served time in prison together following a conviction for sales of
narcotics in excessive amounts opened a home health agency in Los Angeles upon their
release. They paid a physician to sign home health certifications for patients that did not
need home health, did not exist, or were deceased. They billed Medicare over $10
million and were paid $5.6 million. One of the men had purchased a $2.5 million Bel Air
home and owned a Rolls Royce, a Lexus, a Range Rover, and a Mercedes, Upon an
intensive medical review of their claims in 1993, the home health agency went out of
business, In 1994, we issued a search warrant and seized assets through asset forfeiture
and recovered approximately $300,000 but do not expect to recover any more. Both men
plead guilty to Medicare fraud in September of 1995.

‘The former owner of a Missouri home health agency was sentenced to 21 months in
prison and 3 years supervised release. From 1991 to 1994, the owner had falsified
documents and files used to determine his agency's eligibility for Medicare participation
and had failed to furnish accurate cost information to support interim payments he
received. The individual also had his employees create false expense receipts and false
records of committee and board meetings and ran numerous personal expenses

the cost report, including a Jaguar automobile. Through his actions, this individual
collected more than $2 million to which he was not entitled. When questioned about
missing documents, he testified that a “miniburst twister” had struck the barn where he
stored records and destroyed them. The owner had served time previously for buying
stolen semi-trucks, insuring them, and burning them. None of the $2 million
‘overpayment has been collected.

‘The owner of a Texas home health agency pled guilty to charges of mail fraud and
obstruction of justice and was later sentenced to 18 months in prison. In 1996, he filed a
cost report with more than $500,000 in unsubstantiated costs, most of which were payroll
and bonuses never paid. He filed an amended cost report claiming another $62,000 in
consulting fees which he allegedly paid in cash, but could not be substantiated. He later
used false IRS forms to convince an auditor that the unsubstantiated costs were
legitimate. Soon after his indictment, the individual closed his agency and transferred all
of his patients to a home health agency owned by his sister. The current outstanding
overpayment in this investigation is $312,800; none of it has been collected.

‘The co-owner of a Washington, D.C. home health agency was sentenced to 27 months in
prison and ordered to pay full restitution of $100,000 defrauded from the Medicare and
Medicaid programs. The home health agency billed for 1,450 skilled mursing visits for
which there was no corroboration. It also billed for nursing visits when patients wei .
actually hospitalized. Another co-owner, a former DC taxi cab driver, was also cdsiviched
but did not appear at his sentencing and remains at large. Inspector General agents #etted:
‘a seizure warrant on the agency’s bank accounts and thereby recovered approximately
‘$38,000; the rest of the $100,000 has not been recovered.

Our investigators are currently working on numerous other cases. In one case, the loss for one
year is estimated at over $10 miltion and it appears unlikely that Medicare will ever recover the

loss.

Fiouse Committee oo Government Reform and Oversight
‘Subcommittee on Human Resources: Hearing July 22, 1998 Page 5


143

her heart and hungs, ask about any

ailments and recommend a daily

regimen of deep breathing.
Retrieving a tray of pill bottles

Layton has visited Wendell for
almost a month and a balf,
‘gradually the number
of weekly visits as she noticed ber
fplnng svengtand growing core

independent
“Eva's 100 percent better than
when I first saw her [in the

8

patients and that includes
‘continued care by the same people.
In most instances, familiar faces
will make follow-up visits to the
‘bome as home care providers, the
backbone of the PATH program.

PATH stands for Patient's

you eat better, seep better, think
more clearly, breathe your own
germs and it even saves money.
‘The program is a professional
challenge for me_and it is really

nurses, |
physical’ therapists, speech-
language. _ pathologists,

medical

to administration. From
perspective, she says wi



10

In another July 1997 report, Home Health: Problem Providers and Their Impact on Medicare,
the Inspector General found that one quarter of home health agencies in five states, accounting for
45 percent of home health spending in these states, were so-called problem providers. The
Inspector General recommended that all home health agencies be required to obtain surety bonds
of 100 percent of the agency’s expected annual Medicar® billings, and that the cost of the bond
not be reimbursed by Medicare.

Similarly, the General Accounting Office in a June 1997 report, Medicare: Need to Hold Home
Health Agencies More Accountable for Inappropriate Billings, noted significant levels of
inappropriate billings. A review of 80 high-dollar claims in one state revealed that 43 percent of
the claims should have been partially or totally denied.

ACTIONS

Congress and the Administration acted to address these problems in the Balanced Budget Act by
requiring home health agencies to obtain surety bonds, closing loopholes, and establishing
incentives to provide care efficiently. The Administration also acted on its own to implement new
entrance criteria and quality standards.

Surety Bonds

Surety bonds use a private sector mechanism to screen agencies that provide care to Medicare's
homebound beneficiaries and ensure that they are financially responsible. They also help make
sure the government can recoup taxpayer money from agencies that default on their obligations to
the programs and fail to repay Medicare or Medicaid, which has been a problem with home health
agencies. From 1993 to 1996, home health agencies left the Medicare program owing more than
‘$154 million back to the Medicare Trust Fund. The percentage of uncollected overpayments to
‘home health agencies that have defaulted nearly tripled from 5 percent in 1993 to 14 percent in
1996.

‘Surety bonds represent the last resort in recovering defaulted obligations, not a way to routinely


141

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33)

ork hay to



29

premises. Two residents of the premises said they had not heard of the supplier. One of the
tenants said the Laundromat space was formerly used as a “post office box operation.”

‘Twenty percent of the suppliers were absent from their business addresses at the time of our
inspection. In many of the businesses where we were able to interview a representative we found
obvious failures to meet at least one Medicare supplier standard. For example, 45 percent
provided no consumer information, 20 percent did not allow for retum of unsuitable items, and
17 percent did not provide for warranty repairs.

‘The ease and low expense of acquiring a Medicare supplier number presents vulnerabilities for
both the Medicare program and its beneficiaries. There is no investment required for many
supplier operations, and at the time of our study there was little verification of application
information. Applicants needed no credentials and were not required to have any experience
with medical equipment to obtain a supplier number. There was no requirement to formulate a
business plan or demonstrate intent to service Medicare beneficiaries. For example, a Florida
souvenir dealer whose shop is in his garage applied for and received a Medicare supplier number.
His main business included stuffed alligator heads, alligator skin wallets, and stuffed turtles. He
decided to add wheelchairs, lift chairs, and hospital beds to his line of business. He had no
‘experience or credentials in the medical supply field. At the time of our visit he stated that he
had submitted only one bill to Medicare. Situations like this are not good for Medicare or its
beneficiaries.

Based on this and other studies of durable medical equipment, we have made a number of
recommendations to prevent illegitimate businesses from participating in the Medicare program.
‘These include proposals regarding surety bonds, application fees, site visits, training for new
suppliers, purging of unused Medicare supplier numbers, requiring applicants to provide Social
Security and tax identification numbers, improved enrollment forms and processes, and a 6-
month delay in re-application for those who are denied billing numbers for cause. The Balanced
Budget Act requires surety bonds for Medicare and Medicaid medical equipment suppliers. The
requirements are nearly identical o those for home health, HCFA issued for comment a
proposed regulation for surety bonds for Medicare medical equipment suppliers in March of this
year.

NEED FOR SURETY BONDS

‘The new initiatives of both the Congress and the Administration will go a long way to solving the
serious problems that have plagued Medicare's home health and medical equipment benefits.

Both are to be commended for the boldness of their actions. Unfortunately, in the absence of the
surety bond requirement, these actions do not go far enough to adequately protect the Trust Fund.

In underwriting traditional insurance products, the goal is “spread of risk.” In suretyship, surety
professionals view their underwriting as a form of credit so the emphasis is on prequalification
and selection. The following basic factors are taken into consideration in some format. 1)
Capacity: Does the applicant have the necessary skill and ability to perform the obligation; 2)
Capital: Does the financial condition of the applicant justify approval of the particular risk; and,
3) Character: Does the applicant's record show him to be of good character and likely to perform
the obligation he assumes? Since surety companies want to be certain that providers fulfill their

‘House Commitice on Government Reform and Oversight,
‘Subcommittee on Human Resources: Hearing July 22, 1998 Page 10


166

ensure repayment of overpayments, essentially a financial guarantee obligation,
AIA worked with HCFA to attempt to draft regulations to make such a bond
requirement as reasonable as possible. If HCFA ultimately determines that the
bond should guaranty a different obligation, AIA would be happy to provide
technical assistance to HCFA's staff as they draft regulations to implement that
requirement.

It appears that the drafters of the bond requirement and regulations did
not anticipate the effect of a financial guarantee-type surety bond on all
businesses, Two things particularly have affected the availability of these bonds
for small HHAs: the type of obligation, i.e., financial guarantee; and the
requirement that the bond be in an amount of not less than $50,000 each for both
Medicare obligations and Medicaid obligations. These two factors may have
combined to make the implementation of the bond requirement problematic for
some small businesses. However, that is very difficult to determine at this point.

When the BBA mandating this new surety bond requirement first was
enacted, many surety companies geared up to enter this new market. When the
January regulations were published, however, the regulations contained many
problematic provisions which forced companies to reverse their decisions.
Through significant discussions between the surety industry and HCFA, HCFA
determined that certain technical corrections to the regulations would assist in
making this bond more available, while still preserving the protections HCFA
desired. A notice of intent to make those changes was published in March, and
the actual changes were made in June. Between March and June many surety
companies individually determined that, based on the regulatory changes
anticipated in June, they would be able to be a viable market for these bonds.
Companies established entire departments devoted to this new product and
marketed it aggressively. As the date by which bonds were required to be filed
approached, more and more HHAs obtained bonds. It is AIA’s understanding
that by June 11, 1998, 41% of all HHAs required to obtain bonds had filed them
with a fiscal intermediary. Prior to publication of the June regulations, 33%
already had obtained bonds.

It is AIA’s belief that, if the date to provide bonds had not been suspended
indefinitely, a significant percentage of the HHAs required to obtain bonds would
have filed them by the July 31" deadline. Surety companies were writing these
bonds as defined by the June regulations, and many companies were willing to
continue writing these bonds, for both large and small HHAs. However, these
bonds would be underwritten as a financial guarantee ensuring the repayment of
overpayments.

Itis our understanding that many HHAs are uncomfortable with signing the
personal indemnity agreement often required to obtain an overpayment bond.
This is not because they have doubt in their own honesty or intent to comply with
the requirements of HCFA, but rather because they are concerned that, under


98

pages of explansiory text. 6 payes of revised regulations. and 39 pages of application
documents. The final rule appeared in the Federal Register on January 5, 1998—four days
afler the mandatory effective date.

‘The Office of Advocacy opines that if HCFA had not included the additional requirements,
which were not intended by Congress. and therefore not intended to be implemented
within the five month window. there would have been ample time to follow proper notice
‘and comment procedures, Based on the circumstances of this rulemaking and pointed
‘case law, HCFA cannot rely on the impracticability argument to demonstrate that it had
‘good cause to waive notice and comment

‘Second, HCFA also based its good cause exception to notice and comment on the fact

that they have the statutory authority to do so with regard to this particular type of rule.

The agency states:
“Issuing a proposed rule prior to issuing & final rue is zo unnecessary with
respect to the Medicare surety bond regulation because the Congress has provided
that « Medicare rule need not be issued 83 a proposed rule before issuing a final
rule if as here, a statute establithes a specific deadline for the implementation of a
provision and the deadline is less than 150 days after the enactment of the statute
in which the deadline is contained “*

HCFA cannot rely on this statutory provision because the agency has gone way beyond
their statutory mandate in issuing this final rule. Again, Congress only intended there to
‘be 2 $50,000 or comparable surety bond. Therefore, only those provisions contemplated
‘by Congress should be subject to the statute that permits HCFA to waive notice and
‘comment when the deadline is fess than 150 days.

‘Third, HCFA claims thet a delay in implementing the final rule would be contrary to public
policy. Quite the contrary-—implementing the final rule as written would be contrary to
public policy. The final rule imposes serious economnic burdens on an industry already
‘under increased scrutiny and financial hardship including a recent moratorium on entrants
10 the Medicare program and repeated audits.’ HCFA has also announced its intention to

‘63 Fed, Reg. a 308. .

"fn Ere 197, Preidet Clon annpinced ta the Daren of Hel aad Huma Services

‘was dectanag ihe first ever moratonum 10 sop new hors bealth providers from catering the Medicare
The morworium was lifted in Jamanry afer the intamt fla) roles were published ia che Federal

mouth mocaoriant—aanouaced just divs before their Medicare application would have beta approved.
‘Whore is this business gong to get three monihs reserve to demonstrate that their besimess is adequately
‘capitalized? Usable to enter the Medicare program, how have they survived thes far (when you consider
that 99% of homie health patients are Medicare eligible)?

‘Another business coutacted the Office of Advocacy to complain that their home bealth agency hed been
‘madited threo tines ia one year wader the Administration's “Operation Remore Trust.”

5


140

‘May we call you to discuss your response? yes CINo If Yes, see below.
Name Zicansins 2 He £2 Telephone Number O2- B63- YO RT

re 5 end, pi tel ye friend abe York Hospi
aneeee hee an hee

BUSINESS REE REPLY

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91

limits with final settlement at the close of the provider’s fiscal year. In this instance, with
higher than appropriate cost limits, home health agencies were provided interim payment
fates greater than allowable. The resultant overpayments created significant financial
problems for the involved home health agencies. It had been reported to NAHC that
some agencies were forced to close over the error of this intermediary.

Similar administrative concerns exist in the area of claims processing and payment.
Consistently over the past several years, intermediary performance in distinguishing.
covered from noncovered claims has proven to be less than exemplary. With tens of
thousands of appeals each year, the intermediary claim determinations are frequently
reversed. As the attached HCFA letters indicate reversal rates by the intermediaries
themselves at reconsideration approximate 40% of claims reviewed. Appeals presented
to Administrative Law Judges result in over an 80% reversal rate. (Exhibit 2) These
intermediary errors generally require home health agencies to secure lines of credit with
an interest cost that is ultimately passed on back to the Medicare program. Intermediaries
in the meantime are reimbursed for the costs of their efforts to correct their own errors
through their contracts with HCFA.

In September 1997 NAHC convened a strategic planning session involving
representatives from home health agencies across the country. The purpose was to
develop a plan to combat fraud and abuse in home health care. Multiple
recommendations came from that plan. Many of these recommendations mirror those
presented to Speaker of the House Newt Gingrich in our August 22, 1995 letter.
(Attached as Exhibit 3). These recommendations present viable alternative tools to
combat fraud and abuse in a manner which prevents the offense rather than addresses it
with post offense sanctions such as recoupment and other financial penalties. These
recommendations include:

1. Mandatory implementation of a corporate compliance plan. The Office of
Inspector General, in cooperation and consultation with the home health
industry, will soon release a model compliance plan for home health services.

2. The institution of a requirement that all principals of a home health agency
undergo a screening and background check. The home health agency would
also be responsible for conducting screening and background checks for all
employees.

3. The institution of strengthened enrollment standards, including requirements
for demonstration of competency in matters related to reimbursement, claims,
and coverage. Current enrollment standards look only to the quality of
services provided by a home health agency without regard to the agency’s
competency to manage within the Medicare program overall. NAHC has
already implemented a certification program for home care administrators and
is in the process of developing a certification program for chief financial
officers.

4. Expedited implementation of prospective payment. PPS implementation
would go a long way to eliminate the perverse incentives created in cost


nN

collect overpayments that occur in the cost-based system from providers who operate in good
faith and repay their debts with Medicare and Medicaid. HCFA will collect on surety bonds only
as a last resort, after a home health agency defaults on its obligation to repay Medicare money
owed. Without this ability to collect on otherwise uncollectible overpayments, money owed by
these home health agencies will never be returned to the Medicare Trust Fund.

The statute mandates in section 4312(b) that home health agencies, regardless of size, provide on
a continuing basis a bond of not less than $50,000 in order to participate in Medicare and
Medicaid. Under the terms of the Balanced Budget Act, HCFA has no discretion to lower the
$50,000 minimum amount set by Congress for all agencies, regardless of size. We have, however,
used our discretion to allow small agencies with combined Medicare and Medicaid revenues of
less than $334,000 to obtain just one bond for both Medicare and Medicaid

Our regulation implementing the bond requirement calls for a bond in the amount of the $50,000
minimum set by Congress, or 15 percent of annual payments, whichever is greater. An analysis of
89 home health agencies in 14 states that were terminated from the Medicare program in FY 1996
show that 68 percent had overpayments that were greater than 15 percent of their Medicare
reimbursements. The 15 percent requirement evens the burden so that small agencies will be
‘buying smaller bonds than larger agencies, and it helps ensure that we have a last resort for
recoupment of funds in proportion to the amount of Medicare dollars at risk for each home health
agency. However, the 15 percent requirement is significantly less than 100 percent of annual
payments recommended by the HHS Inspector General in her July 1997 report.

We believe we complied with Congressional intemt with our bond regulations. The law specifically
states bonds must be at least $50,000, indicating that requiring larger bonds is both authorized
and appropriate for agencies with greater financial risk, The law includes the provision for home
health surety bonds under a section entitled “Improvements in Protecting Program Integrity”
(BBA Title IV, subtitle D, chapter 2), indicating that bonds could be used not just to prevent
questionable agencies from entering the program, but also to protect the Medicare Trust Fund


97

WU. Waiver of Administrative Procedure

‘An agency is subject to the notice and comment requirements contained in 5 U.S.C. § $S3
unless the agency rule is exempt from coverage of the APA. or the agency establishes
“good cause” for not complying with the APA and waives notice and comment. When an
‘agency waives the notice and comment procedures required by the APA, however, there
should be compelling reasons therefor In fact, courts have held that exceptions to APA

are to be “narrowly construed and only reluctantly countenanced.” New
Jersey v. EPA, 26 F 24 1038, 1045 (D C Cir, 1980).

In the instant case, the agency waived both the notice and comment requirement and the
requirement to allow a 30-day interim period prior to a rule's effective date. The agency
‘based its “good causeTM waiver on three factors’ 1) Issuing a proposed rule would be
impracticable because Congress mandated that the effective date for the surety bond
‘requirement be January |, 1996—five months after Congress passed the BBA of 1997, 2)
Issuing a proposed rule is unnecessary with respect to Medicare regulations because there
is a statutory exception when the implementation deadline is tess than 150 days after
‘enactment of the statute in which the deadline is contained: and 3) A delay in issuing the
regulations would be contrary to the public interest

Fis, with oar oth pricy of nding a propor rs a8 genera matt,
“atrict congressionally imposed deadlines, without more, by 10 means warrant invocation
of the good cause exception.” Peiry v. Block, 737 F.2d 1193. 1203 (D.C.Cir. 1984). In
addition, there is no good cause exception where “an agency unwilling to provide notice
‘oF an opportunity to comment could simply wait until the eve of a stennory ... deadline,
then raise up the ‘good cause’ banner and promulgate rules without foliowing APA.
procedures. Cownct! uf Sawshern Mowntains, Inc. v. Donovan, 653 F.2d $73, $81
@CCir. 1981)

By way of example in Peiry v. Black, the count concluded that the passage of a complex

‘statute concerning changes in administrative reimbursements uader
the Child ae Food Prop tained s-dny denline for the promnpaion of
interim rules justified the agency's invocation of the good cause exception. Also, in
Methodist Hospital of Sacramento v. Shalala, 38 F34 1225 1236, (D.C. Cie. 1994), the
‘court stated that the agency had good eause to waive notice and comment because
‘Congress imposed a statutory deadline of about 4 1/2 months “to implement a complete
end radical overhaul of the Medicare reimbursement system.” (Emphasis added).
Moreover, “[o)oce published. the interim rules took up 133 pages in the Federal Register:
55 pages of explanatory text: 37 pages of revised regulations, and 41 pages of new data
tables" fd.

In the instam case, HCFA had five months to implement a relatively simple proviaion to
require a $50,000 or comparable surety bond from home health agencies. After HCFA
added sdditional bond requirements and capitalization requirements (never requested or
contemplated by Congress). the regulation took up 63 pages in the Federal Register: 18


102

conelusion that the rule would have a si ii ‘on a substantial
‘of small businesses

Congress wenelied ui eat the issue ef mapaact after the final rte ’s published. Even
members of Congress revouniced dat HCFA went beyond its mandute and imposed a
significant economic burden on nome heaith agencies. Specifically, a oi-panisan group of
three senators from the Senate from the Senate Finance Committee. on January 26, 1998,
asked HCFA to delay and modify the requirement that all home health agencies secure a
surety bond. The Senators believed that home health agencies woukd not be able to obtain
bonds by the original February 27 deadline. According to a recent news article, the
senators reportedly wrote that

“HICFA has imposed conditions that go beyond the standard in the surety
bond industry Some of the biggest problems incl:de cumulative liability, a short
period of time in which to pay claims, and bond values of 15 percent of the
previous year's Medicare revenues with no maximum, the letter said.

“The cumulative effect is that many surety companies are opting not to
coffer bonds to Medicare(home health agencies) at all, the letter said. “Those
companies which are offering the bonds are doing so at a cost which is prohibitive,
cor with demands for collateral or personal guarantees that HHAS cannot provide."

‘The letter said Congress enacted the surety bond requirement to keep risky
agencies out of the Medicare program However, HCFA’s rule seems to use the
bonds as security for overpayments to providers, the letter said.

“We simply doubt that it is realistic to expect bonding companies to
embrace a role as guarantors for overpayments trom HCFA.” the senators
swore

It should be fairly obvious to HCFA. as it was to these members of Congress, that
obtaining a $50,000/!5 percent bond in addition to the 3-month reserve capitelization
requirement (where there were no such requirements before) is likely to be prohibitively
‘costly for small home health care providers—particularly new providers or providers
operation only a few years that typically have few hard assets and relatively little credit."
‘Moreover, most home health patients are Medicare patients. If x home health agency is
not Medicare certified. then it is very difficult to attract patients, and without patients.
there is no apportunity to increase capital. There is already a requirement in many states
{pursuant to “Operation Restore Trust”) that home health agencies have a minimum
number of patients prior to obtaining a Medicare license, How can these small home
‘health agencies absorb losses on these ten patients (--possibly long term patients requiring
muhiple services several times per week--), never be reimbursed for services to these

Senators Ask HOF w Delav Finol Kale Requiring Surety Bonds of AU Agencies, BNA DALY REPORT
Fon ExicuTives, Jam 27, 1998, at A-24

"2 Senads firuss inv service widustrics find st merc Suffice to abtain credit—where pigments 1n terms of
cdaracter. markels. aud wast Row are snore likzh 40 dominate —than in raneufacturnng industries. which
‘ypecaliy have iuard assets such as zeal propens. equipinent, and inventors OFFICEOF ADVOCACY. U.S.
Shanek BURAISS Anumnss re ttes, THE Stas oF Stars BUSIVESS | A RRR) OF THE PRESIDENT (1995),
ats,



118

Mr. Suays. Mr. Richard.

Mr. RICHARD. Thank you for the opportunity to come and share
with you today our experience at SUN Home Health Services.

I am Steve Richard. I have been the Chief Financial Officer at
SUN Home Health Services for 17 years. I have what I think has
been a unique opportunity to kind of grow up with the home health
industry. I remember the days of copayments and limits on visits,
and I remember those days not fondly, and appreciate the improve-
ment we have made in the benefits in the last 17 years.

We do have a staff of 425 people that covers 15 counties from 11
offices in Central Pennsylvania. We have been in business as a
freestanding home health agency for 30 years. We have no affili-
ation with a hospital. We have no affiliation with a health plan. So
as a freestanding, traditional, nonprofit agency, we have only our-
selves when it comes to assets.

We have been an industry leader, being accredited by JCAHO
with commendation for the last 5 years. We have participated in
the OASIS demonstration project that was funded by HCFA to de-
velop measurable outcomes. Those standards are now being placed
in the conditions of participation. In our testimony you will see a
letter from the Center for Health Policy and Research commending
the outcomes that we have achieved as a home health agency.

Having been what many would consider to be an excellent,
squeaky-clean agency, we were in a position of having a very dif-
ficult time getting a bond. When it came to getting a bond, because
of the prorated years, our fiscal year starts April 1, the first Medi-
care bond we needed was for the period of January 1 through
March 31. We were able to finally acquire that bond the day before
the deadline after contacting dozens of insurers and working with
several agents.

The company that finally wrote that part-year bond we thought
would be more than happy to write the whole year bond. What we
found when we had to go back and get a bond for the fiscal year
beginning April 1, a bond now that was over $1 million because of
our Medicare payments, was that the company that had written
the bond prior would not consider us because they had decided not
to write any bonds of that size.

Going back into the market, we again worked with many agents
and contacted dozens of insurance companies. As of the date when
the home health surety bond regulations were pulled back, we had
still not acquired a bond.

Mr. SHays. What was the cost?

Mr. RICHARD. The bond amount that we needed was in excess of
$1 million.

Mr. SHays. How much did it cost?

Mr. RICHARD. $10,000 to $15,000, if we could have gotten it.

Mr. Suays. I did not have a perspective. Thank you.

Mr. RICHARD. We tried everything to get a bond. We sent per-
sonal résumés, personal financial statements to some companies.
We sent appraisals of any property that we owned. We went out
and we tried to talk with our legislators who knew us, tried to get
references.

Having done all of those things, including we have a life insur-
ance policy that a donor has named us as a beneficiary. It is a $1


65

3. Cancellation clause.

Zhe surety should have the option to cancel a bond. giving sixty days’ written notice to
HCFA and the provider. _

4. Starute of limitations.

‘The right to bring a claim or suit against the surety should expire one year after

and service of process is made upon the principal and surety within one year following °
the effective date of termination of this bond, or within one year following the
termination of the Medicare provider agreement, whichever occurs first.”

5. HCFA as sole obligee.

‘The bond must run only to HCFA and not to third parties.

6. Sliding scale for bond amount.

FICFA should establish a tiered approach to bonds, based on providers’ annua! billings,
with a minimum of $50,000.

‘The following provisions typically are not found in surety bonds such as the Medicare
‘surety bond:

© No forfeiture clause.

Suresy bonds rypically are conditional instrament in which the sures’ libilicy (s_
‘conditioned on the occurrence of one or more specified events. Therefore, forfeiture
clauses are inappropriate.

© No cumulative lability.

‘The penal sum of the bond must remain the same for each year and not cumulate from
year to year. Any provision to cumulate liability would be prohibitive to sureties’
entering this new market.

© No attorneys’ fees provision.

Each party to a suit should bear the cost of its own attorneys’ fees. _


71

Mr. Suays. Mr. Koniers.

Let me just say, because Mr. Pappas has to leave, we are going
to make Mr. Schneider fourth and work in. So, Ms. Quinn, you are
going to be sixth. I always favor the last person, Ms. Quinn.

Mr. Koniers. Mr. Chairman, before I officially begin presenting
my summarized testimony, I request that the written testimony
submitted yesterday for NAMES appears in the record as submit-
ted and read. Thank you.

Mr. SHayYS. You are welcome.

Mr. Koniers. Mr. Chairman and members of the Human Re-
sources Subcommittee, on behalf of the National Association for
Medical Equipment Services and our thousand-plus members, I ap-
preciate this opportunity to testify today.

Mr. SHays. That sounds very congressional the way that you did
that. Do you have any ambition for congressional office?

Mr. Koniers. I would like to talk to you about that later.

Mr. Suays. In Connecticut, you are not allowed. Let us go to the
next speaker, Mr. Dombi.

Mr. Koniers. I do want to make a distinction for the committee
that the home medical equipment industry is a little different from
nursing. We represent the other half of home care in that our serv-
ices are equipment related.

Again, I am the senior vice president of business development for
AMH Health Group in Stratford, CT, and very proud to be a
NAMES member.

The AMH Health Group is the parent of three established busi-
nesses with real, physical addresses with a history of serving Con-
necticut’s residents for an aj gate of 83 years. The businesses
are Genox Homecare, Collins [.V. Care and Collins Pharmacy. Our
three sites have 110 employees including respiratory therapists,

harmacists, registered nurses certified in human infusion and

ME technicians. We serve over 3,000 patients Statewide 24 hours
a day, 7 days a week. Our home care businesses are JCAHO ac-
credited, and Collins I.V. Care has received the highest JCAHO ac-
creditation with commendation.

Mr. Chairman, I invite you to visit our company to see how we
serve the great constituents of Connecticut every day.

NAMES was supportive of the surety bond provision found in
Section 4312 of the Balanced Budget Act. By way of background,
NAMES endorsed a $50,000 surety bond requirement for new pro-
viders and onsite inspections to weed out the bad apples in the in-
dustry. Providers with an established track record in Medicare pro-
grams and providers that were licensed by a State or accredited by
a nationally recognized accrediting body would have been exempt
from the bonding requirement under our NAMES proposal.

As you know, the idea for a surety bond for HME was originally
tried in Florida in an attempt to curtail home health care fraud in
the Medicare program. NAMES was very much involved in 1995 in
working with officials of the Florida Medicaid program to identify
fraud and abuse in the HME services industry, especially on what
to look for in identifying a legitimate HME provider. Both the State
of Florida and the HME services industry found the surety bond
requirement to be reasonable and an effective tool in combatting
fraud and abuse.


16

requiring bonds for DME suppliers in 1995, based on authority provided by Congress in 1994
requiring additional standards for suppliers of durable medical equipment [1834())]. After
receiving specific authority in the Balanced Budget Act, we published a proposed regulation
January 20, 1998. We expect to publish a final rule this fall. Like the home health bond, the DME
bond uses private sector market forces to screen providers for financial stability. Suppliers must
obtain bonds for 15 percent of the amount paid to them by Medicare in the previous year, and not
less than $50,000 and not more than $3 million, We do not expect implementation to be delayed
by Year 2000 activities. We will take the GAO findings on the impact of the home health bond
Tequirement into account as we proceed with the DME bond requirement.

CONCLUSION

‘The Balanced Budget Act of 1997 makes much needed reforms to the Medicare home health benefit
to curtail unsustainable growth and fight waste, fraud and abuse. But with change often comes
challenges. Home health agencies must be better managers of taxpayer money by delivering care more
efficiently, and billing only for services covered under law. Agencies also must demonstrate to surety
companies that they do not pose an undue financial risk to the Medicare and Medicaid program. We
will continue to work with Congress and home health providers to fine tune these changes so
taxpayers and beneficiaries are protected from unscrupulous or unstable providers, so tax dollars are
used wisely, and so reputable agencies can provide the care that is so important.

prey


160

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include home health agencies in the enormously complicated prospective payment

now used by hospitals and physicians. "as buch, avai of home beakheare fr those
communities not served by giam hospital-based providers will surely decrease. This result
‘seems contrary to the stated public policy objective of Congress and HCFA.

Finally, it should be noted that HCFA did insert a post-effective date comment period in
the final rule. However, the fact that HCFA attached a comment period to the final rule is
‘not a valid substitute for the normal provisions of the APA. The third circuit stated that:

“{iIf's period for comments, after issuance of a rule, could cure a violation of the
‘requirements, an agency could neyate at will the Congressional decision
that notice and an opportunity for comment must precede
Provisions of priar notice and comment allows effective ‘the
Parr eee whe the doctor wakes st ecteve afteeatn and
|. Afier the final rule is issued, the petitioner must come het-in-hand and
tua the risk thet the decision maker is likely to resist change.” ‘Sharon Steel Corp.
v, EPA, $97 F.2d 377, 381 (3 Cir, 1979).

HCFA's waiver of administrative procedure would be less troubling if the rule were not 60
burdensome. By waiving notice and comment procedures. the agency conveniently
removes itself from the obligation to cerefully analyze and solicit input on the impact of
the rule. Such an analysis could have yielded other, less burdensome alternatives that

‘would have accomplished the agency's public policy objectives.

Since HCFA improperly waived notice and comment, the agency must comply with the
Regulatory Flexibility Act.

Wl, Regulatory Flexibility Act Requirements
Even when a regulation is statutorily mandated, agencies are obligated by law to adhere to

sheadoning the agency's regulatory objectives. Agencies may forgo the analysis if they
ceri (ether in the proposed or Goal ue) tat the rue wil not have e igs
‘economic impact on & substantial number of smail entities. Agency compliance with
Certain provisions of the RFA is judicially reviewable under section 611 of the RFA.

It is not clear from the instant rule whether HCFA has actually certified the rule pursuant

to section 605(b) of the RFA or attempted a inal regulatory flexibility analysis (FRFA)
pursuant to section 604 of the RFA In cither case, the agency failed to comply with the

requirements of the RFA


21

Identifying Program Vulnerabilities

Our concern about home health was initially prompted by the tremendous growth in benefit
expenditures. As you know, the home health benefit had been one of the fastest growing
components of the Medicare program. In fiscal year 1997, Medicare expenditures for home
health were close to $18 billion. This is five times the $3.5 billion spent in 1990. Home health
expenditures now account for approximately 9 percent of total Medicare spending compared to
3.2 percent in 1990. Visits per home health beneficiary also increased from an average of 36
visits a year in 1990 to 78 visits in 1997. Additionally, in 1997, there were close to 10,500 home
health agencies participating in the Medicare program, growing at an average rate of 100 new
agencies each month.

The reasons for the rapid growth of home health expenditures are numerous, Some of the growth
is appropriate and expected due to demographics, court cases which have liberalized coverage of
the benefit, technological advances such as infusion therapies which can be provided at home,
and a trend toward providing more care in the community rather than in institutions. However,
the basic structure of the program and shortcomings in program controls opened the way to
waste, fraud, and abuse.

When Medicare was established, it was not designed with potentially abusive billers and
defrauders in mind. The structure of Medicare's claims system is based on the assumption that
providers normally submit proper claims for services actually rendered, that are medically
necessary, and that meet Medicare requirements. However, the home health benefit has been
particularly susceptible to exploitation compared to other types of health services. This is
because the care is provided in patients’ homes with no oversight; there is limited physician
involvement; there is no limit on the number of visits a home health agency can provide; there is
no copayment; and, until a prospective payment system is implemented, it is a cost based service.
Further, the home health agency usually develops the plan of care and is responsible for ensuring
that the care is necessary and of adequate quality. While these functions are subject to review by
Medicare’s regional home health intermediaries, only a small portion of claims are reviewed and
most of those are paper reviews of the records submitted by the home health agency. Similarly,
few cost reports are examined beyond a cursory desk review. Thus, the home health agency has
primary responsibility for monitoring the care it provides — and the bills it submits for that care.

‘The problems of fraud, waste, and abuse associated with the home health benefit are well known.
We in the Office of Inspector General have reported on these problems frequently in the last
several years through a large body of work including audits, investigations, inspections, and
congressional testimony. The General Accounting Office (GAO) has also reported frequently on
significant vulnerabilities in the home health program.

Improper Payments

In our work, we have identified an exceptional level of inappropriate payments made under this
program. Our first evidence came from audit reports and investigations of certain providers
suspected of defrauding the program. We also conducted a Statewide audit in Florida in 1995.
We found an error rate—the percent of the home health visits paid for by Medicare but which did
not meet Medicare guidelines--of about 20 percent.

House Commitice on Government Reform and Oversight
‘Subcommittee on Human Resources: Hearing July 22, 1998 Page 2


50

When we provided people with notice that we were going to
make technical improvements, that caused more confusion. Then
we introduced those technical improvements. Some people were
“wait and see,” some people decided to wait and see how long they
could go without a bond, and some people got a bond to make sure
that they were in compliance.

I think it is hard to understand or predict what people were
doing during that time, because we were not clear and consistent
to people in our message of what our expectations were going to be.
Some of those issues about who got bonds and who didn’t get
bonds, I think would be a very useful issue for the GAO to examine
so we understand whether that would be reflective of the experi-
ence when we implement it in February.

Mr. Towns. It appears to be regional. From what we have here,
just from general observation, it looks like it is a regional problem.

Mr. Chairman, I yield back.

Mr. SHays. Mr. Pappas.

Mr. Pappas. Thank you, Mr. Chairman.

1 want to shift gears a little bit because, besides my familiarity
with home health care agencies back in central New Jersey, I have
worked with especially nonprofits as a county-elected official being
in charge of social services. But, last fall, I became acquainted with
the IPS and how I think that between that concern that I have and
what we are speaking about today, many agencies are getting clob-
bered from two ends, and I am wondering whether HCFA—some-
times we wonder if the right hand knows what the left hand is
doing. And the concern that I have for nonprofit agencies is that
those that are efficient, those who could be I think devastated and,
therefore, the clients that are being served and the employees who
could be without work could be devastated by the change of reim-
bursement. Has your agency taken that into consideration? What
both of these, if they are done at the same time, do to these kinds
of agencies and the people that are served and the employees?

Ms. THOMPSON. What I can tell you is that the administrator has
said that she wants to monitor the whole range of activities that
we are doing for home health, both in terms of how we are proceed-
ing and making decisions and in terms of what the impacts of that
are based on the data that we have on the home health providers
who are participating in the program and terminating from the
programs, beneficiaries and their access to services in various parts
of the country.

So she has convened a group on a number of different occasions
to examine that data so we are assessing the impact of all of our
actions in totality on our beneficiaries and the home health commu-
nity.

Mr. Pappas. We have a bill to deal with the IPS. I have a bill
that has 97 cosponsors which deals with the IPS, and I don’t think
that we—there are over 200 of us who have weighed in on this,
whether it is writing letters or cosponsoring or sponsoring legisla-
tion, and I think we need to work with you in coming up with a
solution. We don’t think—I don’t think that the approach up to this
point has been one that is going to accomplish what we all want,
which is to have people who need service to be served.


95

‘The Office of the Chief Counsel for Advocacy of the U.S. Small Business Administration
‘was created in 1976 to represent the views and interests of senall business in federal policy
making activities.' The Chief Counsel participates in rulemakings when he deems it
ecessary to ensure proper representation of small business interests In addition to these
responsibilities. the Chief Counsel monitors compliance with the Regulatory Flexibility Act
(RFA), and works with federal agencies tw ensure that their rulemakings demonstrate an
analysis of the impact that their decisions will have on small businesses.

‘The Chief Counsel has reviewed the final rules in the instant case and has determined that
HCFA has not adequately analyzed the impact on small entities. This determination does
‘not mean that regulating the problem of fraud and abuse is not an important public policy
objective. Nor does it mean that small business interests supersede legitimate public
policy objectives. Rather, the determination is based on the principle that public policy
objectives must be achieved by utilizing recognized sdministrative procedures. The
‘purpose of the procedures is not to place an unnecessary burden on federal

‘agencies. but 10 ensure the promulgation of common sense regulstions that do ot unduly
discourage or destroy competition in the marketplace.

‘The final rule is troubliny for a number of reasons: 1) The proposal, although probably
within HCFA’s regulatory and statutory authority, goes far beyond the requirements
contemplated by Congress when they enacted the BBA; 2) HCFA’s good cause exception
‘and waiver of the proposed rulemaking may be arbitrary and capricious under the
Administrative Procedure Act (APA); and 3) Nearly all of the significant procedural and
analytical requirements of the RFA were overlooked.

Action requested: Inasmuch as the rule is now final and in effect, the Chief Counsel of the
Office of Advocacy herewith petitions the agency, pursuant to 5 U.S.C. § $33(€), to
‘amond the Ginal rule to exclude the provisions concerning the 15 percent bond requirement
‘and the capitalization requirement until such time as a proper and adequate analysis can be
prepared to determine the impact on small entities.

|. Legisiative History and intent
Prior to August 5, 1997, there were no provisions in the lsw pertaining to a surety bond

. for home health agencies. Under the House bill (The Balenced Budget Act of
1997, H.R. 2015). there remained no provisions for the surety bond requirement. Under
the Senate bill (as amended) (S 947), a requirement was introduced to provide state
Medicaid agencies with surety bonds in amounts not less than $50,000. Finally, in the
conference agreement. the final bill was modified to require a surety bond of not less then
‘$50,000, or such comparable surety bond as the Secretary may perm (applicable to home
tbealth care services furnished on or after Jamuary 1, 1998). Congress, therefore, intended
there to be a $50,000 or “comparable” bond. but did not intend the bond to be higher.

" Regulatory Flexibility Act. 5 U S.C. j 601. a3 munended by the Smuil Business Regulatory Exforcemont
Peiraess Act. Pub. L.No 104-124. 110 Stat 866 (1996).
3 See 143 Como. Roc, 6253-6254 (daily ed, July 29. 1997.

2


33

Mr. Suays. You got $300,000, and how much did they owe you?

Mr. Gros. Four or five million. They received about $5 million.
So if someone can help me with the math, 15 percent of that is—
who is good at this? So we could have received up to $750,000 from
the bonding company had those rates been in effect.

Mr. SHays. Ms. Thompson, you have been in for only 2 months
now, as you pointed out. What is the position of HCFA as it relates
to this, as specifically as you can tell me, on surety bonds? Do you
advocate it? Do you have questions about it?

Ms. THOMPSON. We think that it is an appropriate protection for
the program to engage in to make sure that we are doing business
with people who are not engaging in fraudulent practices, who are
not unscrupulous, who are not irresponsible and can pay back
money to the government if they receive it improperly through im-
proper claims or inaccurate information submitted in order to get
a Reriodic interim payment.

r. SHAYS. I’m going to go to Mr. Towns. Thank you.

Mr. Towns. Thank you, Mr. Chairman.

You know, when the bond idea was first proposed, I expressed
concern that this would adversely effect small and minority busi-
nesses. I know that you are familiar with the letter from the Small
Business Administration Office of Advocacy that expressed the
opinion that small businesses will be adversely effected by a bond
requirement. Would both members of the panel care to comment on
the possibility that small businesses will be adversely effected?

Ms. THOMPSON. I would be happy to comment on that. I think
that is an issue that we are very concerned about as well.

One of the things that we did when we started to track who got
bonds was to track that by type of business, and we looked very
closely at agencies that had less than $200,000 worth of revenue
from the Medicare program. Those are very small businesses, and
we wanted to see whether they were able to obtain bonds.

They were able to obtain bonds—about 35 percent of them were
able to obtain bonds as opposed to about 40 percent of the larger
agencies in general. So they were a little less likely to be able to
obtain a bond, but there was still a significant portion which did
obtain a bond.

We have also heard that the Small Business Administration has
a subsidy program for small and minority-owned businesses that
must obtain surety bonds, but I think that we believe that legisla-
tion will be necessary for Medicare bonds, and this is an area
where we need to get more information, and it would be helpful for
GAO to look at this issue during the course of their review.

In particular, I would suggest that they look at the very small
agencies that were able to obtain bonds and compare them to the
very small agencies that did not obtain bonds and try to determine
what the characteristics were of those agencies.

Mr. Towns. Thank you.

Mr. Grob.

Mr. Gros. We share the same concerns. We all have an interest
in seeing that there is a home health care program and everyone
qualified to provide the services be allowed to do it. It is a dilemma
because the program, as designed, makes it easy for people who are
disreputable to make an application and receive funding through it


168

HCFA or the state Medicaid agency, provides a full release of the bond can the
surety be sure that no claim might be made on that bond. if the bond were
released, then any question of a prorated return of premium or release of
collateral would be governed by applicable state law. This issue must be
addressed as soon as possible.

It is our understanding that the discussions in Congress surrounding the
proposal of the surety bond requirement in the BBA centered on an existing
similar requirement by the State of Florida Agency for Health Care Administration
(‘Florida Agency’). As implemented, that requirement assisted Florida in
weeding out many fraudulent providers. It is important to note that the
implementation of that requirement in the field was not identical to the written
requirement. As successfully implemented, the requirement was as follows:

1. The bond required was essentially a faithful performance bond.
As implemented, the Florida Agency never used this bond to
guaranty repayment of overpayments. Rather, it was used to
guaranty against fraud or dishonesty of the provider.

2. The bond was required for all providers.

3. The bond was required to be continuous and was required until
the Medicaid provider agreement expired.

4. The bond amount was $50,000, and it clarified that the
aggregate liability of the surety was $50,000.

A similar requirement could be created for the federal bond mandate. AIA
would be very pleased to work with Congress and HCFA in drafting a surety
bond requirement that would fulfill the intent of Congress for surety bonds to fight
against fraud and dishonesty in the Medicare and Medicaid programs.

Again, we applaud you for your efforts in examining the effort to implement
the surety bond mandate of the BBA, and AIA stands ready to assist Congress
and HCFA in this endeavor. We would be very pleased to further discuss these
issues with you.


183

2. York Hospital Home Care's experience with the September 15, 1997 HCFA imposed
moratorium, Including financial and access problems as a result of the moratorium;

‘We began in eamest in January of 1997 by hiring a consultant to set up the initial plan, budget,
policies, procedures, education and application process. Many activities were initiated during this
period including ordering supplies, furniture, computer hardware and software; setting up space,
‘scheduling computer development, education and implementation; expense of time, resources, and
commitments. On August 1, 1997, the application for Maine state licensure was submitted as the first,
step in establishing a new Medicare certified Home Health Agency. The state survey was then
scheduled for October 2, 1997. | accepted the position of Home Care Coordinator on September 12,
1997, with a start date of October 20. And then the moratorium hit.

Needless to say, we were devastated. We felt that York Hospital had initiated the application

exception

Director of Disabled and Elderty Health Programs Group, Center for Medicaid and State Operations,
HCFA in response to our request for exception to the moratorium. We were informed that the
‘September 15, 1997 initiative also included (I am quoting directly from his letter):

“New Requirements. HHAs will be required to undergo recertification for Medicare every 3
years. As part of the continuing enrollment process, agencies must submit an independent
‘audit of their records and practices. In addition, agencies will have to supply information about
related businesses they own, and meet capitalization requirements for 3 to 6 months of
operation. HHAs will also be required to serve a minimum number of patients prior to seeking
Medicare certification.

So, for that period of the moratorium, until it wes lifted on January 13, 1998, York Hospital could not
90 forward. Generally speaking, we estimate approximately a 6 - 8 month delay in operational

finctions due te the moratorium. Infect the impact was Wemendous:

‘+ Because of the “new requirements” established when the moratorium was lifted, we were required
to complete the new HCFA 855 application, including information about related businesses of the
Hospital, the individual officers of our Board of Directors, and the senior management. Being the
first to use this application resutted in additional time and resource delays (the State and Fiscal
Intermediary were also new to the application, which resulted in time issues there. | must
comment , however, on the excelient response and assistance we received from the staff at the
Maine State Division of Licensing and Certification, and Associated Hospital Service of Maine, in
‘completing the process).

‘* In addition, we were required to provide services to at least 10 patients and maintain an active
‘census of 7 patients before the state could conduct the initial survey site visit. None of these
services were billable because we were not certified as yet; but we could not become certified,
until we demonstrated we could serve the “minimum number of patients". Prior to September 15,
1997, that number was 1 patient.

‘The initial survey was also changed from a mutually scheduled date, to an unannounced site visit,
as a result of these “new requirements”.

‘York Hospital Home Care Testimony, JULY 22, 1998 PAGE 7


7

Mr. Suays. Mr. Grob.

Mr. Gros. Good morning, Mr. Chairman and members of this
subcommittee. I thank you for this opportunity to discuss surety
bonds for Medicare and Medicaid home health agencies and medi-
cal equipment suppliers.

I wish to begin by emphasizing the importance of these bonds.
We in the Office of the Inspector General see them as an integral
element in any strategy to reduce the vulnerabilities in these pro-
grams. We recognize that there are divergent views on this topic,
and we can see how strongly held and expressed they are. I believe
the strength of these views on the subject emphasize how impor-
tant it is to the home health and medical supply equipment pro-
grams, and we welcome the opportunity to discuss the various as-
pects of the program and of these bonds.

Through our audits, investigations and evaluations, we found se-
rious program vulnerabilities in the home health program. Audits
of specific home health agencies in Florida, Pennsylvania and Cali-
fornia revealed error rates from 19 to 64 percent. Other audits and
investigations showed substantial billings for unallowable ex-
penses.

In order to determine if these were merely isolated cases, we con-
ducted a Statewide audit in Florida in 1995. The error rate was 20
percent. Last year, we issued a report covering California, Illinois,
New York and Texas. The error rate was 40 percent. The errors
were due to unnecessary services, patients not home bound, inad-
equate physician authorization and lack of supporting documenta-
tion. We estimated losses to Medicare of $2.6 billion in these four
States over a 15-month period.

While some errors may be due to innocent mistakes, others are
the result of abuse and exploitation of the program or outright
fraud. This is evident in the result of our investigations.

For example in 1992, two men who served time in prison to-
gether for narcotics sales opened a home health agency in Los An-
geles upon their release from prison. They paid a physician to sign
home health certificates for patients that did not need home health,
did not exist or were deceased. They billed Medicare over $10 mil-
lion and were paid $5.5 million. One had a $2.5 million home and
four luxury cars.

In 1993, the home health agency went out of business. In 1994,
we issued a search warrant, seized assets and recovered approxi-
mately $300,000 but do not expect to recover any more. Both men
pled guilty to Medicare fraud in September 1995.

The situation with medical equipment suppliers is similar. In
1996, we made unannounced visits to a sample of medical equip-
ment suppliers who had recently received or applied for Medicare
billing numbers; 1 out of every 14 approved suppliers and one 1 of
every 9 applicants did not have the required physical address.

For example, in Brooklyn a supplier’s address was in a building
which consisted of four apartments over a laundromat. The com-
pany name was not on the mailbox or any other part of the prem-
ises. Two of the residents said they did not know the supplier, and
one said that the space was formerly used as “a post office box op-
eration,” unquote.


61

bonds as defined by the June regulations, and many companies are willing to
continue writing these bonds, both for large and small HHAs. However, these
bonds would be underwritten as a financial guarantee ensuring the repayment of
overpayments, pursuant to the HCFA regulations.

It is our understanding that many HHAs are uncomfortable with signing the
personal indemnity agreement often required to obtain an overpayment bond.
This is not because they have doubt in their own honesty or intent to comply with
the requirements of HCFA, but rather because they are concerned that under the
interim payment system overpayments are virtually ensured, and they may not
know in time to be able to pay them back. Since these HHA owners currently are
not personally liable to HCFA for these overpayments, they do not want to take
on that obligation to a surety company. However, due to the nature of suretyship,
personal indemnity is a very common underwriting tool.

Under a surety bond, the principal, in this case the HHA, remains primarily
liable for the obligation; while the surety is secondarily liable. Thus, while the
surety pays the obligee (HCFA or the state Medicaid agency) its losses, it is
entitled to recover those losses from the HHA. This is not unique to this bond
requirement. In all cases of suretyship, both statutory and common law, the
principal (the party promising to perform an obligation) is primarily liable for its
promise. A surety merely guarantees that the obligee (a third party contracting
for that promise) will receive what is promised, or an agreed upon sum of money.
Once the principal fails in its promise and the surety performs, the surety is
entitled to indemnity from the principal for losses caused by the principal's failure
to perform.

The best known surety bond is a contract surety bond, or a bond to
guarantee construction of a building or other construction project. Under these
bonds, a surety guarantees that the principal (the contractor) will build the
building and pay the people who work on the project. If the principal defaults in
this obligation, the surety either completes the work and pays the laborers, or
pays an agreed upon sum of money to the obligee (the owner of the construction
project). Under common law and under a contract signed by the principal (the
general indemnity agreement), the principal then is liable to pay that money back
to the surety. Due to this guarantee of the contractor's promise, an owner can be
comfortable awarding work to a contractor based on a low bid, regardless of the
contractor's financial situation. The owner knows that the surety stands behind
the principal. The surety bears the risk of loss if its underwriting analysis is
erroneous.

Therefore, sureties prequalify principals on many bases, including ability
to perform the promise, likelihood of performance, and ability to repay the surety
any losses incurred due to the principal's failure to perform. The first two are
based on the obligation; what the surety is guaranteeing, and the third is based


130

July 18, 1998

Tie teasmory a mites to fhe House Subcom on Hunan Resources, wit oversight
responeiblites for the Department of Health and Human Services, for the hearing tied “Medicare
Home Health Agencies: Stil No Surety Against Fraud and Abuse" scheduled for Wednesday, July
22, 1998 at 10:00 a.m. in the Raybum House Office Building. York Hospital Home Care hes been
‘asked to share our experiences related to the surety bond iesue, the eartier moratorium implemented
‘by HCFA on new home health applicants, and the effect these two actions have had on efforts to
fight waste, fraud and abuse in home health.

Our testimony recs the recounting of our adventure in staring a home heath agency in York,
Maine, and addresses the folowing topics

1 York Hoepla's experience in providing care to the community and the reason we sought
to offer home care in the first place;

2. York Hospital Home Care's experience with the September 15, 1997 HCFA imposed
moratorium, including financial and access problems as a resuit of the moratorium;

3. York Hospital Home Care's efforts to secure a surety bond; and

4. Antifraud recommendations that we believe may help to ensure fewer problems of waste,
fraud and abuse in the home health industry.

‘We do not pretend to be experts with regard to the specific numbers and statistics about fraud and
abuse in home health care agencies that all skies seem to be reporting and disputing; you have

‘York Hospital Home Care Testimony, JULY 22, 1998 ‘PAGE


114

‘TESTIMONY BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES
y JULY 22,1998

ire as a

Mr. Chairman and Members of the Subcommittee,

My name is Steven Schneider and I am the president and chief executive officer of the Visiting
Nurse Association of Central Jersey (VNACJ). Thank you for the opportunity to provide
testimony regarding the Health Care Financing Administration’s (HCFA) efforts to implement
the home health surety bond statutes.

NACI is a voluntary, nonprofit organization, providing home- and community-based services
for more than 85 years. As one of the largest freestanding, Medicare-certified home health
agencies in the country, VNACJ provided 444,000 home visits to 12,000 Medicare beneficiaries
during 1997.

This testimony will discuss the implementation of surety bonds for home health agencies. A
specific focus will be placed on the experiences of VNACI and providers throughout New Jersey
regarding the availability of surety bonds, the impact of the surety bond retraction, and the
burdens of the moratorium on new home health agencies. In addition, recommendations will be
offered regarding the use of surety bonds as a viable tool in addressing waste, fraud and abuse, as
well as other anti-fraud measures.

For home health agencies in New Jersey, 1998 has been an extremely difficult year. The interim
payment system (IPS) has resulted in significant cuts in Medicare reimbursement through the
reductions of the cost per visit limits and the implementation of new per-beneficiary limits. I
would be remiss if I didn’t take this opportunity to thank Representative Mike Pappas (R-NJ) for
his support in sponsoring H.R. 3567, the “Medicare Home Health Equity Act.” I would also like
to thank all the members of the Committee who have cosponsored IPS reform legislation and
have supported home health agencies and Medicare beneficiaries.

ion of Surety Bo Home Hi .

Congress passed the Balanced Budget Act of 1997 requiring home health agencies participating
in the Medicare program to maintain a surety bond at a minimum of $50,000. The underlying
reason for this requirement was a heightened sensitivity to a perceived increase in waste, fraud,
and abuse within the Medicare home health benefit. As with any industry, as the market expands
and the number of providers increases, the risks of abuses also increased. This is particularly
true when the new entrants may not share the original values of the home care industry.

‘The purpose of the surety bond was to act as a screening device to prevent individuals and
organizations that presented a high risk of abuse from participating in the Medicare program.
However, the regulations positioned the surety bond to serve as insurance against the loss of any
Medicare overpayments, regardless of the reason. As a result, the surety bond addressed the risk
of financial loss to the Medicare program, not necessarily the risk of waste, fraud and abuse by
providers.


116

‘TESTIMONY BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES
SULY 22,1998,

HCFA recently retracted the surety bond requirements, with the new rules not effective until at
Teast February 1999. Recommendations to be considered for the future implementation are as
follows:

. ‘Surety bonds should be limited to loss through fraud and abuse, not serve as insurance
against al] overpayments regardless of the reason.

+ Surety bonds should be used to screen out inappropriate providers.

. ‘Surety bonds should be limited to $50,000, with the ability to reduce the amount for
smaller agencies. Requiring a surety bond for 15% of Medicare revenues is excessive
and creates an unnecessary financial burden for providers.

+ Surety bonds should be a reimbursable cost under the Medicare program.

. Surety bonds should be required for new entrants into the Medicare program or for
providers with histories of fraud and abuse. Providers in good standing with Medicare
that have demonstrated fiscal responsibility should be exempt from surety bonds.
Following an appropriate probationary period, after demonstrating compliance, new
agencies should also be exempt from surety bonds.

+ Surety bonds should be the payment of last resort. Providers should be able to exhaust all
available alternatives for repayment prior to the utilization of the surety bond.

+ Surety bonds should not be required for new subunits or branch offices of existing
providers.

A - dew Home H

In September 1997, President Clinton ennounced the imposition of a moratorium on new
Medicare home health agencies. The purpose of the moratorium was to put a hold on new
agencies until HCFA could implement additional safeguards against fraud and abuse. Such
safeguards included revised Medicare program admission standards and the surety bond
requirements.

‘The moratorium had minimal impact on curbing waste, fraud and abuse. The surety bond as
implemented screens new organizations for financial viability and solvency. It does not serve as
a screen for the potential fraud and abuse by the provider or its employees. In fact, new
providers may be more successful in securing a surety bond because they bring no accumulated
risk of liability under the Medicare program.

‘New Jersey maintains certificate of need requirements for home health agencies. As a result,
new providers undergo significant scrutiny during the review process. The certificate of need
process, with planned, orderly growth of home health providers is one of the major reasons New
Jersey has experienced such favorable utilization rates in comparison to the rest of the country.
Accordingly, the impact of the moratorium was not felt as significantly in New Jersey as in other
states,

3


4

I call on Mr. Pappas from New Jersey, one of the new members
to the committee and a valued member.

Mr. Pappas. Thank you.

Ladies and gentlemen, welcome, and thank you for being here,
and especially to the very last panelist, Steve Schneider, who is up
from Monmouth County, NJ. His agency provides service to many
of my constituents.

I think, Mr. Chairman, this hearing is necessary. As I have
worked with Mr. Schneider and so many other home health care
agencies for probably close to 15 years, I have been very impressed
with the service that they provided, those that they help to keep
from being institutionalized, and anything that we can do to facili-
tate their functioning and growth and ability to provide such a nec-
essary service I believe will save U.S. tax dollars. It will delay peo-
ple from being institutionalized, and that certainly has a quality-
of-life value to it and a dollar-and-cents benefit as well.

Mr. SHays. Thank you.

Another new member of the committee and also very valued is
Mr. Allen from Maine.

Mr. ALLEN. Thank you, Mr. Chairman, for holding these hearings
today.

Last year, Congress took an aggressive action in the Balanced
Budget Act to deal with the rapid growth and perceived fraud and
abuse in Medicare’s home health benefit. We share the goal of
weeding out fraud and abuse in the system.

Clearly, the rapid rate of growth of the home care industry raises
questions about how the system is managed. However, we must be
careful not to equate rapid growth with fraud and abuse. We must
be careful not to enact policies which harm reputable, cost-effective
home health agencies and, ultimately, put patients at risk.

Our population is aging; all of us are aging. Finding ways to care
for our aging population, to give them comfort and a high quality
of life should be our goal. It seems that the home health industry
is answering that call. Many States like Maine are making the con-
scious decision to care for people in their homes rather than in an
institutional setting.

Again, Mr. Chairman, thank you for providing this hearing today
to examine a particular measure for fighting fraud and abuse in
the home health care industry, the surety bond.

I am pleased for the second panel you have selected a constituent
of mine from Maine, Ms. Quinn, to testify. I am certain that she
will provide us with valuable insight as we work through this
issue.

I look forward to hearing from all of the panelists today and dis-
cussing how we can weed out fraud and abuse without making cuts
at the expense of our most vulnerable population, our home-bound
seniors.

Mr. Suays. I have a little housekeeping business first.

I ask unanimous consent that all members of the subcommittee
be permitted to place any opening statements in the record and,
without objection, so ordered, and that the record remain open for
3 days for that purpose and, without objection, so ordered. And I
ask further unanimous consent that all witnesses be permitted to


93,

Once issued, the dialogue with HCFA over the regulations maintained a consistency with
the preissuance dialogue. It was not until it reached crisis proportions and Congressional
intervention occurred that HCFA finally understood that home health agencies were
unable to access appropriate bonds.

Where HCFA is unwilling or unable to dialogue with affected parties prior to the
issuance of its rules, compliance with the prior notice and comment obligations of the
Administrative Procedures Act is paramount to successful rulemaking. With the surety
bond rules, HCFA neither allowed for an open dialogue nor pursued matters in
compliance with the APA. The resultant disaster is a testament to what can occur when
preestablished processes are not followed.

NAHC has long operated itself as an organization with integrity and awareness that the
real purpose of the Medicare program is to serve Medicare beneficiaries. While we will
continue with this philosophy, it is our sincere hope that HCFA will readopt the same.

Conclusion

The National Association for Home Care has established a standard of zero tolerance for
fraud, waste and abuse in serving home care patients. For every dollar lost to an
offending party, a home care patient is adversely affected. The home care industry has
worked strenuously to reenergize and reinforce the values which lead to the creation of
home care. Our patients are our only true concem. What is appropriate and beneficial to
home care patients is appropriate and beneficial to the home care industry. The surety
bond requirement should be viewed as a tool to prevent fraud, waste, and abuse, not as a
punitive measure arbitrarily applied against reputable home care providers. At the same
time, preventative measures should be given higher priority.

Thank you for the opportunity to present the views of the National Association for Home
Care. We look forward to working with the Subcommittee on this important matter. We
are available to you at any time we can be of assistance.


38

specific deadline for the implementation of a provision and the deadline is less than 150 days after
the enactment of the statute in which the deadline is contained."(6)

HCFA cannot rely on this statutory provision because che agency has gone way beyond their
statutory mandate in issuing this final rule. Again, ‘only intended there to be a $50,000 or
comparable surety bond. Therefore, only those provisions contemplated by Congress should be
‘subject to the statute that permits HCFA to waive notice and comment when the deadline is less
than 150 days.

‘Third, HCFA claims that a delay in implementing the final rule would be contrary to public
polly: Quite the coutrary-implementing the ‘rule as written would be contrary to public
¢ final rule imposes serious economic burdens on an industry already under increased

program and repeated
ies in the enormously complicated pros} payment system now used by hospitals and
Eysicians. As such, availablity of Home healthcare for those communities aot served by plant

recpital-based providers will surely decrease. This resull seems contrary to the stated public
policy objective of Congress and HCFA.

Finally it should be nated that HCFA did insert x post-effective date comment period in the
rrule. However, the fact that HCFA attached period to the final rule is not a valid
Substitute for the normal provisions of the APA, The third circuit stated that:

wits period for comments, after issuance of a rule, could

irements, an agency could negate at will the Congressional decis
‘opportunity for comment must promulgation. Provisions of pr
allows elective participation i the rulemaking proceas while che decision maker i sil receptive
fo information and argument After the fine! Tle is issued, the petitioner must come hat-in-hand
and run the risk that the decision maker is likely to resist change.” Sharon Steel Corp. v. EPA, 597
F.2d 377, 381 (34 Cir. 1979).

HCFA's waiver of administrative procedure would be les troubling if the rule were not so

irdensome. By waiving notice and comment procedures, the agency conveniently removes itself
from ligation to earefully analyze and solicit input on the impact of the rule. Such an
analysis could have yielded other, less burdensome alternatives that would have accomplished the
agency's public policy objectives.

Since HCFA improperty waived notice and comment, the agency must comply
Regulatory Flexibility Act.

IIL. Regulatory Flexibility Act Requirements

Even when a regulation i statutorily mandated, agencies are obligated by Law to adhere to certain
‘equirements prior to lsuing the implementing regulations. Specifically,

tguucies fo analyze the impact of proposed regulation on small enti
regulatory alternatives that reduce the burden on small entities-wi \doning the agency's
regulatory objectives. Agencies may forgo the analysis if they certify (either in the proposed or
final rule) that the rule will not have a significant economic impact on a substantial number of
small entities. Agency compliance with certain provisions of the RFA is judicially reviewable
under section 611 of the RFA.

eis not clear from the instant rule whether HCFA is actually certified the rule pursuant to

section 605(b) of the RFA or attempted a final regulatory flexibility analysis (FRFA) pursuant to

tection GO of the RFA. In either ease, the agency faled fo comply with the requirennens ofthe
‘Ae

40f9 7298 5:10PM.


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125

Mr. Suays. Ms. Quinn, you will finish up, and then we will take
some questions.

Ms. QUINN. Thank you, and thank you for the opportunity to par-
ticipate.

York Hospital is a nonprofit community hospital in the southern
seacoast area of Maine. It has 79 beds. It has had a long-standing
reputation in the community, since 1904, of providing community
services, inpatient, outpatient and home services in a very creative
way.

About 3 years ago, we started providing home care in a non-tra-
ditional way, just by continuing the care that the patients would
receive in the hospital where the inpatient nurses would go out and
see the patients at home to make sure that the discharge planning
and the medication teaching and such were appropriate for that pa-
tient.

Well, the State of Maine had regulations about licensing and re-
quired us to get licensed as a home health agency in the State, and
because of those regulations the hospital decided to get a certifi-
cation as a Medicare provider. At that point in time, we invested
a lot of money and resources and then, when the moratorium was
enacted, we were stopped dead in our tracks.

Mr. Says. When you say a lot of money? Give me a perspective?

Ms. QUINN. Over a quarter of a million dollars, not including the
time of the employees.

Mr. Suays. That is a lot of money.

Ms. QUINN. I have been asked to testify about the impact of the
moratorium and also the surety bond, because we happen to be an
agency that is hospital-based. And as Steve mentioned, if you are
connected to an organization with assets, it is pretty easy to get a
bond. And we were able to secure a bond with one phone call to
one broker to one surety company, and it cost us $500 for a $50,000
bond. We don’t have a history of Medicare payments and revenues
in the home care program, so we didn’t have 15 percent of the reve-
nue, but if we had, I can assure you it would have been very oner-
ous.

The moratorium itself probably stopped us from being able to
service our patients in the way that York Hospital likes to service
the community. We believe, as Bill mentioned, about caring, and
that is the reason that we are in the business.

If anybody were to examine my head or the people who made the
decision at York Hospital to start a home health agency in this en-
vironment, they would have said we are crazy. But we are not
doing it because we are trying to have Medicare pay us a lot of
money. We are doing it because our hospital has a patient vision
which includes putting the patient first. We don’t just say it, we
do it, and it makes sense in our continuum of care.

So the moratorium prevented us from doing that, and it pre-
vented our patients from getting access to that continuum of care
for at least a 6-month period.

Once you get the momentum and start a home health agency, I
don’t know if any of you have started a business before with the
kinds of regulations that we have, but it takes an awful lot of time
and planning. If you get stopped in the middle, it is almost like
starting all over again.


100

HCFA expresses confusing “centification-like” statements throughout the text ofthe final
rule." However, the actual certification and statement of factual basis are not to be found
in the final rule Ifthe agency was attempting to certify. then it did 30 erroneously for
reasons discussed more fully below. On the other hand. perhaps HCFA did not intend to
certify, but instead intended to prepare a FRFA. The agency did do some type of analysis:
“we have prepered the following analysis, which in conjunction with other material
provided in this preamble, constitutes an analysis under the (RFA].” 63 Fed. Reg. at 303.
‘The problem with that declaration is that there is more than one type of analysis under the
RFA. There is the preliminary assessment analysis which helps agencies determine
whether to certify. and in the case of a final rule, there is a FRFA when an agency
determines that certification is not appropriate, IT HCFA was attempting a FRFA, then
the FRFA was not adequate because it contained no analysis of ahternatives to reduce the
burden on small home health care providers. This. too, is more fully discussed below.

A. Certitication
‘Whon an agency determines and certifies that a rule will not have a significant economic
impact on a substantiat number of small entities, then it is logical to assume that the
agency bas already performed some basic level of analysis to make that determination.
Will a substantial number of small entities be impacted? In the instant case, the agency
admits that all home health agencies will be affected. According to SBA’s regulations, a
small home health care agency is one whose annual receipts do not exceed $5 million, or
‘one which is a not-for-profit organization.” Although the Office of Advocacy does not
have data based on annual reccipts. data is available besed on number of employees. 1993
data obtained from the U S. Bureau of the Census by the Office of Advocacy indicates
that about 7% of home health care services (489 out of 6,928) have $00 or more

and earn $1 2% of all annual receipts for the industry, 93% of home health care
services (6.439 out of 6,928) have fewer than $00 employees and earn about 49% of all
‘annual receipts for the industry, and 52.5% of home health care services (3.637 out of

* Some of thove statements clude the following: “Because of the scope of this tuk. all HHAS will be
affected, bun we do not expect tt effcct 10 be sagnificamm ” 63 Fed. Reg. a1 HI3. “We expoct to have 8
“significant impact’ oa an unknown sunt of such entities effectively preventing some from repeating
their past aborrark tilling acitics [but ]be skyorty Of HHAs will not Be significantly affected by this
abe.” 1d. “[Alay possible impact hat thus capuiatization| requireanest may have on HHAS catering tbe
‘Medicare program 1s wore than offset by savings to the Trust Funds in situations in which HHAS go out of
‘baniness due to undercaptalizauion ...~ fd at 308, “We are mot preparing a rural impact statement

40 section 1102(b) ofthe Social Security Act} since we have determined. and certify. that this
‘rake would not have a significant impact 00 the operations of 2 substantia! musber of nail roca)
‘nowpitala.” /d. “If'a new HHA for soo ronson cannot raise the capital necessary to most Maicare’s
{eapitalization] requireacat and. therefore, is not permnitzed to coer the Medicare program. that clearty
‘has an isnpact on the HHA.” (el
* See 13. CER ¥ 121.201. Based on Standard Industrial Classification code 8082. Home Health Care
‘Services include home health corc mpcncies and visiting iurse sstociations (establishments
‘engaged in providing shited wursing or medical care in the home. under supervinon of a physiczaa.
Establishnents of registered of practical nurics cugaed in the independess practice of their professions
and russes” registries af classified in anoihcr category. Similarly, establishments prunarily engaged in
selling, reaung oF leasing health care products for personal or bouschold use are classified in moodher
category).

’


41

B. Final Regulatory Flexibility Analysis
‘The preparation of a FRFA may be delayed but not waived. Section 608(b) of the RFA reads:

“Except as provided in section 605(b) [where an agency certifies that there will be no significant
‘economic impact on a substantial number of small entities}, an agency head may delay the
completion ofthe requirements of section 04 ofthis te regarding the preparation of FRFAs]
for a period of not more than one hundred and eighty days after the date of publication in the
Federal Register of a final rule by publishing in the Federal Register, not later than such date of
publication, a written finding, with reasons therefor, that the fal rae ale is being promulgated in
cacy that makes timely compliance with the provisions of section 604 of this
thas not prepared a final regulatory analysis pursuant fo section
‘one hundred and eighty days from the date srpublicetbs off of the final rule,
such rule shall lapse and have no effect. Such rule shall not be repromulgated until a final
regulatory flexibilic; analysis has been completed by the agency.”

FRFAs may not be waived because they serve a vital function in the regulatory process. The
preparation of a FRFA allows an agency to carefully tailor its regulations and av
‘and costly requirements while maintaining important public policy objectives. Wit

anatysis-which should include things like data, public comments and a full description
costs-agencies would be operating in 2 vacuum without sufficient information to develop suitable

Since the agency did not issue a proposed rule, the agency had an obligation to consider carefully
all ofthe significant comments regarding the i ie final rule. After all the agency was
parently unsure ofthe impact (13) The congressiom yuld have been some indication

that there would bea significant economic impact aud that further analysis was required, HCFA,
did extend the deadiine for obtaining » surety bon for 60 days, and in some ways limited the

of sureties. However, the agency did not change the bond or capitalization requirements,

jin why such changes were not feasible. Inasmuch as the agency failed to heed any of the
omtueats regarding impact-cven those from Congress-the comment period served no real
function here.

‘The dearth of information regarding less costly alternatives is possibly the most serious defect in
, HCFA never demonstrated why the $50,000 bond was
insufficient or would not accomplish the objective of discouraging bad actors from enteriny
Medicare program. The agency did not demonstrate why the 15 percent rule would not cause a
economic impact-particularly when the $50,000 bond amount changed from a
| There is ne evidence that HCFA attempted to find less costly

Before heaping ional regulations, would it not be prudent to first determine
whether the programs and policies recently pat in lace by the Administration, and the
Prospective payment rales yet to come will work

IV. Conclusion

Not everyoue in the home health industry is a bad actor. More importantly, home health providers
that cannot afford to comply with HCFA's regulations are not necessarily bad actors,

HCFA has twisted Congress’ intent and changed the rule into a vehicle for punishing legitimate
home health agencies and for securing overpayments by Medicare rather than a vehicle to
discourage bad actors from entering the Medicare program. There must be a middle ground-a
place where legitimate home health providers can survive and compete in the marketplace, and
where fraud and abuse can be controlled. This final rule is not that place.

Therefore, the Office of Advocacy petitions HCI le to remove the 15%
bonding requirement and the capitalization requirement until such time as proper notice and
‘comment procedures can be completed. Thank you for your prompt attention to this urgent

7298 5:10 PM.