[House Report 105-821]
[From the U.S. Government Publishing Office]



                                                 Union Calendar No. 462
105th Congress, 2d Session  -  -  -  -  -  -  -  - House Report 105-821


 
 MEDICARE HOME HEALTH SERVICES: NO SURETY IN THE FIGHT AGAINST FRAUD 
                               AND WASTE

                               __________

                             EIGHTH REPORT

                                 by the

                        COMMITTEE ON GOVERNMENT

                          REFORM AND OVERSIGHT





October 15, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed



              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)
RON LEWIS, Kentucky

                      Kevin Binger, Staff Director

                 Daniel R. Moll, Deputy Staff Director

           David A. Kass, Parliamentarian and Deputy Counsel

                 Lisa Smith Arafune, Deputy 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 Sayer, Professional Staff Member

                        Jesse S. Bushman, Clerk



                         LETTER OF TRANSMITTAL

                              ----------                              

                                  House of Representatives,
                                  Washington, DC, October 15, 1998.
Hon. Newt Gingrich,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: By direction of the Committee on 
Government Reform and Oversight, I submit herewith the 
committee's eighth report to the 105th Congress. The 
committee's report is based on a study conducted by its 
Subcommittee on Human Resources.
                                                Dan Burton,
                                                          Chairman.



                            C O N T E N T S
                               __________
                                                                   Page
  I. Summary..........................................................1
 II. Background.......................................................3
III. Findings........................................................18
 IV. Recommendations.................................................24



                                                 Union Calendar No. 462
105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-821
_______________________________________________________________________


MEDICARE HOME HEALTH SERVICES: NO SURETY IN THE FIGHT AGAINST FRAUD AND 
                                 WASTE

                                _______
                                

October 15, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Burton, from the Committee on Government Reform and Oversight, 
                        submitted the following

                             EIGHTH REPORT

    On October 8, 1998, the Committee on Government Reform and 
Oversight approved and adopted a report entitled, ``Medicare 
Home Health Services: No Surety in the Fight Against Fraud and 
Waste.'' The chairman was directed to transmit a copy to the 
Speaker of the House.

                               I. Summary

    A serious problem of waste, fraud, and abuse has been 
documented in the home health program. The General Accounting 
Office [GAO] ``and others have reported on several occasions 
about the problems with Medicare's review of home health 
benefits.'' \1\ Fraud in Medicare home health also threatens 
the quality of care as unqualified providers victimize 
beneficiaries and displace legitimate home health agencies.
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    \1\ ``Medicare, Need to Hold Home Health Agencies More Accountable 
for Inappropriate Billings,'' (GAO/HEHS-97-108), U.S. General 
Accounting Office, June 1997, p. 2.
---------------------------------------------------------------------------
    Recent efforts by the Department of Health and Human 
Services' [HHS] Health Care Financing Administration [HCFA] to 
address the problem through administrative action and 
implementation of legislative requirements have been largely 
unsuccessful. While the overall Federal expenditures for home 
health care have diminished since late 1997,\2\ there is little 
evidence vulnerabilities to waste, fraud, and abuse have been 
curtailed.
---------------------------------------------------------------------------
    \2\ Medicare Home Health Agencies: Still No Surety Against Fraud 
and Abuse, 105th Cong., 2d sess., July 22, 1998, Human Resources 
Subcommittee hearing, (prepared written statement of Penny Thompson, 
Director of Program Integrity, Health Care Financing Administration, p. 
2) [At this writing the subcommittee's hearing had not yet been 
printed. Page numbers in this and subsequent references to statements 
for this hearing refers only to the individual prepared written 
statements held in subcommittee files.]
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    There is also little consensus on the best approach to 
combat fraud in Medicare home health services. While it is 
generally agreed unscrupulous providers enter the Medicare 
program too easily, proposals to limit provider eligibility and 
strengthen program safeguards vary widely.
    Congress included several home health reform measures in 
the Balanced Budget Act of 1997 [BBA]. Among those provisions 
were directives to require surety bonds from all home health 
providers and implementation of an interim payment system [IPS] 
as a precursor to a prospective payment schedule. The 
administration also took action September 15, 1997, announcing 
the implementation of a moratorium on new home health provider 
applicants, arguing this ``time out'' would allow the agency to 
put additional program safeguards in place, including 
capitalization and experience requirements for new 
applicants.\3\
---------------------------------------------------------------------------
    \3\ U.S. Department of Health and Human Services, press release, 
HHS Halts Certification of Home Health Agencies: New Regulations Will 
Fight Fraud and Abuse, Sept. 15, 1997.
---------------------------------------------------------------------------
    However, under tight congressional implementation 
deadlines, and under pressure from the industry to lift the 
moratorium, HCFA's proposed final surety bond rule was rushed 
and poorly crafted, creating immediate controversy and 
requiring a March 15, 1998, announcement of forthcoming 
technical corrections. Those were published June 1, 1998.
    The home health industry immediately took exception with 
HCFA's interpretation of the surety requirement, claiming it 
overstepped the congressional mandate by seeking to have bond 
liability cover all overpayments, not just those resulting from 
fraud and abuse. The industry also claimed HCFA failed to allow 
required public comment resulting in a twice-revised rule still 
so technically flawed that agencies would not be able to secure 
bonds due to cost, unrealistic underwriting standards, and 
owners' unwillingness to provide collateral or personal 
indemnification.
    Adding to the home health industry's concern was the fact 
that the surety requirement, coupled with the IPS, created cash 
flow problems and other financial conditions that weakened many 
home health agencies. HCFA failed to anticipate the colliding 
consequences of simultaneous implementation of surety bonds and 
IPS, which resulted in increased industry opposition to both 
changes.
    This ill-fated foray into the highly complex arena of 
insurance underwriting ended when HCFA delayed its surety bond 
rule until at least February 15, 1999, under a June 26 
agreement with Senators Bond (R-MO), Baucus (D-MT) and Grassley 
(R-IA). Under the agreement, the Senate Finance Committee will 
obtain a General Accounting Office report on the surety bond 
rules, HCFA will consult with the industry and Congress before 
revising or moving forward with the rule. HCFA will give at 
least 60 days notice before the rule takes effect. At the time 
of postponement, 4,000 home health agencies had purchased 
surety bonds. Although the bonds are no longer needed, the cost 
of the bonds is not reimbursable under HCFA regulations. 
Therefore, it appears those who complied with the regulation 
are likely to be adversely affected.
    After a year of failed efforts, HCFA's fight against waste, 
fraud, and abuse in the home health industry remains stalled. 
Reform options available to HCFA a year ago remain, for the 
most part, unexplored, including: strengthening conditions of 
participation, mandating agency accreditation standards, 
requiring provider education certification, and requiring 
compliance plans and background checks on home health agency 
[HHA] personnel.

Findings in brief:

    1. Progress in combating waste, fraud, and abuse in home 
health during the past year has been minimal.
    2. HCFA failed to follow regular administrative rulemaking 
procedures in crafting the surety bond requirement.
    3. As the result of limited enrollment standards, HCFA was 
not able to ensure the financial responsibility of Medicare 
home health providers.

Recommendations in brief:

    1. HCFA should better use existing authority and resources 
to augment efforts to address waste, fraud, and abuse in the 
Medicare home health benefit program.
    2. HCFA should follow the Administrative Procedures Act, 
permitting thorough and formal industry comments, as well as 
ensuring collaboration with experts and congressional 
committees in drafting regulations implementing novel and 
complex program requirements.
    3. HCFA should pursue the use of existing statutory and 
regulatory authority to better assure the financial 
responsibility of home health agencies.

                             II. Background

    Medicare's home health benefit is crucial to millions of 
beneficiaries, allowing them to receive skilled treatment of a 
specific illness or injury in their homes.\4\ The care must be 
provided by certified home health agencies which may be 
freestanding or affiliated with another facility, such as a 
hospital. Part A, the hospital insurance program, covers 
inpatient hospital services, post-hospital care in skilled 
nursing homes, and care in patients' homes. Part B, the 
supplementary medical insurance program, covers primarily 
physician services but also a number of other services, 
including home health care for beneficiaries not covered under 
Part A. Most of Medicare's payments for home health care are 
made under Part A.
---------------------------------------------------------------------------
    \4\ 42 U.S.C. Sec. 1395(x) (Social Security Act of 1965 as 
amended).
---------------------------------------------------------------------------
    The Medicare law requires that home health agencies be 
certified to serve Medicare beneficiaries.\5\ Agencies obtain 
certification by meeting specific mandated requirements, known 
as conditions of participation [COPs]. These requirements cover 
an agency's qualifications and capacity to perform 
administrative functions such as appropriate recordkeeping, 
medical records confidentiality, as well as the delivery of 
skilled nursing services. In addition, starting January 1, 
1998, prospective home health agencies must meet minimum 
capitalization requirements to ensure they have sufficient 
funds on hand to operate responsibly. Also, agencies must have 
treated at least 10 patients before they are allowed to enter 
the Medicare program as a care giver.\6\
---------------------------------------------------------------------------
    \5\ Ibid.
    \6\ See supra note 2, p. 7.
---------------------------------------------------------------------------
    In administering the program, the Health Care Financing 
Administration typically contracts with State public health 
agencies to conduct certification and recertification surveys 
of home health agencies. If HHAs are found to be out of 
compliance with Medicare COPs, they are provided an opportunity 
to develop a corrective action plan to avert termination from 
the program. If the State agency and HCFA approve the plan, the 
home health agency can continue to participate in Medicare as 
long as the corrective plan is followed.
    To qualify for home health care, beneficiaries must be 
homebound, be under the care of a physician and need part-time 
or intermittent skilled nursing care, physical therapy, speech 
language pathology services, or have a continuing need for 
occupational therapy.\7\ The physician must certify that 
medical care in the home is necessary and develop a plan of 
care reflecting the patient's needs. If these requirements are 
met, Medicare will pay for skilled nursing care on a part-time 
or intermittent basis.
---------------------------------------------------------------------------
    \7\ See supra note 4.
---------------------------------------------------------------------------
    In 1989, as the result of a court case, revised HCFA 
guidelines broadened coverage policies for skilled nursing care 
which resulted in more visits per week and greater duration of 
eligibility.\8\ There was an increase in nonmedical supportive 
and personal care assistance when needed by the chronically 
ill. In addition, as a result of legislative changes, 
copayments or deductibles for home health care are no longer 
required except for medical supplies and durable medical 
equipment.
---------------------------------------------------------------------------
    \8\ Duggan v. Bowen, 691 F. Supp, 1487 (DDC 1988).
---------------------------------------------------------------------------
    Medicare's home health benefit has become the program's 
fastest growing benefit, generating a great deal of concern 
about the rising cost of the program. Spending increased from 
$2.6 billion in 1989 to $17.2 billion in 1997 and is expected 
to reach $21 billion by the year 2000, reflecting a rate of 
growth of 35 percent and accounting for nearly 9 percent of the 
total Medicare spending. By one estimate, spending for home 
health services could surpass $30 billion by 2002.\9\
---------------------------------------------------------------------------
    \9\ Jackpot! Gaming the Home Health Care System, 105th Cong., 1st 
sess., p. 49 (1997) (``Special Committee on Aging hearing, No. 8'') 
(statement of George Grob, Deputy Inspector General, U.S. Department of 
Health and Human Services).
---------------------------------------------------------------------------
    During this same period the number of beneficiaries 
receiving home health care doubled from 2 million to 4 million, 
the average number of visits per beneficiary more than doubled, 
and the number of home health agencies has increased from 
approximately 5,800 in 1989 to 10,500 at the beginning of 
1998.\10\
---------------------------------------------------------------------------
    \10\ See supra note 2, p. 3.
---------------------------------------------------------------------------
    The growth in the Medicare home health benefits is due to 
several factors, including:
          1) a court decision in late 1988 obligated HCFA to 
        interpret more liberally Medicare's eligibility and 
        coverage criteria, resulting in beneficiaries more 
        easily obtaining home health coverage, increasing the 
        number of allowed visits per week and duration of 
        eligibility, expanded eligibility to persons who have 
        ongoing medical problems that require personal care 
        assistance associated more with long-term care rather 
        than acute care; \11\
---------------------------------------------------------------------------
    \11\ See supra note 1, p. 3.
---------------------------------------------------------------------------
          2) claims processing policies resulting in high 
        denial rates for home health care were relaxed by the 
        1989 HCFA guideline revisions;
          3) the growing trend of discharging patients more 
        quickly to their homes or providing care in other less 
        expensive settings due to incentives contained within 
        the Medicare hospital prospective payment system;
          4) technological advances which have made it possible 
        to provide an increased level of care in the home;
          5) increased supply of services because of the 
        expanding number of agencies participating in Medicare;
          6) cost-based reimbursement that lacks the incentives 
        to ensure care was provided efficiently, and encourages 
        the maximization of the number of visits per 
        beneficiary;
          7) the general aging of a population which enjoys 
        increased longevity; and,
          8) for many, home is the preferred setting for 
        care.\12\
---------------------------------------------------------------------------
    \12\ Statement for the record of National Association for Home 
Care, Special Committee on Aging hearing, No. 8, July 28, 1997, pp. 
203-04.
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          The Extent of Waste, Fraud, and Abuse In Home Health

    In addition to changing demographics, medical advances, and 
liberalized benefits, recent studies by the HHS Inspector 
General and the General Accounting Office document that a 
significant amount of spending growth is due to waste, fraud, 
and abuse.\13\ These studies point to the need to better manage 
the program, ensure claims review, and have better payment 
safeguards in place.
---------------------------------------------------------------------------
    \13\ Medicare Home Health, 105th Cong., 1st sess., p. 8 (1997) 
(``Oversight and Investigations Subcommittee hearing, No. 64'') 
(statement of June Gibbs Brown, Inspector General of U.S. Department of 
Health and Human Services).
---------------------------------------------------------------------------
    In two recent studies, the OIG concluded approximately 40 
percent of the home health claims were likely inappropriate due 
to provision of unnecessary services, patients not truly 
homebound, inadequate physician authorization, or inadequate 
supporting documentation.\14\ In addition, as many as 25 
percent of the agencies in certain States were likely problem 
providers. These reports were conducted after a state-wide 
audit in Florida in 1995 indicated a 20 percent error rate for 
payments that did not meet Medicare guidelines. Expanding their 
anti-fraud activities, HHS initiated Operation Restore Trust in 
late 1995, continuing on with the work they started in their 
review of Florida home health. The focus of ORT was to reduce 
waste, fraud, and abuse in home health, nursing home services 
and durable medical equipment in five States--California, New 
York, Florida, Texas, and Illinois.\15\ These States ``account 
for close to 35 percent of the Nation's Medicare beneficiaries 
and program expenditures.'' \16\
---------------------------------------------------------------------------
    \14\ Results of the Operation Restore Trust Audit of Medicare Home 
Health Services in California, Illinois, New York and Texas, Office of 
Inspector General, U.S. Department of Health and Human Services, July 
1997, p. 13.
    \15\ Statement of George Grob, Deputy Inspector General, U.S. 
Department of Health and Human Services, Human Resources Subcommittee 
hearing, July 22, 1998, pp. 1-2 (in subcommittee files). Note: These 
States were selected due to growth in the volume and value of home 
health claims and the suspicion the growth was in some measure 
attributable to fraud or abuse. However not all questionable claims are 
fraudulent. In order to assure correct payment and appropriate patient 
records, Medicare does require correct documentation in the delivery of 
Medicare services. It is the documentation that justifies the payment. 
If documentation is incomplete, either due to oversight or an effort to 
submit fraudulent claims, Medicare, through its contractors can 
withhold payment until all supporting information is provided.
    \16\ Ibid., p. 3.
---------------------------------------------------------------------------
    Responding to the OIG's reported 1997 finding that 40 
percent of the home health claims may be a result of waste, 
fraud, and abuse, the witness representing the home health 
industry in the subcommittee's July 22, 1998, hearing stated, 
``We heard [the OIG] 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.'' \17\
---------------------------------------------------------------------------
    \17\ Testimony of William A. Dombi, VP for Law, National 
Association for Home Care, (July 22, 1998), Human Resources 
Subcommittee hearing transcript, p. 75 (in subcommittee files).
---------------------------------------------------------------------------
    In earlier work, the OIG recommended HCFA develop and 
implement additional program safeguards that would strengthen 
their ability to identify problem providers and prevent 
potential problem providers from entering the program. They 
recommended a moratorium on new entrants to stem further losses 
to the Medicare trust fund.\18\ HCFA did not concur with the 
moratorium proposal in the 1997 draft report, pointing to 
pending legislative proposals to strengthen the home health 
program. The OIG withdrew the recommendation. The OIG did 
recommend HCFA take administrative action, or seek legislative 
authority, to:
---------------------------------------------------------------------------
    \18\ Home Health: Problem Providers and Their Impact on Medicare, 
Office of Inspector General, U.S. Department of Health and Human 
Services, July 1997, p. iii; see also HCFA response, p. 4.
---------------------------------------------------------------------------
          1) require surety bonds of new and existing home 
        health agencies;
          2) require user fees to cover the cost of 
        certifications, comprehensive reviews and 
        recertification;
          3) require HHA principals to have prior health care 
        service experience;
          4) develop a data bank of owners, principals, and 
        related organizations;
          5) require that agency principals and owners provide 
        their Social Security and Employer Identification 
        numbers prior to certification;
          6) require that home health agencies demonstrate 
        fiscal soundness prior to certification;
          7) deny certification to owners and principals of 
        current or defunct agencies who are not financially 
        responsible and trustworthy; and,
          8) preclude the discharge of Medicare debts through 
        bankruptcy.
    At a hearing entitled ``Jackpot: Gaming the Home Health 
Care System,'' HHS's Deputy Inspector General said:

          I am here to talk about Medicare's home health 
        benefit. This is an extremely valuable program, one 
        that provides much needed medical care for elderly and 
        disabled individuals in the place that most of them 
        want to be--in their homes. Sadly, I must tell you--in 
        fact I must emphasize--that this program is out of 
        control. . . . The problems of waste, fraud 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. We are not alone in this assessment. The 
        General Accounting Office has also issued important 
        reports on this subject.\19\
---------------------------------------------------------------------------
    \19\ See supra note 9, p. 48.

    The Senate Aging Committee, in summarizing their July 28 
hearing, reported, ``Home health has become an `economic 
jackpot' for unscrupulous providers gaming the system at the 
expense of both taxpayers and future Medicare beneficiaries. 
This hearing addressed the inadequate controls and rising costs 
characteristics of the home health care system.'' \20\
---------------------------------------------------------------------------
    \20\ Jackpot! Gaming the Home Health Care System, July 28, 1997, 
Senate Special Committee on Aging's Web site. (http://www.senate.gov/
aging/hr6sum.htm).
---------------------------------------------------------------------------
    On October 29, 1997, appearing before the House Commerce 
Committee's Subcommittee on Oversight and Investigations, the 
HHS Inspector General testified that home health ``is a $20 
billion program that grew too fast with an inherently 
vulnerable payment structure and inadequate controls. The 
result has been annual losses to the Medicare program of 
billions in misspent dollars.'' \21\
---------------------------------------------------------------------------
    \21\ See supra note 13, p. 8.
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    Acknowledging that some of the growth in home health is 
appropriate and in response to demographics, new technology and 
liberalized benefits, the OIG statement continued:

          However, the basic design of the program and lack of 
        effective program controls opened the way to waste, 
        fraud and abuse. Reports issued by the Office of 
        Inspector General (OIG) and others have repeatedly 
        documented how fraud, waste, and abuse contribute 
        significantly to the high growth of home health 
        expenditures.\22\
---------------------------------------------------------------------------
    \22\ Ibid.

    Testifying before the House Government Reform and Oversight 
Committee's Subcommittee on Human Resources on July 22, 1998, 
---------------------------------------------------------------------------
the HHS Deputy Inspector General stated in written testimony:

          Over the last several years, we alerted the Congress 
        and policy officials about our concerns. In fact, 
        Inspector 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: 1) reform the payment method, 
        2) prevent entry of abusive providers, and 3) tighten 
        oversight.\23\
---------------------------------------------------------------------------
    \23\ See supra note 15, p. 1.

    In this same statement, the OIG's testimony called 
attention to the fact there continues to be a serious problem 
of home health providers leaving the program while still owing 
---------------------------------------------------------------------------
millions of dollars to Medicare:

          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.\24\
---------------------------------------------------------------------------
    \24\ Ibid., p. 4.

    HCFA provided similar data in testimony before the 
Subcommittee on Human Resources, acknowledging there are 
agencies that default on their obligations to the programs and 
fail to repay Medicare or Medicaid. HCFA's statistics indicate 
that from 1993 to 1996 home health agencies left the Medicare 
program owing more than $154 million to the program.\25\ It 
should be noted that HCFA regulations allow the agency to refer 
these legal claims to the Department of Justice for collection. 
It is unclear whether HCFA availed itself of that remedy.
---------------------------------------------------------------------------
    \25\ See supra note 2, p. 4.
---------------------------------------------------------------------------
    The OIG added:

          Over the past year, we have emphasized that 
        structural reforms alone will not be enough to prevent 
        the fraud and abuse that is at least 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 loses due to 
        the activities of exploitive [sic] home health 
        agencies.\26\
---------------------------------------------------------------------------
    \26\ See supra note 15, p. 6.

    In their many studies and reports on the home health 
program, the General Accounting Office reached many of the same 
---------------------------------------------------------------------------
conclusions. In a report to Congress in March 1996, GAO stated:

          Although we have been reporting on program weaknesses 
        over the last 15 years, controls over the Medicare home 
        health benefit remain essentially non-existent. Few 
        home health claims are subject to medical review and 
        most claims are paid without question. Further, because 
        (1) few on-site coverage audits are done, (2) 
        beneficiaries are rarely visited by intermediaries, and 
        (3) physicians have limited involvement in home health 
        care, verifying whether the beneficiaries receiving 
        home care truly qualify for the benefit, need the care 
        being delivered, or are even receiving the services 
        billed to Medicare is nearly impossible.\27\
---------------------------------------------------------------------------
    \27\ ``Medicare: Home Health Utilization Expands While Program 
Controls Deteriorate,'' (GAO/HEHS-96-16) U.S. General Accounting 
Office, March 1996, pp. 2-3.

    In a report the following year, GAO wrote that while 
utilization of home health care was expanding, there were 
insufficient program controls in place for HCFA to detect and 
prevent inappropriate payments. ``We and others have reported 
on several occasions about the problems with Medicare's review 
of home health benefits. . . . Yet, in spite of the need for 
increased scrutiny indicated by these reports and by the growth 
in home health expenditures, Medicare's review of home health 
claims decreased in the 1990s.'' \28\
---------------------------------------------------------------------------
    \28\ See supra note 1, p. 2.
---------------------------------------------------------------------------
    As funding for claims review was reduced, the number of 
home health agencies increased by more than a third, and the 
volume of home health claims being processed had more than 
tripled.\29\
---------------------------------------------------------------------------
    \29\ Ibid., p. 5.
---------------------------------------------------------------------------
    In July 1997 testimony before the Senate Aging Committee, 
GAO responded to questions as to whether the rapid growth in 
home health agencies had been effectively managed and whether 
HCFA ensures home health agencies in the program comply with 
Medicare's conditions of participation. GAO stated:

          . . . we are finding that Medicare's survey and 
        certification process imposes few requirements on HHAs 
        seeking to serve Medicare patients and bill the 
        Medicare program. The certification of an HHA as a 
        Medicare provider is based on an initial survey that 
        takes place so soon after the agency begins operation 
        that there is little assurance that the HHA is 
        providing or is capable of providing quality care. 
        Moreover, once certified, HHAs are unlikely to be 
        terminated from the program or otherwise penalized, 
        even when they have been repeatedly cited for not 
        meeting Medicare's conditions of participation and for 
        providing substandard care.\30\
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    \30\ Statement of Leslie G. Aronovitz, Associate Director, Health 
Financing and Systems Issues, Health, Education, and Human Services 
Division, U.S. General Accounting Office, Select Committee on Aging 
hearing, No. 8, July 28, 1977, p. 134.

GAO's testimony went on to say, ``The fact that the law allows 
this ease of entry into Medicare has probably contributed to 
the rapid growth in the number of Medicare-certified HHAs; it 
has also allowed some questionable agencies to participate in 
the program.'' \31\
---------------------------------------------------------------------------
    \31\ Ibid., p. 138.
---------------------------------------------------------------------------
    Testifying before the House Commerce Committee's 
Subcommittee on Oversight and Investigations on October 17, 
1997, GAO stated that in order to ensure maximum success of the 
BBA home health changes, HCFA:

          . . . has considerable discretion in implementing the 
        law which in turn means the agency has much work to do 
        within a limited time period. HCFA's action, both in 
        designing a PPS and in implementing enhanced program 
        controls to assure that unscrupulous providers cannot 
        readily `game' the system, will determine to a large 
        extent how successful the legislation will be in 
        curbing past abusive billing practices and slowing the 
        rapid growth in spending for this benefit.\32\
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    \32\ Statement of William Scanlon, Director, Health Financing and 
Systems Issues, Health, Education, and Human Services Division, U.S. 
General Accounting Office, Oversight and Investigations Subcommittee 
hearing, No. 64, p. 17.

    In December 3, 1997, correspondence to Members of Congress, 
---------------------------------------------------------------------------
GAO stated:

        Medicare's size, complexity, and rapid growth make it 
        an attractive target for fraud and abuse. Efforts by 
        the Health Care Financing Administration (HCFA), the 
        agency responsible for administering the program, to 
        improve program safeguards have not been adequate to 
        prevent substantial losses, in part because the 
        resources available to avoid inappropriate payments 
        have shrunk relative to the program's size and in part 
        because some tools have been underutilized or not 
        deployed as effectively as possible.\33\
---------------------------------------------------------------------------
    \33\ Letter from William J. Scanlon, Director, Health Financing and 
Systems Issues, (GAO/HEHS-98-59R) U.S. General Accounting Office to 
Senator Thomas A. Daschle, et al., Dec. 3, 1997, p. 2. (in subcommittee 
files).

    During the last 6 years, the funding level for HCFA's 
administrative activities has been reduced.\34\ Because of 
budget constraints, rapid program growth and shifting 
priorities, the review of claims and related medical 
documentation and site audits of providers' records are 
inadequate to keep up with the dramatic increases in Medicare 
home health activity. As a result, providers have only a slim 
chance of having claims, year end cost reports, or the actual 
provision of services carefully scrutinized by Medicare.
---------------------------------------------------------------------------
    \34\ See supra note 1, p. 2.
---------------------------------------------------------------------------
    Ten years ago HCFA audited over 60 percent of home health 
claims, but ironically as the program grew, the number of 
claims reviewed decreased substantially.

          By 1995, however, when payment safeguard funding for 
        Part A medical review had substantially declined (from 
        $61 million in 1989 to $33 million in 1995), the 
        intermediaries' claims review target had been lowered 
        to 3.2 percent for all Part A claims (or even lower, 
        depending on available resources) to a required minimum 
        of 1 percent. During this same period, the number of 
        home health agencies participating in Medicare 
        increased by more than a third, and the volume of home 
        health claims processed more than tripled.\35\
---------------------------------------------------------------------------
    \35\ Ibid., p. 5.

    During this same time, home health claims increased from 
5.5 million in 1989 to 16.6 million claims in 1994. The number 
of home health claims grew to 18 million in 1995, 19 million in 
1996 and 1997. This figure is expected to remain at 19 million 
in 1998, due in part to changes brought about by implementation 
of IPS. The September 15, 1997, announcement by HCFA that they 
will begin reviewing more claims--250,000 up from 200,000--
reflects a minimal response. As noted by HCFA in their July 22, 
1998, testimony before the Subcommittee on Human Resources, the 
agency's increase in audits represented an increase of 25 
percent.\36\ Nevertheless, it is only 1 percent of the expected 
home health claims in 1998.
---------------------------------------------------------------------------
    \36\ See supra note 2, p. 2.
---------------------------------------------------------------------------
    In this same July 22 hearing before the House Government 
Reform and Oversight Committee's Subcommittee on Human 
Resources, HCFA's Program Integrity Director acknowledged the 
serious weaknesses in the home health program, and the failure 
to respond adequately.

          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.\37\
---------------------------------------------------------------------------
    \37\ Testimony of Penny Thompson, Director of Program Integrity, 
Health Care Financing Administration, U.S. Department of Health and 
Human Services, (July 22, 1998) Human Resources Subcommittee hearing 
transcript, p. 13 (in subcommittee files).

    After congressional hearings and extensive media attention, 
the administration responded to the findings of the July 1997 
OIG reports. In what they called an ``unprecedented'' action, 
the Department of Health and Human Services, in conjunction 
with the White House, implemented a moratorium on the entry of 
any new home health agencies into the Medicare program on 
September 15, 1997, and announced more claims reviews, and 
audits. The administration was taking ``aim at fraud'' 
according to Secretary Shalala.\38\
---------------------------------------------------------------------------
    \38\ See supra note 3.
---------------------------------------------------------------------------

        1997 Balanced Budget Act Anti-Fraud and Abuse Provisions

    To address the continuing problems of waste, fraud, and 
abuse in the home health program, the Congress proposed several 
changes to the home health program, contained in the Balanced 
Budget Act of 1997:
          1) a mandatory surety bond for home health and DME 
        providers in the amount of at least $50,000;
          2) an interim payment system for home health services 
        with payment rates based on prior year (1994) cost 
        data;
          3) development of a prospective payment system for 
        home health services, to be effective on or after 
        October 1, 1999;
          4) payment based on the location of the beneficiary 
        rather than location of the home health agency;
          5) modification of the Part A home health benefit for 
        individuals enrolled under Part B;
          6) clarification of part-time or intermittent nursing 
        care;
          7) an HHS study of the criteria in determining home 
        bound status;
          8) development of standards for home health claims 
        denials;
          9) prohibition of home health services based solely 
        on drawing blood (venipuncture); and,
          10) a report to Congress regarding home health cost 
        containment.
    As several of these changes were being implemented by HCFA, 
the industry took exception with the agency's interpretation of 
the requirements and launched an active lobbying effort to 
weaken them and persuade Congress of their potential harm to 
beneficiaries and the industry. The industry spent considerable 
effort opposing changes in delivery of venipuncture service, 
the new surety bond requirement and implementation of the 
interim payment system.\39\
---------------------------------------------------------------------------
    \39\ News Release, NAHC Announces 10-point Plan to Stem Surety Bond 
Regulations, NAHC website, (http://www.nahc.org/NAHC/NewsInfo/98nr/
10ptplan.html).
---------------------------------------------------------------------------

                    The BBA Surety Bond Requirement

    The BBA requires each home health agency and durable 
medical equipment supplier participating in Medicare and/or 
Medicaid to secure a surety bond of at least $50,000 on a 
continuing basis. After several meetings and correspondence 
with HCFA in an effort to provide technical assistance in 
drafting the new home health surety requirement, the surety 
industry found the January 5, 1998, HCFA regulations too 
restrictive.
    Specifically, the surety industry wrote, ``However, the 
regulations which were published on January 5, 1998, include 
provisions which the surety industry specifically told HCFA 
could create difficulties for many providers in obtaining 
bonds.'' The surety industry identified their concerns as ``. . 
. the potential stacking or cumulative effect of annual bonds, 
and the long tail or open-endedness of the obligation of the 
bond. Among other issues, the industry also expressed concern 
that the regulations do not contain a cap on the maximum amount 
of the bond.'' \40\
---------------------------------------------------------------------------
    \40\ Letter from Martha L. Perkins, senior counsel, American 
Insurance Association and Lynn M. Schubert, president, the Surety 
Association of America to Val J. Halamandaris, president, National 
Association for Home Care, Jan. 15, 1998 (in subcommittee files).
---------------------------------------------------------------------------
    The home health industry opposed the proposed final 
regulation, particularly the establishment of the bond amount 
beyond the $50,000, arguing HCFA exceeded congressional intent 
by requiring bonds covering the lesser of $50,000 or 15 percent 
of prior-year Medicare revenues. In an industry that is by-in-
large limited in assets and capital, the ability of HHAs to 
produce needed collateral was limited, which jeopardized their 
ability to secure the surety bond required by the regulation.
    Additionally, the home health industry (as well as the 
surety industry) objected that the proposed final regulation 
potentially exposed HHAs to bond liability for all 
overpayments, not just losses due to fraud and abuse. The 
surety provision contained no waiver mechanism for home health 
agencies that pose no risk to the Medicare program. It required 
separate surety bonds for Medicare and Medicaid, with an 
exception for small agencies whose combined Medicare, Medicaid 
revenue was less than $334,000.
    Some HHAs argued:
          1) surety bonds were meant only to serve as a 
        deterrent to fly-by-night providers that pose a risk to 
        the programs, not a source of recoupment for routine 
        overpayments and reimbursement errors;
          2) HCFA's bonding requirement was to be continuous, 
        with no opportunity for agencies with good payment 
        records to reduce or eliminate bond coverage;
          3) HCFA set the value of the bond at the greater of 
        $50,000 or 15 percent of the previous year's revenues 
        from the Medicare and/or Medicaid programs;
          4) the expense of the surety bond, made more costly 
        by HCFA's unrealistic requirements for cumulative and 
        perpetual liability, was not an expense reimbursable 
        under Medicare or Medicaid; and,
          5) the collateral and personal indemnification 
        required by surety underwriters were too burdensome and 
        risky.
    The industry identified an aggressive plan of action to 
challenge the proposed home health surety bond. Their ``10 
Point Plan'' to counter the surety bond requirement included 
legal action, lobbying, legislative remedies, White House 
intervention, and correspondence.\41\
---------------------------------------------------------------------------
    \41\ See supra note 39.
---------------------------------------------------------------------------
    The home health industry recommended HCFA reconsider the 
surety bond regulation and modify it for use as a screen for 
inappropriate providers, rather than as an insurance policy 
against all overpayments. They also took the position that HCFA 
should not implement or enforce the surety bond regulation 
until there was full compliance with the Administrative 
Procedures Act, permitting interested parties the opportunity 
to provide comment prior to any proposed rule being finalized.
    The March 4, 1998, notice in the Federal Register 
indicating HCFA's plans to modify the January 5, 1998, 
regulation by setting clearer limits on sureties's liability 
and providing surety companies better appeal rights, did little 
to reassure the home health industry. They continued to object 
to HCFA's interpretation of the BBA surety requirement and 
proceeded with their active opposition.\42\
---------------------------------------------------------------------------
    \42\ ``Problems with the Home Health Surety Bond Requirement and 
HCFA's Implementation Plan,'' Nation Association of Home Care Talking 
Points, March 1998 (in subcommittee files).
---------------------------------------------------------------------------
    Members of Congress also raised questions about the surety 
bond regulation, questioning HCFA's interpretation of 
congressional intent, and departure from ``the Florida model,'' 
\43\ a surety bond requirement the State of Florida implemented 
in 1995 to combat waste, fraud, and abuse in the State's 
Medicaid program. All new home health and durable medical 
equipment providers were required to obtain a bond in the 
amount of $50,000. Agencies in good standing with the Medicaid 
program, and that had participated for at least one year, were 
permitted to forego the requirement. The State did not track 
the size of home health agencies who left the program, nor 
whether the surety requirement had a disproportionate impact on 
women and minority owned agencies. The bond requirement, with 
several other anti-fraud initiatives, was successful in 
improving program integrity and reducing the number of problem 
providers through more rigorous enrollment and re-enrollment 
requirements.\44\
---------------------------------------------------------------------------
    \43\ Letter from Representative Pete Stark to Nancy-Ann Min 
DeParle, Administrator, Health Care Financing Administration, U.S. 
Department of Health and Human Services, Feb. 12, 1998 (in subcommittee 
files); letter from Representative Karen L. Thurman to Nancy-Ann Min 
DeParle, Administrator, Health Care Financing Administration, U.S. 
Department of Health and Human Services, Jan. 28, 1998 (in subcommittee 
files).
    \44\ Comparability of Federal and Florida Bond and Financial 
Ability Requirements for Medicaid Home Health Agencies, Florida Agency 
for Health Care Administration, Feb. 23, 1998 (in subcommittee files).
---------------------------------------------------------------------------

     The BBA Interim Payment System and the Impact on Surety Bonds

    The BBA changes home health reimbursements from an open-
ended cost-based system to an interim payment system that 
capped costs based on historical data. It was implemented to 
reduce costs, curtail opportunities for over-service abuses, 
and to facilitate the transition to a home health prospective 
payment system [PPS]. Reduced IPS payment rates from Medicare 
affect HHA cash flow and overall financial viability. Those 
factors make it more difficult or more expensive for agencies 
to obtain surety bond coverage.
    Members, as well as witnesses, at the subcommittee's July 
22 hearing expressed concerns about the interim payment system 
and its effect on HHAs' ability to secure security bonds. The 
home health industry and surety industry noted that IPS would 
probably result in more overpayments, necessitating a greater 
financial guarantee on the part of HHAs in order to qualify for 
a surety bond. In written testimony the surety industry said:

          [i]t is our understanding that many HHAs are 
        uncomfortable with signing the personal indemnity 
        agreement often required to obtain an overpayment bond. 
        That 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 surety, personal 
        indemnity is a very common underwriting tool.\45\
---------------------------------------------------------------------------
    \45\ Statement of Lynn M. Schubert, president, Surety Association 
of America, Human Resources Subcommittee hearing, July 22, 1998, p. 4 
(in subcommittee files).

    In addition, when HCFA made the decision to issue a surety 
bond requirement that was more than an anti-fraud bond, but an 
overpayment and financial security bond as well, the criteria 
to secure such a bond were expanded. The surety industry stated 
in written testimony that the broader financial guarantee 
``affected the availability of these bonds for small HHAs.'' 
\46\
---------------------------------------------------------------------------
    \46\ Ibid., p. 3.
---------------------------------------------------------------------------
    A home health witness stated before the subcommittee:

          [b]ut 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 Medicare 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 happening and will continue to happen as long 
        as that system is in place.\47\
---------------------------------------------------------------------------
    \47\ Testimony of Steven Richard, CFO, Sun Home Health Service, 
(July 22, 1998) Human Resources Subcommittee hearing transcript, p. 100 
(in subcommittee files).

    Speaking to HCFA at the subcommittee's July 22 hearing, one 
---------------------------------------------------------------------------
Member stated:

          [l]ast 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 
        clobbered from two ends, and I am wondering whether 
        HCFA--sometimes we wonder if the right hand knows what 
        the left hand is doing. . . . [w]hat are we 
        accomplishing? So the left hand is not necessarily 
        knowing what the right hand is doing and what is that 
        accomplishing in the bigger, overall scheme of 
        things?\48\
---------------------------------------------------------------------------
    \48\ Testimony of Representative Michael Pappas, (July 22, 1998) 
Human Resources Subcommittee hearing transcript, pp. 51, 54 (in 
subcommittee files).

    Because the IPS payment rate was based on 1994 data, HHAs 
argue the rates penalize providers who were efficient in 1994, 
and rewards those who were inefficient. The rates are composed 
of a combined agency specific and regional rate. Specifically, 
home health agencies will be paid the lessor of (1) their 
actual costs, (2) specific per-visit cost limits (105 percent 
of the median costs of home health agencies), or (3) agency-
specific per-beneficiary limits (based on 75 percent on the 
agency's cost per beneficiary and 25 percent on average per-
beneficiary costs for agencies in the same region). The interim 
payments were intended to remain in effect until October 1, 
1999, when Congress mandated implementation of the new 
prospective payment system for home health, beginning on or 
after that date.\49\
---------------------------------------------------------------------------
    \49\ Public Law 105-33, Sec. 4602 (Balanced Budget Act of 1997).
---------------------------------------------------------------------------
    However, on June 25, 1998, HCFA notified Congress that the 
need to focus far more resources on their year 2000 computer 
problems meant several of the BBA mandated changes, including a 
prospective payment system for home health, were being 
postponed until after January 1, 2000. That decision is of 
particular concern to the home health industry because 
extending IPS prolongs financial pressure on agencies that may 
result in closings.

                      Surety Bonds Characteristics

    Part of the difficulty in implementing the home health 
surety bond requirement was due to a lack of experience and 
only limited understanding of surety bonds, and their unique 
features, by regulators and the affected industry. A surety 
bond is a written agreement for monetary compensation in case 
the principal fails to perform services as promised. Surety is 
a unique insurance product that is created whenever one party 
guarantees full performance of an obligation by another party. 
There are three parties to the agreement: (1) the principal is 
the party that undertakes the obligation (i.e. a home health 
agency); (2) the surety (i.e. an insurance company) guarantees 
the obligation will be performed; and (3) the obligee (i.e. 
HCFA) is the party who receives the benefit of the bond in the 
event of default by the principal.
    Surety bonds are different from other lines of insurance. 
In traditional insurance, the risk is transferred to the 
insurance company. In surety bonds, the risk remains with the 
principal. If a principal defaults on an agreement, the obligee 
receives the amount the principal owes or the amount needed to 
fulfill the contract, after which the principal must pay the 
surety back in full. In underwriting traditional insurance 
products, the goal is to spread the risk. Premiums are based on 
expected losses. In surety bonds, surety writers see their 
underwriting as a form of credit, premiums are service fees and 
the emphasis is on prequalification and selection.
    That emphasis can be very useful in screening out 
unqualified or high-risk principals. Although each surety 
company has its own guidelines and criteria, there are basic 
features found in all surety products which include the 
applicant's capacity, skill and ability to perform the 
obligation, the capital of the applicant and whether the 
financial condition of the applicant justifies approval of the 
particular risk, and character--whether the applicant's record 
shows him or her to be reputable and likely to perform the 
assumed obligation.
    Surety bonds commonly require a pledge of personal assets 
of the owners of closely held corporations, including assets 
held jointly with spouses and family members. This requirement 
often presents an insurmountable obstacle to small, community-
based, not-for-profit enterprises whose directors and board 
members face the loss of homes and savings accounts to meet 
bond liability. Anecdotal information indicates many home 
health providers were both surprised and unwilling to pledge 
the needed personal indemnification and collateral required to 
secure the bonds.

             Suspension of the Surety Bond Compliance Date

    Facing the prospect of Senate disapproval of the surety 
regulation, HCFA suspended the implementation date of the June 
1 rule.\50\ HCFA agreed to take no further action on surety 
bonds until GAO completed a study and report on the surety bond 
issue. GAO was asked to look at three aspects of the surety 
requirement: 1) considering the intent of Congress, and HCFA, 
what is the most appropriate type of surety bond for home 
health now and in the future; 2) how do bonds affect costs for 
home health; 3) to what extent and under what conditions are 
home health agencies able to obtain surety bonds?
---------------------------------------------------------------------------
    \50\ Letter from Nancy-Ann Min DeParle, Administrator, Health Care 
Financing Administration, U.S. Department of Health and Human Services 
to Senator Christopher S. Bond, July 14, 1998 (in subcommittee files).
---------------------------------------------------------------------------
    HCFA also agreed to:
          1) publish a notice in the Federal Register 
        announcing the indefinite suspension of the compliance 
        date of July 31, 1998, contained in the June 1, 1998, 
        final rule;
          2) to incorporate the results of the GAO study in 
        subsequent surety bond regulations; and,
          3) to postpone the effective date of any surety bond 
        requirement until February 15, 1999, or a later date 
        subsequent to a 60-day notice and comment period.
    On July 31, 1998, HCFA published a notice in the Federal 
Register announcing suspension of the surety bond compliance 
date of July 31, 1998, and prohibiting further agency action 
until HCFA had the opportunity to evaluate the requested GAO 
report. HCFA's July 31, 1998, final rule states: ``[a]lthough 
the surety bond requirements remain in effect, the practical 
effect of this document is to absolve participating HHAs from 
having to show compliance with the requirements until 60 days 
following publication of a new final rule but no earlier than 
February 15, 1999.'' \51\
---------------------------------------------------------------------------
    \51\ 63 FR 41170.
---------------------------------------------------------------------------
    At the time the surety bond compliance date was retracted 
by HCFA due to congressional pressure, HCFA reported 40 percent 
of the home health agencies had been able to secure bonds. HCFA 
data indicated those with bonds were equally distributed among 
small, medium and large HHAs, indicating small agencies were as 
successful in acquiring bonds, contrary to industry concerns 
the requirement was disproportionately harming small 
agencies.\52\
---------------------------------------------------------------------------
    \52\ See supra note 37, pp. 27-28.
---------------------------------------------------------------------------
    For those home health agencies who secured bonds and the 
surety dealers who wrote them, it remains unclear what 
liability the surety might have on the bonds. Only if the 
obligee on the bond, HCFA or the State Medicaid agency provides 
full release on the bond, can the surety be absolved of 
liability under those bonds. If the bonds were released, then 
any question of a possible prorated return of the premium or 
release of collateral would be governed by applicable State 
law.
    During the July 22, 1998, subcommittee hearing, witnesses 
representing HHAs covered by surety bonds raised the question 
about status of the bonds in view of HCFA's postponement of the 
effective date. Mr. Schneider, representing a large visiting 
nursing association [VNA] home health agency, noted that while 
they had been successful finding a surety bond, they 
nevertheless had spent money that would normally have been 
directed to charity care or payroll expenses. He said: ``The 
success of the Visiting Nurse Association of Central Jersey in 
securing the surety bond has now created the other problem of 
what to do with it now that we have it.'' \53\
---------------------------------------------------------------------------
    \53\ Testimony of Steve Schneider, president and CEO, Visiting 
Nurse Association of Central Jersey, (July 22, 1998) Human Resources 
Subcommittee hearing transcript, p. 81 (in subcommittee files).
---------------------------------------------------------------------------
    In response to a subcommittee request regarding the status 
of bonds obtained, HCFA stated in written testimony,

          We are concerned about fairness 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 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 agencies.\54\
---------------------------------------------------------------------------
    \54\ See supra note 2, pp. 6-7.

    On July 31, 1998, Human Resources Subcommittee Chairman 
Christopher Shays and Ranking Member Representative Edolphus 
Towns wrote a letter to HCFA which was designed to determine 
the genesis, impact and current status of the agency's rule on 
those HHAs with surety bonds. At the same time, Mr. Shays and 
Mr. Towns wrote a letter to GAO which requested detailed 
information about the surety bond experience in Florida and an 
assessment of possible disproportionate effects of surety bonds 
on small and minority-owned businesses. At this date, the 
subcommittee has not received a written response to either 
letter.

                             III. Findings

1. Progress in combating waste, fraud, and abuse in home health during 
        the past year has been minimal

    The administration's home health moratorium on new 
applicants did nothing to detect or remove fraudulent home 
health providers already enrolled in Medicare. The demise of 
the surety bond program denies HCFA a potentially effective 
tool to screen out unqualified agencies. Meanwhile, reports of 
home health fraud continue to reflect the program's structural 
and operational vulner-abilities.\55\
---------------------------------------------------------------------------
    \55\ Home Health Care ``All the Components for Disaster,'' USA 
Today Web Site (http://www.usatoday.com/life/health/hcare/home/
lhhhh014.htm).
---------------------------------------------------------------------------
    Months after the January 5, 1998 lifting of the moratorium, 
HCFA could provide no definitive data as to whether that 
extraordinary step actually helped combat waste, fraud, and 
abuse.\56\ At the written invitation of the subcommittee, 
several hearing witnesses were specifically asked to address 
the moratorium in their written and oral testimony. The agency 
took the position the hiatus protected Medicare from new, bad 
providers while HCFA imposed new eligibility requirements for 
home health agencies. The OIG remained supportive of the 
moratorium as an administrative remedy ``to stop the admission 
of untrustworthy providers while HCFA strengthened its 
requirements for entering the program.'' \57\
---------------------------------------------------------------------------
    \56\ See supra note 2, p. 2.
    \57\ See supra note 15, p. 7.
---------------------------------------------------------------------------
    However, the moratorium blocked qualified providers from 
enrolling as well, while HCFA could have imposed new enrollment 
requirements at any time, with or without a highly publicized 
moratorium. Home health providers appearing before the 
subcommittee on July 22, 1998, spoke about the impact of the 
moratorium. A new home health agency, part of a community 
hospital, began the process of licensing and certification in 
early 1997. Their efforts were halted by the moratorium. 
Describing the process and impact the witness stated: ``[a]t 
that point in time, we had invested a lot of money and 
resources and then, when the moratorium was enacted, we were 
stopped dead in our tracks. . . . [s]o the moratorium prevented 
us from doing that, and it prevented our patients from getting 
access to that continuum of care for at least a six-month 
period.'' \58\
---------------------------------------------------------------------------
    \58\ Testimony of Jayne F. Quinn, home care coordinator, York 
Hospital Home Care, (July 22, 1998) Human Resources Subcommittee 
hearing transcript, pp. 90, 92 (in subcommittee files).
---------------------------------------------------------------------------
    The opportunity to move ahead forcefully in the effort to 
reign in waste, fraud, and abuse has been hindered by the 
current stalemate over surety bonds. HCFA's failure to write a 
surety bond rule that met congressional approval resulted in 
lost time, and lost bond premiums by HHAs who complied with the 
flawed rule. The inadequacy of both iterations of the surety 
regulation provided time, opportunity and ammunition for the 
home health industry to launch a vigorous, at times shrill, and 
ultimately successful campaign against the surety bond 
requirement.\59\
---------------------------------------------------------------------------
    \59\ See supra note 39.
---------------------------------------------------------------------------

2. HCFA failed to follow the regular administrative rulemaking 
        procedures in crafting the surety bond requirement

    The surety bond rule promulgated by HCFA was inadequate and 
technically flawed in spite of meetings with and correspondence 
from the home health and surety bond industries.
    Early in the process, the surety industry indicated a 
willingness to collaborate and work with HCFA in developing a 
viable product. They provided technical assistant to 
congressional sponsors during consideration of BBA, met with 
and corresponded with HCFA as the regulation was being 
drafted.\60\
---------------------------------------------------------------------------
    \60\ See supra note 45, p. 2.
---------------------------------------------------------------------------
    The home health industry, always wary but not overtly 
opposed to surety bond provisions during the BBA debate, also 
provided HCFA with technical assistance during drafting of the 
regulation. But as the specifics of surety requirement were 
finalized by HCFA in the proposed interim final rule, the home 
health industry began to take an active position against the 
regulation.
    Both industries objected that the January 5, 1998 proposed 
interim final regulation prohibited them from providing formal 
comments to support the rulemaking. Both industries stated it 
was their view many home health agencies would be unable to 
secure a bond due to costs associated with the ``$50,000 or 15 
percent, whichever is higher'' requirement. The surety industry 
stated they would not be able to offer a surety product given 
the potential for extended liability.\61\
---------------------------------------------------------------------------
    \61\ Ibid., p. 3.
---------------------------------------------------------------------------
    The rule proved so problematic HCFA announced that 
technical corrections would be made to in attempt to address 
some concerns of the industries who would have to offer or 
purchase the surety products HCFA envisioned. But even the 
revised rule issued June 1, 1998, did not resolve several of 
outstanding issues believed to affect viability and widespread 
acceptance of the HCFA home health surety bond.
    Hearing testimony supported the view that HCFA's surety 
bond rule misjudged the diversity in size, structure and 
financial wherewithal of home health agencies. HHAs affiliated 
with other providers with a capital base (i.e. hospitals) were 
generally able to get surety bonds without providing collateral 
or personal indemnification. One home health agency director 
stated ``. . . 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 a broker, to one surety 
company . . .'' \62\
---------------------------------------------------------------------------
    \62\ See supra note 58, p. 91.
---------------------------------------------------------------------------
    Another free-standing agency was unable to secure a surety 
bond because it lacked capital and assets to use as collateral.

          We tried everything to get a bond. We sent personal 
        resumes, personal financial statements to some 
        companies. We sent appraisals of any property we owned. 
        We went out and tried to talk to legislators who knew 
        us, tried references. Having done all of these things, 
        including we have a life insurance policy that a donor 
        has named us as a beneficiary. It's a million dollar 
        policy. It has no cash value. So we did everything 
        humanly possible, and as of the time that the bond 
        regulations were withdrawn, we still did not have a 
        bond.\63\
---------------------------------------------------------------------------
    \63\ Testimony of Steven Richard, CFO, Sun Home Health Service, 
Human Resources Subcommittee hearing, July 22, 1998, p. 86 (in 
subcommittee files).

    This same witness, unable to secure a surety bond because 
of inadequate assets and capital, observed: ``[t]he home health 
industry is not a capital-asset-intensive organization. We are 
a very staff-intensive organization.'' \64\
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    \64\ Ibid., p. 104.
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    It is the position of the affected industries that many of 
these difficulties would have diminished had HCFA followed the 
requirements of the Administrative Procedures Act [APA] and 
sought comments once the regulations were published. In written 
testimony before the subcommittee on July 22, 1998, the home 
industry said:

          [w]here 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.\65\
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    \65\ See supra note 17, p. 11.

    In an April 15, 1998 letter to HCFA petitioning an 
amendment to the final rule on surety bond and capitalization 
requirements, the Office of Advocacy of the Small Business 
Administration faulted HCFA for not complying with the notice 
and comment requirements of the Administrative Procedures Act 
as required by statute.\66\ Although HCFA took the position 
that it had good cause for not complying with the APA and 
waived notice and comment, the Office of Advocacy viewed HCFA's 
rational for such action as improper, writing: ``the agency 
must comply with the Regulatory Flexibility Act.'' \67\ The 
Regulatory Flexibility Act requires agencies to adhere to 
certain requirements prior to issuing the implementing 
regulation such as: ``the impact of proposed regulations on 
small entities and consideration of flexible regulatory 
alternatives that reduce the burden on small entities--without 
abandoning the agency's regulatory objectives.'' \68\
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    \66\ 5 U.S.C. Sec. 553.
    \67\ Letter from Jere W. Glover, Chief Counsel for Advocacy and 
Shawne Carter McGibbon, Assistant Chief Counsel for Advocacy, to Nancy-
Ann Min DeParle, Administrator, Health Care Financing Administration, 
U.S. Department of Health and Human Services, Apr. 15, 1998, p. 2 (in 
subcommittee files). Note: The Office of Advocacy is a quasi-
independent agency within the U.S. Small Business Administration.
    \68\ Ibid., p. 6.
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    Members of Congress wrote HCFA conveying concerns about the 
surety bond regulation, specifically taking issue with the 15 
percent requirement and the lack of the waiver options. In 
addition, Members of the Senate introduced a joint resolution 
under the Congressional Review Act [CRA],\69\ S.J. Res. 50, to 
disapprove the rule proposed by HCFA on June 1, 1998, relating 
to surety bonds for home health.
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    \69\ 5 U.S.C. Sec. 801-808.
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    Under the CRA, two types of rules, major and non-major, 
must be submitted to both houses of Congress and the GAO before 
either can take effect:

          CRA defines major as a rule that is likely to or has 
        resulted in (1) an annual effect on the economy of $100 
        million or more; (2) a major increase in costs or 
        prices for consumers, individual industries, government 
        agencies, or geographic regions; or (3) significant 
        adverse effects on competition, employment, investment, 
        productivity, innovation, or on the ability of U.S.-
        based enterprises to compete with foreign-based 
        enterprises in domestic and export markets. Major rules 
        cannot be effective until 60 days after publication in 
        the Federal Register or submission to Congress and GAO, 
        whichever is later. Non-major rules become effective 
        when specified by the agency, but not before they are 
        filed with the Congress and GAO.\70\
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    \70\ Congressional Review Act: Update on Implementation and 
Coordination, 105th Cong., 2d sess., (June 17, 1998) (National Economic 
Growth, Natural Resources, and Regulatory Affairs Subcommittee hearing) 
(statement of Robert P. Murphy, General Counsel, U.S. General 
Accounting Office), p. 1 (in subcommittee files).

    Formal rulemaking, with notice and comment, would also have 
allowed HCFA to learn more about the specifics, and 
limitations, of other surety programs. In particular, affected 
industries and some Members of Congress pointed to HCFA's 
failure to follow the Florida surety bond model. In written 
testimony, the surety industry noted the specifics of the 
Florida program and suggested a: ``similar requirement could be 
crafted for the federal bond mandate.'' \71\
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    \71\ See supra note 45, p. 6.
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    The Florida Medicaid program undertook the task of revising 
the Medicaid provider agreement for non-institutional providers 
to protect the Medicaid program should fraudulent and abusive 
providers become enrolled. One provision required:

          . . . a bond or letter of credit for certain provider 
        groups. Such bond or letter of credit would only be 
        required for non-institution, non-licensed entities, 
        and certain other providers unless such providers can 
        show that they have enrolled in the Medicaid program 
        for a specified period of time without a sanction being 
        imposed by the Agency for Health Care Administration. A 
        provider subject to a bond may also request a hardship 
        waiver if it is unable to comply with the above-stated 
        bond requirements. This bond requirement would enable 
        the Medicaid program to recoup overpayments from 
        corporate entities who fraudulently bill the program 
        and then go out of business, leaving a corporation 
        without any funds to pay a fine or overpayment back to 
        the state.\72\
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    \72\ Keeping Fraudulent Providers Out of Medicare and Medicaid, 
104th Cong., 1st sess., p. 98 (June 15, 1995) (``Human Resources and 
Intergovernmental Relations Subcommittee'' hearing) (statement of Rufus 
Noble).

    The purpose of the Florida bond was to act as a proxy for 
background checks of finances, history of problems and 
references. It was a uniform $50,000 bond for all new home 
health agencies serving the Medicaid population and had to be 
obtained only once. The cost of the bond was not reimbursable.
    The Florida surety bond requirement, combined with other 
anti-fraud measures, resulted in substantial savings to the 
Medicaid program. In addition, there was a significant 
reduction in the number of home health agencies in the 
State.\73\ The State did not track ownership nor the size of 
the agencies who left the program as a result of the surety 
bond requirement. The State did not track whether the surety 
requirement disproportionately harmed women owned, minority 
owned or non-profit home health agencies more than others. 
While no studies were done on possible effects on access to 
care as a result of the several anti-fraud initiatives, the 
State of Florida did say there was no anecdotal information 
presented to them to suggest any access problems were 
created.\74\
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    \73\ Florida Medicaid's Fraud and Abuse Initiative, State of 
Florida, Agency for Health Care Administration, March 1997, p. 6 (in 
subcommittee files).
    \74\ Rufus Noble, Rebecca Knapp, and Douglas Cook, Florida Medicaid 
and Agency for Health Care Administration, interviewed by subcommittee 
staff Sept. 11, 1998 (notes in subcommittee files).
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    HCFA's formulation of a home health surety bond went well 
beyond the more limited Florida approach, requiring continuous 
and cumulative bond coverage in variable amounts without regard 
to organizational structure or program experience. Subcommittee 
Chairman Shays and Ranking Member Towns asked the General 
Accounting Office to consider including an analysis of the 
Florida surety bond program in the study being conducted for 
the Senate Finance Committee.\75\
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    \75\ Letter from Representatives Christopher Shays and Edolphus 
Towns to James Hinchman, Acting Comptroller General of the United 
States, General Accounting Office, July 31, 1998 (in subcommittee 
files).
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    Given the other home health initiatives contained in the 
BBA, it seems unlikely Congress expected the surety bond 
requirement to act as the comprehensive program safeguard and 
repayment source envisioned in the HCFA regulation. Nor is it 
likely Congress would enact self-contradictory provisions, 
requiring bonds on the one hand, while imposing a payment 
system making it impossible to qualify for the required bond on 
the other. Congress had reason to know the IPS would change the 
financial profile of most agencies, affecting in turn the very 
factors underwriters consider in determining bond 
qualifications: cash flow and contingent liability for 
overpayments.\76\
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    \76\ Interim Payment System for Home Health Agencies, 105th Cong., 
2d sess., p. 1 (Aug. 6, 1998) (``Health Subcommittee'' hearing) 
(Statement of William J. Scanlon, Director, Health Financing and 
Systems Issues, Health, Education, and Human Services Division, U.S. 
General Accounting Office) (in Health subcommittee files).
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    In view of the legislative context, a more reasonable 
statutory interpretation of the BBA surety bond provision would 
dictate a far more limited application.

3. As the result of limited enrollment standards, HCFA was not able to 
        ensure the financial responsibility of Medicare home health 
        providers

    Medicare statute requires that home health agencies be 
certified to served Medicare beneficiaries. HHAs must meet 
specific requirements which are referred to as conditions of 
participation. These requirements consider the HHAs' 
qualifications and their capacity to perform such business and 
patient care activities as appropriate recordkeeping and 
records privacy, as well as providing the necessary and 
appropriate skilled nursing services. This function is 
conducted by State public health agencies for HCFA.
    At the subcommittee's July 22, 1998, hearing HCFA 
acknowledged the need for improving the survey and 
certification process. In written testimony HCFA stated: 
``Medicare has taken other steps to raise standards for home 
health agencies and protect program integrity.'' \77\ These 
changes included new capitalization and a minimum demonstration 
of skilled nursing capabilities. In addition, HCFA stated they 
were instructing 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.'' \78\ Other HCFA 
initiatives noted for the subcommittee included HCFA's ability 
to require HHAs disclose the identity of each person with an 
ownership or control interest, or subcontractor relationship in 
an agency: ``directly or indirectly of more than 5% ownership 
interest.'' \79\ This information would better enable HCFA and 
the OIG to track complex business arrangements which contribute 
to the inability to track inappropriate funds and overpayment 
of Medicare dollars. HCFA stated the agency was in the process 
of developing regulations requiring HHAs to be recertified 
every 3 years and to submit to an independent audit of records 
and practices as part of the re-enrollment process.\80\
---------------------------------------------------------------------------
    \77\ See supra note 2, p. 7.
    \78\ Ibid.
    \79\ Ibid., p. 8.
    \80\ Ibid.
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    HHAs appearing before the subcommittee July 22, 1998, 
agreed there is a need to strengthen anti-fraud efforts through 
existing administrative and regulatory tools at the disposal of 
HCFA. In discussing the surety bond requirement a new HHA 
stated:

          . . . 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? 
        I am speaking of state licensing and certification 
        programs, which multiple and complex tools in place. . 
        . . Instead of reacting, we need to work together to 
        strengthen the systems we already have in place that 
        are working.\81\
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    \81\ Statement of Jayne F. Quinn, home care coordinator, York 
Hospital Home Care, Human Resources Subcommittee hearing, July 22, 
1998, p. 9 (in subcommittee files).

    Appearing before the Senate Aging Committee, GAO testified 
in 1997 that HCFA's survey and certification process was 
inadequate, contributing to the concerns about the program's 
rapid growth, entrance of possible unscrupulous providers, and 
---------------------------------------------------------------------------
inappropriate payments. GAO stated:

          The certification, in effect, is Medicare's seal of 
        approval on the services provided by a home health 
        agency. However, we believe that the survey and 
        certification process currently fails to provide 
        beneficiaries with reasonable assurance that their HHA 
        meets Medicare's conditions of participation and 
        provides quality care.\82\
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    \82\ Testimony of Leslie Aronovitz, Associate Director, Health 
Financing and Systems Issues, Health, Education and Human Services 
Division, U.S. General Accounting Office, Select Committee on Aging 
hearing, No. 8, July 28, 1977, p. 132.
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                          IV. Recommendations

1. HCFA should better use existing authority and resources to augment 
        efforts to address waste, fraud, and abuse in the Medicare home 
        health benefit program

    HHAs and Members who questioned the value of surety bonds, 
particularly HCFA's version, believe effective tools already 
exist which, if implemented by HCFA, could effectively deter 
waste, fraud, and abuse in the Medicare home health program. 
Some believe surety bonds are too blunt an anti-fraud tool, and 
a uniform requirement may jeopardize the existence of smaller 
HHAs.
    Other approaches suggested to the subcommittee:
          1) enhance State licensing requirements;
          2) require certification programs and accreditation;
          3) strengthen conditions of participation;
          4) improve beneficiary education regarding the home 
        health program, coverage, and eligibility;
          5) require education and training to ensure 
        competency of program administrators;
          6) require Medicare compliance plans;
          7) require background checks by the HHA of all 
        employees;
          8) develop outcome measures for evaluation of HHAs;
          9) correct the IPS and move quickly to PPS which 
        allows efficient agencies to be rewarded and places 
        appropriate financial constraints on high cost 
        providers; and,
          10) develop a more collaborative, less adversarial, 
        relationship between HHAs and HCFA.\83\
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    \83\ Medicare Home Health Agencies: Still No Surety Against Fraud 
and Abuse, 105th Cong., 2d sess., (July 22, 1998) (Human Resources 
Subcommittee hearing) (in subcommittee files).
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    Despite persistent reports of serious problems in the home 
health benefit program, HCFA only recently began to use 
existing authority to strengthen participation requirements and 
other program safeguards. Effective January 1998:
          1) HCFA established initial capitalization 
        requirements for home health agencies to demonstrate 
        sufficient available cash to meet operating expenses 
        for 3 to 5 months of operation;
          2) all agencies are required to re-enroll every 3 
        years, and must submit an independent audit of their 
        records and practices for re-enrollment;
          3) agencies must demonstrate their experience/ability 
        in home health care by serving a minimum number of 
        patients prior to Medicare beneficiary enrollment;
          4) agencies must submit detailed information about 
        related businesses to ensure that agencies will not use 
        cross-ownerships and other financial schemes to exploit 
        Medicare; and,
          5) HCFA will double the number of home health agency 
        audits and increase claims reviews by more than 25 
        percent each year.\84\
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    \84\ See supra note 2, pp. 2, 7.
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2. HCFA should follow the Administrative Procedures Act, permitting 
        thorough and formal comments and collaboration with experts and 
        congressional committees, in drafting regulations implementing 
        novel and complex program requirements

    Fueling congressional concern about the surety bond 
regulation was an opinion released by the Small Business 
Administration [SBA] on April 15, 1998.\85\ SBA's Office of the 
Chief Counsel for Advocacy stated HCFA had not adequately 
analyzed the impact of the final rules on small home health 
agencies. SBA's Office of Advocacy noted their conclusions did 
not mean control of fraud and abuse was an unimportant policy 
objective, or that the interests of small businesses should 
supersede legitimate policy goals. Rather, SBA's Office of 
Advocacy sought to ensure ``promulgation of common sense 
regulations that do not unduly discourage or destroy 
competition in the marketplace.'' \86\
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    \85\ See supra note 67.
    \86\ Ibid, p. 2.
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    The SBA's Office of Advocacy found the HCFA surety bond 
final rules ``troubling'' for several reasons:
          1) the proposal, although probably within HCFA's 
        regulatory and statutory authority, goes far beyond the 
        requirements contemplated by Congress;
          2) HCFA's good cause exception and waiver of notice 
        and comment for the proposed rulemaking may be 
        arbitrary and capricious under the Administrative 
        Procedures Act; and,
          3) nearly all the significant procedural and 
        analytical requirements of the Regulatory Flexibility 
        Act \87\ were overlooked.
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    \87\ 5 U.S.C. Sec. 601 [Enacted in 1980 and amended in 1996. Gives 
small businesses the opportunity to ensure agencies are considering the 
impact of agency actions on small businesses. The law recognizes that 
the size of a business, unit of government, or non-profit organization 
frequently has a bearing on its ability to comply with Federal 
regulations.]
---------------------------------------------------------------------------
    The Chief Counsel for Advocacy's letter requested HCFA 
amend the final 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.'' \88\
---------------------------------------------------------------------------
    \88\ See supra note 67, p. 2.
---------------------------------------------------------------------------

3. HCFA should pursue the use of existing statutory and regulatory 
        authority to better assure the financial responsibility of home 
        health agencies

    Hearing testimony presented a wide range of opinion on the 
purposes, goals, structure, and applicability of surety bonds 
as an anti-fraud tool. As the chart below demonstrates, there 
is little consensus on the scope, effectiveness or practicality 
of a home health surety bond.
    [The chart referred to follows:]





    Through more rigorous certification and strengthened 
conditions of participation, HCFA could do more to ensure the 
financial responsibility of Medicare home health agencies using 
existing authority.\89\ Based on the range of surety bond 
options offered in hearing testimony, it appears such an 
instrument would be most effective, and most accepted, as a 
discretionary requirement imposed on providers who pose some 
demonstrable risk to the Medicare program, not a uniform 
requirement on all HHAs.
---------------------------------------------------------------------------
    \89\ 42 U.S.C. 1395.
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