[Federal Register Volume 63, Number 12 (Tuesday, January 20, 1998)]
[Proposed Rules]
[Pages 2926-2939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-963]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 424
[HCFA-1864-P]
RIN 0938-AH19
Medicare Program; Additional Supplier Standards
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would establish additional standards for an
entity to qualify as a Medicare supplier for purposes of submitting
claims for durable medical equipment, prosthetics, orthotics, and
supplies (DMEPOS). This proposed rule would establish additional
standards that must be satisfied before a DMEPOS supplier could receive
payment from the Medicare program. The Social Security Act Amendments
of 1994 require that a DMEPOS supplier meet standards related to
compliance with State and Federal licensure requirements, maintaining a
physical facility on an appropriate site, proof of appropriate
liability insurance, and other standards the Secretary may specify.
DATES: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on March
23, 1998.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1864-P, P.O. Box 26676,
Baltimore, MD 21207.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201,
or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1864-P. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 309-G of
the Department's offices at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890). Electronically submitted comments will also be
available for public inspection at the Independence Avenue address.
FOR FURTHER INFORMATION CONTACT: Larry Bonander, (410) 786-4479.
SUPPLEMENTARY INFORMATION:
I. Background
Medicare services are furnished by two types of entities, that is,
providers and suppliers. The term ``provider'', as defined in our
regulations at Sec. 400.202, means a hospital, a rural primary care
hospital, a skilled nursing facility, a comprehensive outpatient
rehabilitation facility, a home health agency, or a hospice that has in
effect an agreement to participate in Medicare. A clinic, a
rehabilitation agency, or a public health agency that has a similar
agreement to furnish outpatient physical therapy or speech pathology
services, or a community mental health center with a similar agreement
to furnish partial hospitalization services, is also considered a
provider (see sections 1861(u) and 1866(e) of the Social Security Act
(the Act)).
In general, a supplier is an individual or entity that furnishes
certain types of medical and other health services under Medicare Part
B. There are different definitions of the term ``supplier'' and
specific regulations governing different types of suppliers. A supplier
that furnishes durable medical equipment, prosthetics, orthotics, and
supplies (DMEPOS) is one category of supplier. Other categories of
suppliers could include, for example, physicians, nurse practitioners,
and physical therapists. The term ``DMEPOS'' encompasses the types of
items included in the definition of medical equipment and supplies
found at section 1834(j)(5) of the Act.
For purposes of DMEPOS supplier standards, the term ``supplier'' is
currently defined in Sec. 424.57(a) of our regulations as an entity or
individual, including a physician or Part A provider, that sells or
rents Part B covered DMEPOS items to Medicare beneficiaries, and that
meets certain standards. We are retaining this
[[Page 2927]]
definition for purposes of identifying those entities that must meet
DMEPOS supplier standards in order to obtain a supplier number. Those
individuals or entities that do not furnish DMEPOS items but only
furnish other types of health care services, such as physicians'
services or nurse practitioner services, would not be subject to these
standards. Moreover, a supplier number is not necessary before Medicare
payment can be made with respect to medical equipment and supplies
furnished ``incident to'' a physician's service.
Durable Medical Equipment
Durable medical equipment (DME) is included in the definition of
``medical and other health services'' as indicated by section
1861(s)(6) of the Act. The term DME is defined at section 1861(n) of
the Act. This definition, in part, excludes from coverage as DME, items
furnished in skilled nursing facilities and hospitals. (Equipment
furnished in those facilities is paid for as part of their routine or
ancillary costs.) The term is also defined in Sec. 414.202 of our
regulations as meaning ``equipment, furnished by a supplier or a home
health agency that--
(1) Can withstand repeated use;
(2) Is primarily and customarily used to serve a medical purpose;
(3) Generally is not useful to an individual in the absence of an
illness or injury; and
(4) Is appropriate for use in the home.'' Examples of DME include
such items as blood glucose monitors, hospital beds, nebulizers, oxygen
delivery systems, and wheelchairs.
Prosthetic Devices
Prosthetic devices are also included in the definition of ``medical
and other health services'' under section 1861(s)(8) of the Act. They
are defined in this section of the Act as ``devices (other than dental)
which replace all or part of an internal body organ (including
colostomy bags and supplies directly related to colostomy care),
including replacement of such devices, and including one pair of
conventional eyeglasses or contact lenses furnished subsequent to each
cataract surgery with insertion of an intraocular lens.'' Other
examples of prosthetic devices include cardiac pacemakers, cochlear
implants, electrical continence aids, electrical nerve stimulators, and
tracheostomy speaking valves.
Orthotics and Prosthetics
Section 1861(s)(9) of the Act provides for the coverage of ``leg,
arm, back, and neck braces, and artificial legs, arms, and eyes * * *''
under the term ``medical and other health services.'' As indicated by
section 1834(h)(4)(C) of the Act, these items are often referred to as
``orthotics and prosthetics.''
Supplies
Section 1861(s)(5) of the Act includes ``surgical dressings, and
splints, casts, and other devices used for reduction of fractures and
dislocations;'' as one of the ``medical and other health services''
that is covered by Medicare. Other items that may be furnished by
suppliers would include (among others):
(1) Prescription drugs used in immunosuppressive therapy furnished
to an individual who receives an organ transplant for which payment is
made under this title, and that are furnished within a certain time
period after the date of the transplant procedure as noted at section
1861(s)(2)(J) of the Act.
(2) Extra-depth shoes with inserts or custom molded shoes with
inserts for an individual with diabetes as listed at section
1861(s)(12) of the Act.
(3) Home dialysis supplies and equipment, self-care home dialysis
support services, and institutional dialysis services and supplies
included at section 1861(s)(2)(F) of the Act.
(4) Oral drugs prescribed for use as an anticancer therapeutic
agent as noted at section 1861(s)(2)(Q) of the Act.
(5) Self-administered erythropoietin (as described in section
1861(s)(2)(O) of the Act).
II. Publication of Final Rule With Comment Period
On December 11, 1995, we published a final rule with comment period
in the Federal Register (60 FR 63440) to reflect the changes made to
section 1834 of the Act by section 131 of the Social Security Act
Amendments of 1994 (SSA '94, Public Law 103-432, enacted on October 31,
1994). In the SSA '94, a new subsection (j) was added to section 1834
of the Act that established additional requirements that a DMEPOS
supplier must meet in order to obtain a supplier number. The final rule
set forth additional supplier standards consistent with the new
subsection by revising Sec. 424.57(c) of our regulations.
The standards in the final rule included all of the standards that
were in the prior Sec. 424.57(c) and those standards specifically
required by section 1834(j)(1)(B)(ii)(I) through (III) of the Act. The
standards specifically identified in section 1834(j)(1)(B)(ii) require
that a DME supplier--
(1) Comply with all applicable State and Federal licensure and
regulatory requirements;
(2) Maintain a physical facility on an appropriate site; and
(3) Have proof of appropriate liability insurance. Congress also
has expressly delegated authority to the Secretary to specify other
requirements through section 1834(j)(1)(B)(ii)(IV) of the Act.
In SSA '94, the Congress enacted numerous substantive provisions
designed to protect beneficiaries from abusive practices by suppliers.
These legislative changes indicate that the Congress has serious
concerns about the business practices employed by certain suppliers,
and that beneficiaries require additional protection from these
practices. We believe it is the Congress' intent to strengthen existing
standards in order to protect the public interest. We also view this
proposed rule as another tool to further our efforts to prevent fraud
and abuse in the Medicare program. After consulting with
representatives of medical equipment and supply companies, carriers,
and consumers, we are now proposing to establish additional standards
to protect beneficiaries. These standards would not apply to physicians
or other practitioners that are only submitting claims for coverage of
items that are furnished as incident to their professional services.
However, in order to submit claims for items that are not covered under
the incident to benefit, physicians must obtain a supplier number and
meet supplier standards.
III. Proposed Revisions
Medicare will not pay for any items furnished by a DMEPOS supplier
prior to the date a supplier number is issued. In order to obtain a
supplier number, a supplier must complete an application certifying
that it meets the supplier standards found in Sec. 424.57 of our
proposed regulation. In addition, when renewing an application for a
DMEPOS supplier billing number, a supplier must recertify that it meets
all of the supplier standards.
Under current regulations, a DMEPOS supplier must renew its
application for a billing number 3 years after the billing numbers are
first issued, except for the first reissuance process. For the first
reissuance process, one-third of suppliers must renew their
applications 2 years after initial issuance of billing numbers. Another
one-third of suppliers must reapply 3 years after initial issuance. The
last third of suppliers must reapply 4 years after initial issuance.
Thereafter, a supplier must reapply 3 years after its last number is
issued.
We do not intend to require all DMEPOS suppliers to submit new
applications for billing numbers on the date this regulation becomes
effective, but will require DMEPOS suppliers to
[[Page 2928]]
submit new applications as the old numbers expire. We believe this to
be the least burdensome approach for a supplier, as well as the most
cost-effective approach, to obtain the required information. However,
in certain circumstances (such as an investigation regarding compliance
with standards) a supplier may be required to demonstrate compliance
with all standards prior to the supplier's billing number expiration
date. Although we do not intend to require suppliers with current
numbers to certify compliance with these revised standards until they
reapply, it is important to note that as of the effective date of this
regulation, all DMEPOS suppliers must comply with these standards. We
may revoke a supplier number if we find evidence that the standards are
not satisfied.
A. Specific Requirements for Supplier Standards
Compliance With Medicare Statutory Provisions and Applicable
Regulations (Sec. 424.57(c)(1))
In addition to the specific standards cited in this proposed rule,
there are other Medicare statutory provisions that establish
requirements pertaining to the activities of DMEPOS suppliers. For
example, section 1848(g) of the Act establishes requirements regarding
the completion and submission of Medicare claims by certain entities,
including DMEPOS suppliers. To be consistent and to support and
reinforce the implementation of the other provisions of the Act and
regulations that pertain to DMEPOS suppliers, we are proposing adding
this new standard. This standard would require a DMEPOS supplier to
comply with Medicare statutory provisions, as well as all other
applicable regulations.
Compliance with Applicable Federal and State Licensure and Regulatory
Requirements (Sec. 424.57(c)(2))
We propose amending Sec. 424.57(c)(9) of current regulations to
require a DMEPOS supplier to operate its business and furnish Medicare
covered items in compliance with all applicable Federal and State
licensure and regulatory requirements. If a DMEPOS supplier is found to
be out of compliance with any Federal or State licensure or regulatory
requirement by the appropriate enforcement agency for that requirement,
we may revoke that supplier's number. We will focus on whether the
violation negatively affects a supplier's ability to furnish DMEPOS
supplies in a manner that protects beneficiaries and the Medicare
program. When a supplier is actually found out of compliance, and is
cited by the appropriate enforcement agency for a violation, we would
determine whether that violation should be deemed indicative of a
failure to meet this standard.
Clearly, it is not in the interest of beneficiaries for us to
revoke a supplier number for reasons that are unrelated to a DMEPOS
supplier's ability to furnish Medicare covered items. For example, and
by way of illustration only, it would not ordinarily seem necessary to
consider as a violation of this standard necessitating revocation,
situations where a supplier is involved in a zoning dispute or has
built a fence three feet over the property line. However, when the
supplier's violation of applicable Federal or State licensure or
regulatory requirements affects the health and safety of Medicare
beneficiaries, we would determine that this standard has not been met.
Misrepresentation of Facts (Sec. 424.57(c)(3))
As stated, a DMEPOS supplier's certification that the standards are
met must be completed before a supplier number will be issued. A
government contractor verifies the data in the supplier number
application and issues numbers to approved DMEPOS suppliers. When a
supplier submits an inaccurate or incomplete application, it impedes
the ability of the contractor to determine, with reasonable confidence,
that a supplier meets and will comply with the DMEPOS supplier
standards.
We propose amending the regulations to clarify that a DMEPOS
supplier is responsible for accurately completing the application for a
supplier number. Any deliberate misrepresentation or concealment of
material information in the application constitutes a violation of this
supplier standard and may subject a supplier to liability under civil
and criminal laws. Also, since the government, through its contractor,
issues a supplier number based upon, and after verification of, the
information contained in the application, a DMEPOS supplier must notify
us within 35 days of any change in the data provided on the supplier
number application.
Signature Used on a Supplier Number Application (Sec. 424.57(c)(4))
When a DMEPOS supplier signs the application for a supplier number,
it certifies that all information provided on the application is
accurate and that the supplier meets the standards set forth in
Sec. 424.57(c). These standards affect how the supplier does business.
This proposed standard would require that the individual signing the
application understand his or her responsibility for confirming the
accuracy of all of the statements in the application and have the
authority to certify that the supplier will comply with these
standards. The person who signs the application must have the authority
to bind the business entity. This standard would help ensure the
accuracy of the information on the supplier number application and will
help ensure that the DMEPOS supplier is committed to taking the
necessary steps to comply with these standards.
Providing Requested Information and Documentation (Sec. 424.57(c)(5))
We propose adding a standard that specifically requires a DMEPOS
supplier to agree to provide us with pertinent information and
documentation. As a basic condition for payment, a supplier must
furnish sufficient information and documentation for us to make a
correct payment determination. We are responsible for ensuring that all
claims are medically and reasonably necessary, that all services are
rendered as billed, and that all claims are billed in accordance with
local, regional and national policies.
Upon request, a supplier must also provide a copy of any contract
it has with another company to furnish DMEPOS items or supplies. A
DMEPOS supplier also must provide, upon request, documentation
substantiating that it has advised beneficiaries about their option to
rent or purchase inexpensive or routinely purchased equipment, and also
about the purchase option for capped rental equipment. It is important
that beneficiaries understand that the overall Medicare payments for
renting inexpensive or routinely purchased DME may not exceed the
Medicare fee schedule amount for that item.
A DMEPOS supplier must provide, upon request, documentation
substantiating that it has explained to beneficiaries the warranty
coverage for supplies and equipment. We believe that explaining to
beneficiaries the warranty coverage for a particular item will prevent
the Medicare program from being billed for repairs to supplies or
equipment covered under warranty. A supplier must provide, upon
request, documentation that it maintains and repairs directly, or
through a service contract with another company, items it has rented to
beneficiaries. This would ensure that beneficiaries are aware that any
services needed for rented items will be provided by the supplier of
the items.
[[Page 2929]]
A supplier also must provide, upon request, documentation
demonstrating that it has delivered Medicare covered items to
beneficiaries. A supplier must provide, upon request, proof of
appropriate liability insurance protecting retail customers against
accidents or negligence in the sale or rental of medical equipment or
supplies.
Scope of Exclusions (Sec. 424.57(c)(6) and (d))
We propose amending Sec. 424.57(c)(1) and (d) of the current
regulations to be consistent with the Office of Inspector General (OIG)
regulations on program integrity for the Medicare and State Health Care
programs at Sec. 1001.1901. The OIG program exclusion regulations were
amended effective August 25, 1995, in accordance with the Federal
Acquisition Streamlining Act of 1994 (Pub. L. 103-355), and with the
Department's Common Rule at 45 FR Part 76, to explain the scope and
effect of an OIG exclusion. The OIG regulations now provide that an OIG
exclusion will be recognized and given effect not only for all
departmental programs but also for all Executive Branch procurement and
nonprocurement activities. Therefore, consistent with the OIG
regulations, these regulations would require that a DMEPOS supplier
must agree not to contract with entities subject to an OIG exclusion
for the purchase of items necessary to fill their orders. These
proposed regulations also would provide that if a DMEPOS supplier is
subject to an OIG exclusion, we will revoke its supplier number
automatically, effective with the date of the exclusion.
Rental or Purchase Option (Sec. 424.57(c)(7))
A DMEPOS supplier must advise beneficiaries of their option to rent
or purchase inexpensive or routinely purchased equipment. A DMEPOS
supplier also must advise the beneficiary of the purchase option for
capped rental equipment. Currently, the decision as to whether
inexpensive or routinely purchased equipment should be rented or
purchased is made by the beneficiary. Because of the coinsurance
implications involved, it is important that beneficiaries understand
that the overall Medicare payments for renting such DME may not exceed
the Medicare fee schedule amount for that item. If the beneficiary
needs an item after Medicare has made its last rental payment, the
beneficiary becomes financially liable for any additional payment.
Therefore, if a beneficiary anticipates needing an item of inexpensive
or routinely purchased DME for an extended period of time, purchasing
that item may result in a savings for the beneficiary. This information
must be provided in an easily understood and clear manner and should
include an explanation of the implications of the rental or purchase
choice.
Warranties (Sec. 424.57(c)(8))
Our current regulations provide that a supplier must honor all
expressed and implied warranties. However, in some instances, a
supplier does not fully explain warranty coverage to beneficiaries and
the Medicare program is billed for repairs to supplies or equipment
covered under warranty. We propose to amend Sec. 424.57(c)(3) of our
current regulations to require that a DMEPOS supplier check with
manufacturers to determine the extent of a warranty for an item they
are supplying. A DMEPOS supplier is prohibited from billing either
beneficiaries or the Medicare program for repairs, parts, or other
equipment or supplies covered either by an expressed warranty or an
implied warranty. Items that are furnished to the beneficiary, whether
purchased or rented, must include copies of warranty information.
Delivery (Sec. 424.57(c)(9))
Under our current regulations at Sec. 424.57(c)(2), a supplier is
responsible for the delivery of Medicare covered items to
beneficiaries. Consistent with the goal of protecting beneficiaries, we
propose expanding this standard to require a DMEPOS supplier, at the
time of delivery, to provide beneficiaries with necessary information
and instructions on how to use Medicare covered items safely and
effectively. In addition, we anticipate that beneficiaries may have
questions subsequent to delivery and should have telephonic access to
the supplier to receive additional instructions, as necessary.
Telephonic access is addressed in proposed supplier standard
Sec. 424.57(c)(17).
Reassignment of Supplier Numbers (Sec. 424.57(c)(15))
This proposed standard would prohibit a DMEPOS supplier from
conveying or reassigning a supplier number. We have the authority,
through our authorized agents, to issue DMEPOS supplier billing
numbers. These numbers are issued only after we have verified pertinent
information about a supplier and have otherwise taken measures intended
to protect the Medicare program, as well as beneficiaries. The supplier
billing numbers are issued for the use of a specific supplier. A DMEPOS
supplier does not have independent authority to transfer or convey the
billing number we issue. All DMEPOS suppliers must undergo our
application process in order to obtain a supplier number.
Physical Facility (Sec. 424.57(c)(16) and (f))
We propose amending Sec. 424.57(c)(10) and (f) of our current
regulations to require a DMEPOS supplier to have a physical facility
where it can conduct its business operations. The physical facility
must be a site where a supplier's delivery, maintenance, and
beneficiary communication records can be properly stored and mail can
be delivered. In addition, all written complaints and related
correspondence taken in response to a beneficiary complaint must be
kept at the physical facility.
Using these minimal requirements for a physical facility, there
should be no burden on a legitimate supplier. Section 1834(j) of the
Act was amended to ensure beneficiary protection. We believe protection
of the beneficiary includes requiring a supplier to conduct business at
a physical facility that is beneficiary accessible. In the past, a
supplier was not required to conduct business at a fixed physical
location. We found evidence of vans, as well as station wagons, being
claimed as supplier business locations. A supplier using these types of
``establishments'' for business are not easily accessible to the
beneficiary or HCFA if there is a problem with the supply or equipment,
a repair is needed, or the beneficiary has a question. Requiring that a
supplier operate out of a fixed physical facility will help protect
beneficiaries, as well as aid in eliminating fraudulent suppliers.
Business Telephone (Sec. 424.57(c)(17))
In order to accept inquiries from potential customers, maintain
relationships with current customers, and conduct business with
contractors in today's business markets, virtually every business must
allow access by telephone. Telephonic access to a DMEPOS supplier is
crucial also to the Durable Medical Equipment Regional Carrier in
obtaining additional information to process and pay a claim.
In this proposed rule, a DMEPOS supplier must have a business
telephone located at the physical facility. This telephone number must
be listed under the name of the business (i.e., name of supplier
company) and listed in the business portion of the local telephone
company directory. A beeper number, answering machine, answering
service, pager, facsimile machine, car phone or residential listing
would not adequately
[[Page 2930]]
provide telephonic access equivalent to a primary business telephone
and, therefore, would not fulfill this requirement. Requiring a
business telephone at the physical facility would help ensure that a
supplier is a valid business company that is soliciting and conducting
business at the physical facility. This requirement would also help
filter out those companies that do not have a physical site and may be
conducting business out of mobile vans, making it difficult for
beneficiaries and the general public to determine the legitimacy of the
business, resolve questions, obtain demonstrations of a DMEPOS item and
resolve any maintenance or repair concerns.
Liability Insurance (Sec. 424.57(c)(18))
The December 11, 1995, final rule with comment implementing the
changes made by section 1834(j) of the Act, added a standard requiring
suppliers to have proof of appropriate liability insurance. One member
of the DME industry commented on this standard and suggested certain
insurance requirements and limitations. In addition, we consulted with
an insurance industry trade group with expertise in liability
insurance. Based on the comment received and our consultation, we
propose requiring that a supplier have a comprehensive liability
insurance policy that covers both the supplier's place of business and
any and all customers and employees of the supplier.
While this proposal would only require comprehensive liability
insurance, our concern for beneficiary safety is such that we feel we
should specify in the final rule a dollar amount for this coverage. We
believe that coverage in the amount of $500,000 would be adequate for
most businesses. According to industry sources, there are no State
requirements concerning either mandatory liability insurance or the
recommended level of protection. However, we believe that most
suppliers follow common business practices and obtain adequate
insurance in order to limit their financial exposure. We invite the
public to comment on the need for and the extent to which suppliers
maintain liability insurance and the appropriate coverage level for
that insurance.
Telemarketing (Sec. 424.57(c)(19))
This proposed standard reiterates restrictions found at sections
1834(a)(17)(A) and 1834(h)(3) of the Act that bar a supplier from
violating existing telemarketing rules.
Prescription Drugs (Sec. 424.57(c)(20))
This proposed standard would protect the health and safety of our
beneficiaries by ensuring that only those DMEPOS suppliers that are
licensed to dispense drugs may furnish drugs used as Medicare covered
supplies with durable medical equipment (DME) or prosthetic devices.
Although a supplier that furnishes oxygen may not have to be a
pharmacy, it must meet applicable State licensure laws. This standard
would stipulate that unless a supplier meets applicable State licensing
requirements, it may not bill Medicare for prescription drugs used with
DME or a prosthetic device.
This standard also would help to ensure payment is not made for
prescription drugs, other than oxygen, that are prepared or dispensed
by companies not properly licensed and not regulated or monitored by a
State's pharmacy board. In addition, this standard would support
Medicare's policy of not paying for prescription drugs used with DME or
a prosthetic device unless the drugs are furnished by an entity that is
licensed to dispense these drug products.
B. Additional Revisions
Section 4312(a) of the Balanced Budget Act of 1997 (BBA '97), Pub.
L. 105-33, which was enacted on August 5, 1997, amended section 1834(a)
of the Social Security Act by adding a new paragraph (16). That new
paragraph requires the Secretary, as a condition of providing for the
issuance or renewal of a provider number for a DME supplier for
purposes of payment under the Medicare statute, to provide the
Secretary, on a continuing basis, with a surety bond. Section
1834(a)(16), as amended by section 4312(c) of the BBA '97, further
provides that the Secretary may, at the Secretary's discretion, impose
a surety bond on some or all providers or suppliers who furnish items
or services under Medicare Part B other than physicians or other
practitioners. We request comments on the advisability of exercising
this authority to impose a surety bond on all suppliers of prosthetics,
orthotics, and supplies to the same extent as required for suppliers of
durable medical equipment.
We are adding a new paragraph (e) to stipulate that for every tax
identification number for which a supplier billing number is issued, a
DMEPOS supplier must obtain a surety bond. The surety bond must be in a
form specified by the Secretary and in an amount not less than $50,000.
Although we are authorized to waive the surety bond requirement if
a DMEPOS supplier provides a comparable surety bond under State law, we
have not implemented that waiver authority in this rule. The limited
amount of time available to us, between the enactment of BBA '97 and
the effective date of the surety bond requirement, did not permit us
sufficient time to effectively analyze the potential specifications of
a waiver provision. However, we are mindful that some States may
already have, or may be considering implementing, surety bond
requirements that could affect DMEPOS suppliers. Moreover, section 4712
of the BBA '97 establishes a Medicaid surety bond requirement that the
States will be implementing. We do not want to add unnecessary costs to
DMEPOS suppliers that may be required to obtain multiple surety bonds.
However, our principal concern is to safeguard the Medicare Trust Funds
from the losses resulting from dramatically increasing unrecovered
Medicare debts. We solicit comments on useful standards and criteria
for implementing a waiver of our surety bond requirements that would,
nonetheless, maintain the same or a greater level of protection of the
Medicare Trust Funds than our requirements achieve.
A ``surety bond'' is a three-party written agreement under which
the surety guarantees to HCFA as surety that it will be responsible for
debts owed to HCFA by a DMEPOS supplier. The surety bond can only be
obtained through a surety bond company that has been approved by the
Department of Treasury and listed in the current edition of the
Department of Treasury's Department Circular No. 570 ``Companies
Holding Certificates of Authority as Acceptable Sureties on Federal
Bonds and as Acceptable Reinsuring Companies''.
We propose establishing a sliding scale for the penal amount of the
bond that relates to the volume of business a supplier does with
Medicare. The penal amount is the amount for which a surety company
would be liable to HCFA. The sliding scale would be used in combination
with a $50,000 minimum and a $3,000,000 ceiling. For chain
organizations, these amounts would pertain to the chain as a whole. The
sliding scale will be based on 15 percent of the amount paid to the
supplier by the Medicare program in the previous year with a $50,000
minimum and a $3,000,000 maximum penal bond amount. Thus, the penal
amount of the surety bond and the premium for the surety bond are
directly tied to the
[[Page 2931]]
amount of Medicare payments received by the supplier. We believe that
15 percent is a reasonable percentage on which to base the penal amount
of the bond since it would not be too high as to be a barrier to entry
for small companies, yet high enough to provide the Medicare Trust Fund
with access to funds to recover debts owed to the program. Also, in
determining this percentage amount, we consulted with an insurance
industry trade group.
In accordance with section 4312(a) of the BBA '97, paragraph (e)
includes a $50,000 floor per supplier. Therefore, we are proposing that
this $50,000 amount represent the penal amount for a supplier that has
not previously participated in the Medicare program. We also propose
establishing a penal amount ceiling of $3,000,000 per supplier to
accommodate national companies that have several locations. The
$3,000,000 ceiling would lessen the burden on national companies that
have one supplier number with multiple locations.
HCFA would verify that each supplier has purchased the correct bond
amount by having the National Supplier Clearinghouse access either the
supplier's IRS Form No. 1099 prepared by the supplier's DMERC (DME
Regional Carrier) or historic payment information from the DMERC's
provider payment history file. The IRS Form No. 1099 will show the
amount of Medicare revenues received by the DMEPOS supplier during the
previous year. This verification would be done on an annual basis by
the National Supplier Clearinghouse.
As stated, we believe that Congressional intent of section 4312 of
the BBA '97 is to protect both Medicare beneficiaries and the Medicare
Trust Fund. Under current law, a DMEPOS supplier only may receive
payment from the Medicare program if it demonstrates that it meets the
standards imposed in the Act and in regulations. Section 4312 of the
BBA '97, in effect, authorizes as a supplier standard the requirement
that a DMEPOS supplier provides, on a continuing basis, a surety bond
of at least $50,000. We believe that Congressional intent is that a
surety bond be of an adequate amount to ensure supplier performance and
to prompt compliance with Medicare program rules and requirements. The
amount of the surety bond must be sufficient to protect both Medicare
beneficiaries and the Medicare Trust Fund by providing a mechanism for
recovering debts owed to the program. (Debts to the program include
overpayments, interest, and any civil money penalties and assessments.)
We also believe it will decrease spurious applications for supplier
numbers, and ensure that only viable companies who are financially
stable obtain supplier numbers. Therefore, we believe it is necessary
that the surety bond be based on a sliding scale of 15 percent of the
amount paid to the supplier by the Medicare program, for claims for
Medicare covered items provided in the previous year and with a floor
of $50,000 and a ceiling of $3,000,000.
We also considered including within the scope of the Surety's
potential liability a guarantee of payment for unpaid civil money
penalties and assessments that were imposed by the Office of the
Inspector General. However, because of the short time period between
when the BBA '97 was enacted and the effective date of the Surety bond
provision, we were unable to fully consider this option. In addition,
because of our unfamiliarity with surety bonds as a component of
program administration, we believed that we did not fully understand
how best to implement this option. We solicit comments on the
advisability of including within the scope of the Surety's potential
liability unpaid Office of Inspector General-imposed civil money
penalties and assessments.
Financial Rationale for the Surety Bond
We have a statutory responsibility under the Act to be a prudent
purchaser of medical services. Therefore, we need to address the issue
of how to reduce risk to the Medicare Trust Fund. Bonding is a method
that has long been employed in the private sector to assure a
satisfactory level of performance. We believe a surety bond is a cost
effective method to reduce risk to the Medicare Trust Fund. This
requirement would provide the Medicare program with the ability to
mitigate its losses should a supplier billing number be revoked or if
the company no longer conducts business with Medicare. In other words,
a surety bond would provide us with the means to recover a portion of
the monies due the Medicare program. A claim could be made against the
surety bond should a demand letter for overpayments not be satisfied,
whether due to insufficient assets by a supplier or inability to locate
a supplier.
We do not have a fail-safe method of ensuring that DMEPOS items for
which we have been billed actually have been supplied to a beneficiary
in the quantity or the type billed. Only with the passage of time do we
discover that DMEPOS items for which Medicare payments have been made
were not actually supplied in the manner represented in the claim. With
Medicare DMEPOS expenditures of $10.2 billion in 1995, even a small
percentage of improper payments represents excessive program losses.
In calendar year 1995, as a part of our activities associated with
Operation Restore Trust, we revoked the supplier billing number of
approximately 1,700 Florida suppliers who were found to have billed for
DMEPOS items that either were not furnished or were not furnished as
billed. These supplier billings were associated with erroneous payments
amounting to approximately $40 million.
Our belief is that many of these suppliers would never have sought
or obtained a Medicare supplier number if, as a prerequisite, they
would have been required to obtain a surety bond. Even if some of these
suppliers had been able to obtain a surety bond and still received
erroneous payments, the Medicare program, by making a claim against the
surety bond, would have had a source to mitigate some of its losses.
Based on our estimates of the scope of past fraudulent and excessive
expenditures, we must take steps to prevent such practices from
continuing. Surety bonds will enhance our control of Medicare Trust
Fund expenditures by expanding our options for recovering payments
later determined to be improper, whether due to fraud or other reasons.
We are interested in any recommendations or suggestions anyone may have
on this proposed standard.
In addition to the changes discussed above, we have taken this
opportunity to make several clarifying and editorial changes to the
existing regulations.
C. Patient Care Standards
The proposed DMEPOS supplier standards set forth business operation
standards, however, they do not include standards that relate directly
to patient care. By patient care, we are referring to care that goes
beyond that which is directly furnished by the covered equipment, such
as taking the patient's vital signs. Determinations relating to patient
care would be the subject of another rulemaking.
IV. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the ``DATES''
section of this preamble, and, if we proceed with a subsequent
document, we will respond to the comments in the preamble to that
document.
[[Page 2932]]
V. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA), agencies are
required to provide a 60-day notice in the Federal Register and solicit
public comment before a collection of information requirement is
submitted to the Office of Management and Budget (OMB) for review and
approval. In order to fairly evaluate whether an information collection
should be approved by OMB, section 3506(c)(2)(A) of the PRA requires
that we solicit comment on the following issues:
Whether the information collection is necessary and useful
to carry out the proper functions of the agency;
The accuracy of the agency's estimate of the information
collection burden;
The quality, utility, and clarity of the information to be
collected; and
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Therefore, we are soliciting public comment on each of these issues
for the information collection requirements discussed below.
The following sections of this document contain information
collection requirements as described below:
Section 424.57(c)(3) (Supplier Enrollment Form HCFA-855) would
require a supplier to provide complete and accurate information on its
application for a billing number. However, the burden associated with
the requirements set forth in 424.57(c)(3) and (c)(4) are currently
captured in HCFA-855 (OMB Approval No. 0938-0685). Thus, there is no
additional collection of information burden associated with
Sec. 424.57(c)(3) and (c)(4).
Section 424.57(c)(5) (Providing Requested Information and
Documentation) would set forth several information collection
requirements, as referenced below, which we believe are exempt under
the terms of the PRA for the following reasons:
(1) Under 5 CFR 1320.4(a)(2), information collections are exempt
during the conduct of an administrative action, investigation, or audit
involving an agency against specific individuals or entities;
(2) As described in 5 CFR 1320.3(h)(9), facts or opinions obtained
or solicited through nonstandardized follow-up questions designed to
clarify responses to approved collections, are exempt from the PRA;
and/or
(3) Nonstandardized information collections directed to less then
10 persons, does not constitute an information collection as outlined
in 5 CFR 1320.3(c).
The following information collection requirements arise as a result
of requiring DMEPOS suppliers to submit all supplemental information or
documentation necessary to adjudicate claims. A DMEPOS supplier bears
the burden of providing records and information sufficient to support
the determination of appropriate Medicare payment. Since we believe
that the following collection requirements are either part of the
administrative, audit and/or adjudicatory process, collected in a
nonstandardized manner, and/or collected from less then ten persons,
they fall under these exceptions. We explicitly solicit comment on this
PRA determination. The excepted sections are:
--Section 424.57(c)(5)(i)--Adjudication of Claims
--Section 424.57(c)(5)(viii)--Supplemental Documentation
Under 5 CFR 1320.3(b)(2), the burden associated with the time,
effort and financial resources necessary to comply with a collection of
information that would be incurred by persons in the normal course of
business will be excluded from an information collection. The burden in
connection with such types of collection activities can be disregarded
if it can be demonstrated that such collection activities are usual and
customary. Each of the collection requirements referenced below are of
the type that are usual and customary in the conduct of commercial
business. Thus, we believe they fall under this exception and solicit
comment on this determination:
--Section 424.57(c)(5)(ii)--Contracts with Third Parties
--Section 424.57(c)(5)(v)--Delivery Documentation
--Section 424.57(c)(5)(vi)--Maintenance documentation
--Section 424.57(c)(5)(vii)--Proof of Liability Insurance
--Section 424.57(c)(5)(viii)--Supplemental Documentation.
The information collection requirements and associated burden as
summarized below are subject to the PRA:
--Section 424.57(c)(5)(iii) would require a supplier to develop,
disclose to beneficiaries, and maintain an attestation document
demonstrating that beneficiaries have been advised about their option
to rent or purchase inexpensive or routinely purchased equipment and of
the purchase option for capped rental equipment. We believe that during
the normal course of business the vast majority of suppliers currently
advise their beneficiaries of their rental and purchase options.
Therefore, the burden associated with this provision is the one-time
burden on the provider to create an attestation form and the
recordkeeping requirement on the supplier to retain a copy of the
beneficiary attestation in their files. We believe that most suppliers
would create and maintain a form to suit their specific business needs
that a beneficiary would sign to attest that the beneficiary was
advised of the rent or purchase option described above (Refer to
Sec. 424.57(c)(7)).
--Section 424.57(c)(5)(iv) would require a supplier to maintain
documentation demonstrating that beneficiaries have been adequately
informed about items covered under warranty. We do not prescribe a
specific format and rely on the supplier to develop some mechanism to
note that it has advised a beneficiary about warranty coverage. (Refer
to Sec. 424.57(c)(8)). We anticipate that suppliers will simultaneously
advise beneficiaries of their purchase/rental equipment options and
warranty disclosure, and capture the required acknowledgments for both
Sec. 424.57(c)(5)(iii) and 424.57(c)(5)(iv) in one form. Thus, the
burden associated with Sec. 424.57 paragraph (c)(5)(iv) is reflected in
the burden calculations for paragraph (c)(5)(iii). The chart below
summarizes the estimated annual reporting and recordkeeping burden for
the attestation requirements and the additional requirements referenced
below.
--Section 424.57(e) would require when current suppliers apply for
renewal of their supplier billing number that they submit a copy of
their current surety bond and, as appropriate, copies of previous
surety bonds that have been obtained annually for the appropriate
amount, thus demonstrating that their surety bond has been in effect.
New suppliers must submit a copy of their surety bond at the time of
initial application in order to have it approved. The only burden we
are imposing would be the amount of time it takes to mail a copy of the
surety bond concurrent with the initial submission or renewal of a
provider's application (form HCFA-855).
As a note, the provider/supplier enrollment forms HCFA-855, HCFA-
855C, HCFA-855R, and HCFA-855S and related instructions, which are
currently approved under OMB Approval No. 0938-0685, are in process
[[Page 2933]]
of being revised. In particular, an emergency clearance of these
information collection requirements was requested by HCFA. A notice was
published in the Federal Register on December 18, 1997, requesting that
OMB approve the revised collection by December 31, 1997. In that notice
the public was given from the date of the notice's publication, until
December 29, 1997 to comment on the proposed collection. It should be
noted that the emergency clearance sought by HCFA would have a maximum
approval period of 6 months from the date of OMB approval.
The table below indicates the annual number of responses for each
regulation section in this proposed rule containing information
collection requirements, the average burden per response in minutes or
hours, and the total annual burden hours.
Estimated Annual Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Average burden
CFR sections Annual Number of Annual frequency per response Annual burden
responses (minutes) hours
----------------------------------------------------------------------------------------------------------------
424.57(c)(5)(iii) and(iv)........... 68,000 50 5 283,333
424.57(e)........................... 68,000/3=22,667 1 1 378
------------------
Total hours................... ................. ................. ................. 283,711
----------------------------------------------------------------------------------------------------------------
We have submitted a copy of this proposed rule to OMB for its
review of the information collection requirements in Sec. 424.57 (c)
and (e). These requirements are not effective until they have been
approved by OMB.
If you comment on any of these information collection and
recordkeeping requirements, please mail copies directly to the
following:
Health Care Financing Administration, Office of Information Services,
Information Technology Investment Management Group, Division of HCFA
Enterprise Standards, Room C2-26-17, 7500 Security Boulevard,
Baltimore, MD 21244-1850. ATTN: John Burke HCFA-1864-P
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503. Attn.: Allison Herron Eydt, HCFA Desk Officer
VI. Regulatory Impact Analysis
We have examined the impacts of this proposed rule under Executive
Order 12866, the Unfunded Mandate Act of 1995, and the Regulatory
Flexibility Act. Executive Order 12866 directs agencies to assess all
costs and benefits of available regulatory alternatives and, when
regulation is necessary, to select regulatory approaches that maximize
net benefits. In addition, a Regulatory Impact Analysis (RIA) must be
prepared for major rules with economically significant effects ($100
million or more annually). The costs associated with this rule are the
following:
Surety bond requirement (Sec. 424.57(e)). Approximately
$57 million annually. See Table 3 in this section for computations.
Liability insurance requirement (Sec. 424.57(c)(18)). We
estimate that only 10 percent of DMEPOS suppliers do not already have
liability insurance that meets this requirement. Ten percent of the
total DMEPOS suppliers is approximately 6,800 suppliers. Multiplying
6,800 by $250 results in an approximate additional liability insurance
cost of $1.7 million annually to the DMEPOS industry due to this rule.
Primary business telephone at a physical facility
requirement (Sec. 424.57(c)(17)). We estimate that only 1% of DMEPOS
suppliers do not already meet this requirement. Therefore, 680 times
the approximate $600 annual cost of telephone service results in an
additional cost of $410,000 annually.
Total Cost = $57 Million + $1.7 Million + $410,000 = $59,110,000
annually.
The Unfunded Mandates Reform Act of 1995 requires (in section 202)
that agencies prepare an assessment of anticipated costs and benefits
before proposing any rule that may result in an annual expenditure by
State, local, or tribal governments, in the aggregate, or by the
private sector, of $100 million. The proposed rule has no consequential
effect on State, local, or tribal governments. We believe that the
private sector costs of this rule fall below these thresholds but
nonetheless, due to uncertainties of these estimates, have prepared
this RIA providing such an assessment.
Consistent with the Regulatory Flexibility Act, we prepare a
Regulatory Flexibility Analysis (RFA) unless we certify that a rule
would not have a significant economic impact on a substantial number of
small entities. For purposes of the Act, suppliers with annual sales of
$5 million or less are considered to be small entities. (Individuals
and States are not included in the definition of a small entity.) The
RFA is to include a justification of why action is being taken, the
kinds and number of small entities which the proposed rule will affect,
and an explanation of any considered meaningful options that achieve
the objectives and would lessen any significant adverse economic impact
on the small entities.
We believe that our proposed standards would help bar fraudulent
suppliers from participating in the Medicare program, or in the event
that a supplier should provide excessive supplies or defraud the
Medicare program, we will be assured of recovering a portion of those
funds. Therefore, we expect to have a significant impact on an unknown
number of persons and entities who will effectively be prevented from
repeating their aberrant billing activities. The vast majority of
suppliers will not be significantly affected by this rule. The
significant reduction in program overpayments that we expect to achieve
as a result of this rule justifies the relatively small burden the rule
would impose on all entities.
The following analysis, together with the rest of this preamble,
explains the rationale for and purposes of the rule, details the costs
and benefits of the rule, analyzes alternatives, and presents the
measures we propose to minimize the burden on small entities.
A. Rationale and Purposes
We expect this rule to deter some entities that supply DME to
Medicare beneficiaries from abusive billing practices or defrauding the
Medicare program. For example, abusive practices include refusing to
honor manufacturers' warranties or improperly installing equipment in
Medicare beneficiaries' homes. Fraudulent practices include billing the
Medicare program for supplies that were not furnished. In a
surprisingly large
[[Page 2934]]
number of instances, when either the beneficiaries or HCFA attempted to
contact suppliers alleged to have committed abuses, it was difficult to
reach them because they did not have a fixed address or had closed the
business and fled. Our experience has been that the market has failed
to address these problems because of the motivation for unseemly
profits, inadequate control by gatekeepers, and insufficient
information on the part of Medicare beneficiaries to detect abuse. This
market failure makes it necessary for HCFA to impose standards on DME
suppliers and establish safeguards that enable the Medicare program to
better recover improper payments.
B. Characteristics of Suppliers
The single most striking characteristic of Medicare DMEPOS
suppliers is their diversity. DMEPOS suppliers fill a business need and
do it in a variety of ways. Some set out from the beginning to
establish a business furnishing DMEPOS items. Others evolve into being
suppliers. For example, a firm dealing with oxygen needs of the medical
community, may add a department that provides oxygen services and
supplies as a medical supply as a logical extension of an existing
business. Similarly, a retail rental store may add wheelchairs or
hospital beds and a pharmacy may add walkers to an inventory of
otherwise unrelated commodities and use existing advertisements to
announce the availability of these items.
Based on the small size of the businesses, it is more
characteristic that suppliers furnish a limited number of items in
greater demand than to maintain a large inventory of items covering the
gamut of covered DMEPOS items. Thus, the only things any two suppliers
may have in common is their provision of DMEPOS items and their
understanding that the activity will meet the needs of the business.
Suppliers are in a position to direct their marketing activities to
optimize their most profitable revenue sources, and in seeking to meet
patient demand, can choose to provide only those items that meet their
business objectives.
For purposes of the RFA, a small entity is one with annual revenues
of less than $5 million. As indicated by Table 1, which examines
reimbursements to unique billing numbers (a supplier may have multiple
locations, e.g., a chain organization, but use only one unique billing
number), 97 percent of all DMEPOS suppliers generate billings of less
than $350,000 in Medicare revenues annually.
Table 1.--Total Number of Suppliers Arranged By Reimbursements
[Dates of Service--January to December 1995]
------------------------------------------------------------------------
Unique
Dollars reimbursed billing
Nos.
------------------------------------------------------------------------
>$3,000,000.................................................. 102
$1,000,000-2,999,999......................................... 430
$500,001-999,999............................................. 933
$350,000-499,999............................................. 740
<$350,000.................................................... 66,106
Total.................................................. 68,311
------------------------------------------------------------------------
C. Geographic Distribution of Suppliers
Individual patients may receive their durable medical equipment,
supplies, and prosthetics either from a local supplier or from a
regional or national concern that functions much like a mail order
catalogue distribution center. As shown in Table 2, suppliers locate in
areas where there is greatest demand, leaving other areas to be served
by catalogue, mail order or drop shipments. No States appear to be
underserved, and competition exists in large population areas, leading
us to believe that the imposition of some additional standards will not
have adverse effects on competition or on the availability of an
adequate number of suppliers to meet patients' needs.
Table 2
----------------------------------------------------------------------------------------------------------------
Number of
Number of beneficiaries Beneficiary
State suppliers per using DME per per supplier
state state
----------------------------------------------------------------------------------------------------------------
AK.............................................................. 206 3300 16
AL.............................................................. 2111 63700 30
AR.............................................................. 1450 59300 40
AZ.............................................................. 2051 59300 28
CA.............................................................. 13028 361000 27
CO.............................................................. 2055 41800 20
CT.............................................................. 2095 50000 23
DC.............................................................. 241 7800 32
DE.............................................................. 371 10000 26
FL.............................................................. 10137 259700 25
GA.............................................................. 3710 82600 22
HI.............................................................. 427 14800 32
IA.............................................................. 2236 47300 21
ID.............................................................. 829 14900 17
IL.............................................................. 5524 161000 29
IN.............................................................. 4152 81900 19
KS.............................................................. 1752 38100 21
KY.............................................................. 2427 58200 23
LA.............................................................. 2254 57700 25
MA.............................................................. 2981 92800 31
MD.............................................................. 2384 59700 24
ME.............................................................. 856 20100 23
MI.............................................................. 4319 134000 21
MN.............................................................. 2513 62800 24
MO.............................................................. 3076 82800 26
MS.............................................................. 1312 39400 30
MT.............................................................. 792 12900 16
NC.............................................................. 4134 101800 24
ND.............................................................. 500 10300 20
[[Page 2935]]
NE.............................................................. 1390 24800 17
NH.............................................................. 669 15500 23
NJ.............................................................. 4447 116200 26
NM.............................................................. 669 20900 31
NV.............................................................. 664 19000 28
NY.............................................................. 7720 262300 33
OH.............................................................. 6675 165700 24
OK.............................................................. 2062 48400 23
OR.............................................................. 1828 46500 25
PA.............................................................. 7610 206000 27
RI.............................................................. 651 16700 25
SC.............................................................. 2041 50400 25
SD.............................................................. 639 11600 18
TN.............................................................. 2762 206200 27
TX.............................................................. 8219 206200 25
UT.............................................................. 829 18600 22
VA.............................................................. 3225 81100 25
VT.............................................................. 355 8200 23
WA.............................................................. 3355 68200 20
WI.............................................................. 2922 75700 26
WV.............................................................. 1134 32800 28
WY.............................................................. 373 6000 16
----------------
Total..................................................... 140,162
----------------------------------------------------------------------------------------------------------------
We note that the purpose of Table 2 is to illustrate the locations
that provide durable medical equipment and supplies to Medicare
beneficiaries. Many of these entities are members of chain
organizations. While there are more than 140,000 individual suppliers,
due to the affiliation of some suppliers with chains, as of December
1995, there were only 68,311 unique billing numbers. Hence, Tables 1
and 3, which describe Medicare payments to 68,311 billing numbers, and
Table 2, which describes the more than 140,000 actual locations,
describe the same universe of suppliers.
According to an industry source, Medicare accounts for
approximately 40 percent of the average DMEPOS supplier's revenue. The
approximate percentage amounts for other revenue sources are 25 percent
private insurance, 15 percent Medicaid, 10 percent institutional, and
10 percent private credit and cash sales. For calendar year 1995,
submitted charges for DMEPOS items were $10.2 billion. We believe that
for most suppliers any additional costs imposed by our standards would
be outweighed by the benefits gained by continuing to be a Medicare
DMEPOS supplier.
These standards, of themselves, should not result in changes in the
number of legitimate business suppliers, because, as set forth below
and elsewhere in this preamble, most requirements are logical
extensions of good business practices that we believe currently are
being met by the vast majority of suppliers.
D. Discussion of Alternatives
We believe it was the Congress' intent to strengthen DMEPOS
supplier standards to protect beneficiaries and the Medicare program
from potential fraud and abuse in billing practices. Therefore, we did
not choose the alternative of staying with the existing supplier
standards which we believe are minimal safeguards. Instead of relying
on minimal supplier standards, we have expanded the supplier standards,
using as our statutory basis either the specific section of the law
referenced in this discussion (for example, section 4312 of the
BBA'97), or section 1834(j)(1)(B)(ii)(IV) of the Act, which states that
the supplier must ``meet such other requirements as the Secretary may
specify.'' This proposed rule would provide a basis to better screen
applicants and to revoke the supplier numbers of those who do not meet
these standards.
For purposes of this impact statement, we have divided the proposed
supplier standards into the following two broad categories: statutory
requirements and good business practices.
E. Statutory Requirements
Liability Insurance--The statutory authority for Sec. 424.57(c)(18)
is section 1834(j)(1)(B)(ii)(III) of the Act. The proposed rule would
require a supplier to have comprehensive liability insurance protecting
the supplier's place of business and any and all retail customers and
employees. We have not specified a minimum amount in this proposed
rule, but, as explained elsewhere, suggest a minimum of $500,000 in
coverage. We estimate that approximately 10 percent of all suppliers do
not currently carry liability insurance. We estimate the cost per year
for a supplier to carry liability insurance in the amount of $500,000
would be approximately $250. We believe that the $250 cost per supplier
does not represent a significant economic impact on the estimated 10
percent of suppliers not currently carrying liability insurance.
In order to provide the greatest safeguards to Medicare
beneficiaries, we considered imposing liability insurance that
included: (1) Coverage for damages resulting from the failure of a
Medicare covered item to perform as expected that are not otherwise
fully covered by the manufacturer's warranty; (2) coverage for
liability arising in connection with the rental, sale, delivery,
installation and retrieval of the Medicare covered items, including
customized items; (3) coverage for damages that arise from premises
operations, such as, for example, those arising out of showroom
operations or equipment demonstrations; and (4) coverage for damages
that arise from
[[Page 2936]]
personal injury and from breaches of customer privacy or
confidentiality. While the above provisions would provide significant
liability protection for beneficiaries, we believe that for two of the
provisions, coverage for damages that are not covered by the
manufacturer's warranty and coverage for damages that arise from
breaches of customer privacy or confidentiality, coverage is not
generally available from the insurance industry. Furthermore, we
believe that the above provisions, taken as a whole, would be much more
costly and rigid requirements than the alternative selected, and would
impose an unnecessary burden on suppliers.
Thus, we have chosen an alternative that we believe is cost
effective and will ensure that suppliers have appropriate liability
insurance. Nonetheless, we request comments on whether there are
alternative insurance coverage standards that would strengthen
protections in a cost effective manner and information about the cost
and availability of such coverage.
F. Good Business Practices
Most of our proposed supplier standards speak directly to business
practices. We do not believe that these would result in a significant
impact on any sizeable number of legitimate suppliers. For these
additional proposed standards, the economic impact on most suppliers is
negligible, although the benefits to the program and to the beneficiary
may be greater. For example, the requirement at Sec. 424.57(c)(8) that
a supplier must not charge Medicare for repair or replacement of
Medicare covered items or for services covered under warranty, coupled
with the requirement at Sec. 424.57(c)(5)(iv) that the supplier provide
documentation, upon request, that it has advised Medicare beneficiaries
about Medicare covered items covered under warranty, should result in
claims for repairs, parts or replacement being made against the
warranty, thus decreasing the monies paid by the program. The monies
paid out by the program and the beneficiary may also decrease as a
result of the requirement that the supplier inform the beneficiary of
the rental or purchase option and the copay implications involved. More
beneficiaries may elect to purchase their equipment, instead of renting
for long periods of time.
In most instances, these proposed standards do not exceed the usual
business practices necessary for any retail business to succeed. In
other words, we believe that a supplier that expects to conduct a
successful business would already have in place procedures to meet
these standards. Because, we consider these basic requirements that a
business would have to meet to provide satisfactory customer service
and to manage properly its inventory we did not develop alternatives.
Under Sec. 424.57(c)(17), a supplier would be required to maintain
a separate phone that is used primarily for business purposes at its
physical facility. In order to accept inquiries from potential
customers, maintain relationships with current customers, and conduct
business with contractors in today's business market, it is necessary
that virtually every business have telephonic access. Beneficiaries
also need to have access to their supplier in case they have a problem
with or questions about their DMEPOS items.
We believe that this standard would be met by nearly all legitimate
businesses. However, we believe approximately one percent of DMEPOS
suppliers currently do not meet the fixed telephone requirement. The
estimated cost per year for any supplier to establish and maintain a
separate phone line to conduct business would be approximately $600
($50 a month). Thus, the aggregate cost is negligible. We believe the
benefits of full time access to the supplier would far exceed any minor
economic impact on a supplier. In addition, we note that requiring the
supplier to have a primary business telephone listed in the business
portion of the local telephone directory and maintained at the physical
location of the supplier business may even result in increased business
for a supplier.
This proposed requirement would help beneficiaries to contact their
suppliers in the event of equipment problems, failures, and to resolve
questions. Telephonic access to a supplier is crucial so that the
Durable Medical Equipment Regional Carriers may call and obtain
additional information to process and pay claims. We are aware that
telephone technology is rapidly changing. We had considered putting
limitations on the use of mobile telephones, which have been associated
with abusive practices. However, we concluded that additional
limitations might penalize legitimate suppliers, or might not be
responsive to technological change. We specifically solicit comments on
whether there are alternative ways to establish telephone requirements
that minimize potential abusive practices while not raising costs for
legitimate small businesses.
G. Protection of the Trust Fund and Beneficiary
While each of these proposed supplier standards is designed to
protect the Medicare trust fund and beneficiaries, one standard
warrants separate discussion. In accordance with section 4312 of the
BBA `97, a surety bond will be required as long as an entity remains a
DMEPOS supplier. Under Sec. 424.57(e), a supplier would be required to
obtain a surety bond equal to at least 15 percent of the amount paid to
the supplier by the Medicare program for the previous year as reflected
in their IRS Form No. 1099, or by the historic payment information from
the DMERC provider payment history file. We propose establishing a
sliding scale that reflects the volume of business a supplier does with
Medicare. The sliding scale would be used in combination with a $50,000
floor and a $3,000,000 ceiling. By using a sliding scale, based on 15
percent of the amount paid to the supplier by the Medicare program for
the previous year, the penal amount of the surety bond and the premium
for the surety bond are directly tied to the amount of Medicare
payments received by the supplier. We believe that 15 percent is a
reasonable percentage on which to base the penal amount of the bond
since it would not be too high as to be a barrier to entry for small
companies, yet high enough to provide the Medicare Trust Fund with some
recourse for compensation for debts owed to the program. We are
interested in comments about the reasonableness of the percent amount
and the proposed floor and ceiling.
A surety company charges its underwriting fee based on the penal
amount of the bond. For this type of surety bond, the industry usually
has an underwriting charge of 1 to 2 percent. Based on this information
Table 3 indicates the costs of a surety bond based on the supplier's
annual Medicare revenue assuming that bonds cost 1.5 percent of the
protected amount. This table also shows that the total costs of bonds
is likely to be about $57 million and that on average the cost of bonds
will be about one-half of one percent of gross sales (somewhat less for
larger suppliers) for the smallest suppliers who make up the
overwhelming majority of all suppliers. We request comment on the
accuracy of these estimates.
[[Page 2937]]
Table 3.--Cost of Program-Universal Bonding Without Time Limit
----------------------------------------------------------------------------------------------------------------
Total bond
Range of sales (1000s) Bond cost Number of Total sales cost Cost/sales
suppliers (1000s) (1000s) (percent)
----------------------------------------------------------------------------------------------------------------
<$350.......................................... $788 66,106 $9,915,900 $52,092 0.53
$350-499....................................... 956 740 314,500 707 0.22
$500-999....................................... 1,688 933 699,750 1,575 0.23
$1,000-2,999................................... 4,388 430 860,000 1,887 0.22
>3,000......................................... 6,750 102 408,000 689 0.17
---------------------------------------
Total.................................... ........... 68,311 12,198,150 56,950 0.47
----------------------------------------------------------------------------------------------------------------
For 97 percent of the suppliers the cost of a surety bond would be
on average $788 annually. The Durable Medical Equipment Regional
Carriers report that each year tens of millions of dollars cannot be
recovered because the supplier has gone out of business or does not
have resources to repay debts owed to Medicare. We believe that if
these suppliers had possessed a surety bond, the Medicare program could
decrease its potential losses.
We realize that surety bonds represent a new cost of approximately
$57 million to DMEPOS suppliers, with the use of a sliding scale adding
approximately $5 million to the cost when compared to what it would
cost if we required only the $50,000 surety bond amount for each
supplier. However, we believe that the benefits to the Medicare program
and Medicare beneficiaries would outweigh these costs. For example, as
part of Operation Restore Trust in 1995 in Florida we found that $40
million was billed for nonfurnished DMEPOS items. This $40 million
represented 8% of the total Medicare expenditures made for DMEPOS items
in the State of Florida in 1995. If we assume that this 8% figure
represents a typical experience, and multiply the 8% times the total
Medicare expenditures made nationally, we can project potential
Medicare erroneous payments to be $492 million for the entire nation.
However, Florida may not necessarily be typical of other States or the
Nation as a whole.
In addition, the use of an 8% figure, which has been extrapolated
from 1995 data, to make cost saving projections in 1997 does not take
into account the advances that Medicare has made over the last two
years to protect Medicare funds. For example, as a result of the
Operation Restore Trust project, which was conducted in five States,
Medicare has strengthened its efforts to identify and exclude from the
program companies engaged in fraud or that fail to meet other supplier
standards.
Efforts to reduce improper Medicare payments include section 201(b)
of the Health Insurance Portability and Accountability Act of 1996
(P.L. 104-191), enacted August 21, 1996, that amended section 1817 of
the Act by creating a Health Care Fraud and Abuse Control Account.
Funds will be appropriated to this Account each year to carry out the
Medicare Integrity Program under section 1893 of the Act.
While it is not possible to estimate with accuracy the savings that
will result from this provision, we believe it is important to set
standards for DMEPOS suppliers that do business with the Medicare
program, for program integrity purposes. We believe that surety bonds
combined with other efforts will diminish the number of suppliers that
currently fraudulently bill Medicare, while serving as a deterrent to
others tempted to engage in fraudulent behavior.
H. Conclusion
As indicated elsewhere in this preamble, to the extent that we are
imposing a burden it is a necessary one. The public interest is best
served by establishing safeguards that prevent suppliers from taking
advantage of the current minimal supplier standards, even though some
may view the additional standards as impeding their competitiveness. It
is by design that these standards would have the greatest impact on
those suppliers that need to change the most. We believe that the loss
of a supplier as a result of these supplier standards, for example one
who operates out of a van or who does not provide a value added
service, is far outweighed by what these standards would do in terms of
protecting the health and safety of beneficiaries and preserving the
Medicare Trust Fund.
I. Rural Hospital Impact Statement
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. Such an
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 50 beds. We are not preparing a
rural impact statement since we have determined, and certify, that this
proposed rule would not have a significant impact on the operations of
a substantial number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
proposed rule was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 424
Emergency medical services, Health facilities, Health professions,
Medicare.
42 CFR Chapter IV would be amended as set forth below:
PART 424--CONDITIONS FOR MEDICARE PAYMENT
1. The authority citation for part 424 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
2. Section 424.57 is amended by revising paragraphs (b) through (f)
and adding a new paragraph (g) to read as follows:
Sec. 424.57 Special payment rules for items furnished by DMEPOS
suppliers and issuance of DMEPOS supplier billing numbers.
* * * * *
(b) Medicare will not pay for any Medicare covered items provided
by a DMEPOS supplier prior to the date HCFA issues a DMEPOS supplier
number. Medicare will not pay for any covered items provided by a
DMEPOS supplier during any period when a DMEPOS supplier number is
revoked or during a period of exclusion.
(c) Medicare will issue a DMEPOS billing number, or reissue a
number previously issued, to a supplier that submits a completed
application to furnish Medicare covered medical equipment and supplies,
as defined in section 1834(j)(5) of the Act, after the
[[Page 2938]]
supplier meets, and certifies in its application for a billing number
that it meets, the following standards:
(1) A supplier must agree to comply with the provisions of Title
XVIII of the Act and any applicable regulations.
(2) A supplier must operate its business and furnish Medicare
covered items in compliance with all applicable Federal and State
licensure and regulatory requirements.
(3) A supplier must not make, or cause to be made, any false
statement or misrepresentation of a material fact on an application for
a billing number. A supplier must provide complete and accurate
information in response to questions on its application for a billing
number. Any changes in information supplied on the application must be
reported within 35 days of the change.
(4) A supplier's application for a billing number must be signed by
an individual whose signature binds a supplier.
(5) A supplier must agree to furnish to HCFA all information or
documentation HCFA requires, including--
(i) Information or documentation needed to process or adjudicate
Medicare claims;
(ii) Upon request, copies of contracts with third parties for
furnishing Medicare covered items to Medicare beneficiaries;
(iii) Upon request, documentation that it has advised beneficiaries
that they may either rent or purchase inexpensive or routinely
purchased equipment and about the purchase option for capped rental
equipment;
(iv) Upon request, documentation that it has advised Medicare
beneficiaries about Medicare covered items covered under warranty;
(v) Upon request, documentation demonstrating that it has delivered
Medicare covered items to Medicare beneficiaries;
(vi) Upon request, documentation that it maintains and repairs
directly, or through a service contract with another company, Medicare
covered items rented to beneficiaries;
(vii) Upon request, proof of liability insurance; and
(viii) Any other information required by this or other Medicare
requirements.
(6) A supplier must fill orders from its own inventory or by
contracting with other companies for the purchase of items necessary to
fill the order. A supplier may also fabricate or fit items for sale
from supplies it buys under contract. A supplier may not contract with
any entity that currently is excluded from the Medicare program, any
State health care programs, or from any other Federal Government
Executive Branch procurement or nonprocurement program or activity.
(7) A supplier must advise beneficiaries that they may either rent
or purchase inexpensive or routinely purchased equipment, and of the
purchase option for capped rental equipment, as defined in
Sec. 414.220(a) of this subchapter.
(8) A supplier must honor all warranties expressed and implied
under applicable State law. A supplier must not charge the beneficiary
or the Medicare program for the repair or replacement of Medicare
covered items or for services covered under warranty. This standard
applies to all purchased and rented items, including capped rental
items, as described in Sec. 414.229 of this subchapter.
(9) A supplier must be responsible for the delivery of Medicare
covered items to beneficiaries. A supplier must provide beneficiaries
with necessary information and instructions on how to use Medicare
covered items safely and effectively.
(10) A supplier must answer questions and respond to complaints a
beneficiary has about the Medicare covered item that was sold or
rented. A supplier must refer beneficiaries with Medicare questions to
the appropriate carrier.
(11) A supplier must maintain and repair directly, or through a
service contract with another company, Medicare covered items it has
rented to beneficiaries.
(12) A supplier must accept returns from beneficiaries of
substandard (less than full quality for the particular item) or
unsuitable items (inappropriate for the beneficiary at the time it was
fitted and/or sold).
(13) A supplier must disclose consumer information, which must
include these supplier standards, to each beneficiary whom it supplies
a Medicare covered item.
(14) A supplier must comply with the disclosure provisions in
Sec. 420.206 of this subchapter.
(15) A supplier cannot convey or reassign a supplier number.
(16) A supplier must maintain a physical facility on an appropriate
site. The physical facility must contain space for storing business
records including the supplier's delivery, maintenance, and beneficiary
communication records. For purposes of this requirement, a post office
box or commercial mailbox is not considered a physical facility.
(17) A supplier must maintain a primary business telephone at the
physical facility. This telephone number must be listed under the name
of the business and in the business portion of the local telephone
company directory. The exclusive use of a beeper number, answering
service, pager, facsimile machine, car phone, or an answering machine
may not be used as the primary business telephone for purposes of this
regulation.
(18) A supplier must have a comprehensive liability insurance
policy that covers both the supplier's place of business and any and
all customers and employees of the supplier.
(19) As required by sections 1834(a)(17)(A) and 1834(h)(3) of the
Act, a supplier of a Medicare covered item must agree not to contact a
beneficiary by telephone regarding the furnishing of a Medicare covered
item to the individual unless one of the following applies--
(i) The individual has given written permission to the supplier to
make contact by telephone regarding the furnishing of a Medicare
covered item;
(ii) The supplier has furnished a Medicare covered item to the
individual and the supplier is contacting the individual only regarding
the furnishing of such Medicare covered item; or
(iii) If the contact is regarding the furnishing of a Medicare
covered item other than a covered item already furnished to the
individual, the supplier has furnished at least one covered item to the
individual during the 15-month period preceding the date on which the
supplier makes such contact.
(20) Only a supplier that is licensed to dispense the drug may bill
for a drug used as a Medicare covered supply with durable medical
equipment or prosthetic devices. A supplier of drugs must bill and
receive payment for the drug in its own name.
(d) If a supplier is found not to meet the standards in paragraph
(c) of this section, its billing number will be revoked. The revocation
will be effective 15 days after the entity is sent notice of the
revocation, as specified in Sec. 405.874(b) and (e) of this subchapter.
(e) Surety bond. (1) A supplier must obtain a surety bond for each
tax identification number for which it has a billing number issued by
Medicare. When a supplier applies for renewal of its supplier billing
number the supplier must submit with the supplier application to the
National Supplier Clearinghouse a copy of its current surety bond.
Copies of previous surety bonds demonstrating compliance with the
surety bond requirement since the last renewal or initial application
must also be submitted when renewing a supplier number. New suppliers
must submit a copy of their surety bond for
[[Page 2939]]
the appropriate amount at the time of their initial application in
order to have the application approved. The company issuing a surety
bond must be listed in the Treasury Department Circular 570,
``Companies Holding Certificates of Authority as Acceptable Sureties on
Federal Bonds and as Acceptable Reinsuring Companies.'' This list
appears in the Federal Register on or about July 1 of each year. Copies
of the Circular and interim changes may be obtained directly from the
Government Printing Office (202) 512-1800, or contact the U.S.
Department of the Treasury, Financial Management Service, Surety Bond
Branch, 3700 East West Highway, Room 6F04, Hyattsville, Maryland 20782,
telephone (202) 874-6850 or Fax (202) 874-9978.
(2) The surety bond must be for a term of 12 months and must be
renewed annually. The surety bond must be in an amount equal to at
least 15 percent of the amount paid to the supplier by the Medicare
program for claims for Medicare covered items provided in the previous
year, as reflected in a supplier's IRS Form No. 1099, or by the
historic payment information from the durable medical equipment
regional carrier provider payment history file. The minimum surety bond
amount for a supplier billing number, regardless of its Medicare
revenues, is $50,000 annually. The maximum surety bond amount for a
supplier billing number, regardless of its Medicare revenues, is
$3,000,000 annually.
(3) For a supplier that has not previously participated in the
Medicare program, the amount of the surety bond for each billing number
must be equal to the sum of $50,000 for the first year of participation
in the Medicare program. Thereafter, the rules set forth in
Sec. 424.57(e)(1) and (2) apply.
(4) As the obligee of the bond, HCFA may seek recovery by resorting
to the surety bond if there are outstanding debts to the Medicare
program, including overpayments, interest, civil money penalties and
assessments or if a supplier's number is revoked.
(f) A supplier number will expire and a supplier must renew its
application for a billing number 3 years after the billing number is
first issued. Each supplier must complete an application for a billing
number 3 years after its last number is issued.
(g) A supplier must have a complaint resolution protocol to address
beneficiary complaints that relate to supplier standards in paragraph
(c) of this section and to keep written complaints and related
correspondence and any notes of actions taken in response to written
and oral complaints. Failure to maintain such information may be
considered evidence that supplier standards have not been met. Such
information must be kept at its physical facility and made available to
HCFA, upon request. A supplier must maintain the following information
on all written and oral beneficiary complaints, including telephone
complaints, it receives:
(1) The name, address, telephone number, and health insurance claim
number of the beneficiary.
(2) A summary of the complaint and the date it was made; the name
of the person taking the complaint; and a summary of any actions taken
to resolve the complaint.
(3) If an investigation was not conducted, the name of the person
making the decision and the reason for the decision.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: January 24, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: August 14, 1997.
Donna Shalala
Secretary.
[FR Doc. 98-963 Filed 1-16-98; 8:45 am]
BILLING CODE 4120-01-P