[Federal Register Volume 72, Number 147 (Wednesday, August 1, 2007)]
[Proposed Rules]
[Pages 42001-42011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3746]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 424

[CMS-6006-P]
RIN 0938-AO84


Medicare Program; Surety Bond Requirement for Suppliers of 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS)

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: Consistent with section 4312(a) of the Balanced Budget Act of 
1997 (BBA), this proposed rule implements section 1834(a)(16)(B) of the 
Social Security Act (the Act) by requiring all Medicare suppliers of 
durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) 
to furnish CMS with a surety bond. We believe that this requirement 
would limit the Medicare program risk to fraudulent DME suppliers; 
enhance the Medicare enrollment process to help ensure that only 
legitimate DME suppliers are enrolled or are allowed to remain enrolled 
in the Medicare program; ensure that the Medicare program recoups 
erroneous payments that result from fraudulent or abusive billing 
practices by allowing CMS or its designated contractor to seek payments 
from a Surety up to the penal sum; and help ensure that Medicare 
beneficiaries receive products and services that are considered 
reasonable and necessary from legitimate DME suppliers.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on October 1, 2007.

ADDRESSES: In commenting, please refer to file code CMS-6006-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-6006-P, P.O. Box 8017, Baltimore, MD 
21244-8017.

    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-6006-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.

    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Frank Whelan, (410) 786-1302.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-6006-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential

[[Page 42002]]

business information that is included in a comment. We post all 
comments received before the close of the comment period on the 
following Web site as soon as possible after they have been received: 
http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic 
Comments on CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

SUPPLEMENTARY INFORMATION:

I. Background

A. General and Legislative History

    Medicare services are furnished by two types of entities--providers 
and suppliers. At Sec.  400.202, ``provider'' is defined as a hospital, 
a critical access hospital (CAH), a skilled nursing facility, a 
comprehensive outpatient rehabilitation facility, a home health agency 
(HHA), or a hospice that has in effect an agreement to participate in 
Medicare, or a clinic, a rehabilitation agency, or a public health 
agency that has in effect a similar agreement but only to furnish 
outpatient physical therapy or speech pathology services, or a 
community mental health center that has in effect a similar agreement 
but only to furnish partial hospitalization services. The term 
``provider'' is also defined in sections 1861(u) and 1866(e) of the 
Social Security Act (the Act).
    A supplier that furnishes durable medical equipment, prosthetics, 
orthotics, and suppliers (DMEPOS) is one category of supplier. Other 
supplier categories may 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 the DMEPOS supplier standards, the term 
``supplier'' is defined in Sec.  424.57(a) 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 the 
DMEPOS supplier standards. This proposed rule would apply to all DMEPOS 
suppliers. Those individuals or entities that do not furnish DMEPOS 
items but furnish other types of health care services only (for 
example, physician services or nurse practitioner services) would not 
be subject to this requirement.

B. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS)

1. Durable Medical Equipment
    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). 
Also, the term DME is included in the definition of ``medical and other 
health services'' found at section 1861(s)(6) of the Act. Furthermore, 
the term is defined in Sec.  414.202 as equipment furnished by a 
supplier or a HHA 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 DMEPOS supplies include items such as blood glucose 
monitors, hospital beds, nebulizers, oxygen delivery systems, and 
wheelchairs.
2. Prosthetic Devices
    Prosthetic devices are included in the definition of ``medical and 
other health services'' under section 1861(s) (8) of the Act. 
Prosthetic devices 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. Under section 1834(h)(4)(B), prosthetic 
devices do not include parenteral and enteral nutrition nutrients and 
implantable items payable under section 1833(t) of the Act.
    3. 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 
including replacement of required because of a change in patient's 
physical condition.'' As indicated by section 1834(h)(4)(C) of the Act, 
these items are often referred to as ``orthotics and prosthetics.''
4. Supplies
    Section 1861(s)(5) of the Act includes ``surgical dressings, 
splints, casts, and other devices used for reduction of fractures and 
dislocation'' 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):
     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.
     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.
     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.
     Oral drugs prescribed for use as an anticancer therapeutic 
agent as specified in section 1861(s)(2)(Q) of the Act.
     Self-administered erythropoietin as described in section 
1861(s)(2)(O) of the Act.

II. General Overview of the Proposed Rule

    In the January 20, 1998 Federal Register (63 FR 2926), we published 
a proposed rule to reflect the changes made to section 1834 of the Act 
by section 4312(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 
105-33). Section 4312(a) of the BBA amended section 1834(a) of the Act 
by adding paragraph (a)(16)(B) which requires a DMEPOS supplier to 
provide us, on a continuing basis, with a surety bond of at least 
$65,000, as a condition of the issuance or renewal of a provider 
number. Section 1834(a)(16), as amended by section 4312(c) of the BBA, 
further provides that we may also require a surety bond from some or 
all providers or suppliers who furnish items or services under Medicare 
Part A or Part B. However, since section 902 of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 
108-173) (MMA) prohibits the Secretary from finalizing a proposed rule 
related to Title 18 that was published more than 3 years earlier except 
under exceptional circumstances, this rule was never finalized.
    As a result, we are proposing this rule at this time to implement 
the statutory

[[Page 42003]]

surety bond requirement set forth in section 1834(a)(16)(B) of the Act. 
However, given the lapse in time between the statutory effective date 
and date of this proposed rule, we believe that it appropriate to 
adjust the amount of the surety bond from $50,000 in 1997 by the 
Consumer Price Index (CPI) and calculate a higher surety bond amount. 
In doing so, we have adjusted the initial surety bond amount of $50,000 
by the CPI and have calculated that a $50,000 surety bond in 1997 would 
equate to a surety bond value of $64,907.17 in 2007. Further, we have 
rounded the calculated value of $64,907.17 to the nearest thousand to 
derive a surety bond amount of $65,000. We believe that establishing a 
$65,000 surety bond for DMEPOS suppliers would: (1) Limit the Medicare 
program risk to fraudulent DME suppliers; (2) enhance the Medicare 
enrollment process to help ensure that only legitimate DME suppliers 
are enrolled or are allowed to remain enrolled in the Medicare program; 
(3) ensure that the Medicare program recoups erroneous payments that 
result from fraudulent or abusive billing practices by allowing CMS or 
its designated contractor to seek payments from a Surety up to the 
penal sum; and (4) help ensure that Medicare beneficiaries receive 
products and services that are considered reasonable and necessary from 
legitimate DME suppliers.

III. Provisions of the Proposed Rule

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS'' at the beginning of your comments.]

A. Special Payment Rules for Items Furnished by DMEPOS Suppliers and 
Issuance of DMEPOS Supplier Billing Numbers (Sec.  424.57)

    In Sec.  424.57, we are proposing to define the following terms as 
they are used throughout this regulation in the context of the surety 
bond requirements:
     Assessment.
     Authorized Surety.
     Civil money penalty.
     Government-Operated Suppliers.
     National Supplier Clearinghouse (NSC).
     Penal Sum.
     Rider.
     Sufficient evidence.
     Surety bond.
     Unauthorized Surety.
     Unpaid claim.
    Although we are proposing to define ``unauthorized surety'', we 
clarify that we do not envision that we would need to declare a surety 
to be unauthorized except on rare occasions. We anticipate that 
virtually every surety would provide us, upon written request, 
information needed to verify the identity of a bondholder, the 
effective date of the bond, and proof that the surety issued the bond 
as represented by the supplier. However, if a surety fails to comply 
with our request for this information, we would consider that surety as 
unauthorized to provide bonds to DMEPOS suppliers seeking enrollment in 
the Medicare program. We believe that without this provision, some 
sureties may not be inclined to provide information we need on a timely 
basis.
    Furthermore, a surety is unauthorized if it had previously failed 
to comply with a reasonable request from us for payment against a bond. 
An example of a reasonable request would be a request in writing, 
signed by an official of CMS or its representatives, or documentation 
about the amount payable by the supplier. This provision would allow us 
to take action to prevent a surety from issuing a bond to a Medicare 
DMEPOS supplier in cases where we have determined that the surety 
failed to meet its obligations to the Medicare program.
    In Sec.  424.57, we propose to add new (c)(26). Specifically, we 
propose that--
     Sec.  424.57(c)(26) would specify the requirements for a 
DMEPOS supplier seeking to become a Medicare-enrolled DMEPOS supplier.
     Sec.  424.57(c)(26)(i) would clarify the minimum 
requirements for a DMEPOS supplier. We specify that each Medicare-
enrolled DMEPOS supplier must obtain a surety bond for each National 
Provider Identifier (NPI) from an authorized surety. The surety bond or 
government security must be in the amount of $65,000 and in the form 
specified by the Secretary. While we are proposing to adjust the amount 
of the surety bond from $50,000 in 1997 by the CPI and calculate a 
higher surety bond amount of $65,000 in 2007, we are not proposing to 
adjust the base surety bond amount by the CPI annually thereafter. 
However, we will consider whether any additional adjustments (increase 
or decrease) in the base surety amount are necessary in through a 
future rulemaking effort.
     Sec.  424.57(c)(26)(i)(A) would specify that a DMEPOS 
supplier must submit a surety bond with its initial paper or electronic 
Medicare enrollment application (CMS-855S, OMB Number 0938-0685) or 
with its paper or electronic revalidation or reenrollment application.
     Sec.  424.57(c)(26)(i)(B) specifies how a change of 
ownership interest affects the DMEPOS supplier.
     Sec.  424.57(c)(26)(i)(C) specifies that a DMEPOS supplier 
seeking to enroll a new location must obtain a new surety bond for this 
new location since this new location is also required to be enumerated 
with a unique NPI.
     Sec.  457.57(c)(26)(ii) would establish an exception to 
the bond requirement for a DMEPOS supplier operated by a Federal, 
State, local, or tribal government agency if the DME supplier has 
provided CMS with a comparable surety bond required under State law and 
if the supplier does not have any unpaid claims, Civil Money Penalties 
(CMPs), or assessments. However, a government-operated supplier that 
does not qualify for an exception must submit a surety bond. We have 
determined that an exception of the surety bond requirement for 
government-operated suppliers extends only to those suppliers that have 
a good history of paying their Medicare debts. The basis for this 
exception is principally that government-operated suppliers have the 
power to tax; therefore, it is unlikely the DMEPOS suppliers will be 
unable to pay their Medicare debts. Thus, government-operated DMEPOS 
suppliers, by their public nature, furnish a comparable or greater 
guarantee of payment than would be afforded us by a surety bond issued 
by a private surety.
    Nevertheless, government-operated DMEPOS suppliers with a poor 
history of paying their Medicare debts are subject to the surety bond 
requirement. While the Medicare contractors collect overpayments in 
full or as part of a predetermined payment schedule, such as an 
extended repayment schedule, some DMEPOS suppliers default on their 
scheduled repayment plan. When this occurs and the repayment schedule 
cannot be extended, we will place the DMEPOS supplier on 100 percent 
payment withholding. In the event that a government-operated DMEPOS 
supplier is placed on 100 percent payment withholding due to non-
payment of an overpayment, the DMEPOS supplier will also be required to 
obtain a surety bond. A supplier operating under a contract with a 
government agency but not owned and staffed by the government would not 
qualify for this exception. Our anecdotal experience with previously 
published rules suggests that a government-operated entity would timely 
pay their Medicare debts (see the HHA surety bond final rule published 
in the Federal Register on January 5, 1998 (63 FR 315); amended by a 
final rule published in the Federal Register on March 4, 1998 (63 FR 
10731); a final rule published in the Federal Register on June 1, 1998 
(63

[[Page 42004]]

FR 29656); and a final rule published in the Federal Register on July 
21, 1998 (63 FR 41171)).
     We are soliciting comments on whether we should consider 
establishing an exception to the surety bond requirement for certain 
physicians and non-physician practitioners, such as those that 
occasionally furnish DMEPOS items for the convenience of their 
patients. While we are seeking comments about establishing an exception 
for physicians and non-physician practitioners, we are not certain 
about the scope of the exception that should be established for 
physicians and non-physician practitioners. As such, we are soliciting 
comments on how to identify whether a physician or non-physician 
practitioner should be given an exception to the surety bond 
requirement. We also are soliciting comments on any other appropriate 
criteria that we should use when considering the establishment of an 
exception to this requirement for certain physicians and non-physician 
practitioners.
     We are soliciting comments on whether we should establish 
an exception to the surety bond requirement for licensed pharmacists 
who furnish DMEPOS items for the convenience of their patients. We also 
are soliciting comments on any other appropriate criteria that we 
should consider in establishing an exception to this requirement for 
licensed pharmacists.
     We are also soliciting comments on any other appropriate 
criteria that we should consider in establishing an exception to this 
requirement as to these types of suppliers.
     We are also soliciting comment on whether we should 
establish an exception to the surety bond requirement for large, 
publicly traded chain suppliers of DMEPOS. We are soliciting comments 
on any appropriate criteria that we should consider in waiving this 
requirement as to these types of suppliers.
     We are also soliciting comments on the appropriate 
criteria that we may use for establishing exceptions for other types of 
DMEPOS suppliers from the requirement to purchase a surety bond.
     Sec.  424.57(c)(26)(iii) would specify the terms of a bond 
submitted by a DMEPOS supplier.
     Sec.  424.57(c)(26)(iv) would specify additional DMEPOS 
supplier bond requirements and would specify the surety's liability 
under the bond for unpaid claims, CMPs, or assessments that the surety 
is liable to us, up to a total of the full penal amount of the bond. 
Thus, since we are proposing that surety bonds be issued in an amount 
equal to $65,000, the surety is liable to us for up to $65,000.
     Sec.  424.57(c)(26)(v) would specify the requirements to 
cancel a surety bond. Specifically, this section would allow a DMEPOS 
supplier to terminate or cancel a bond upon proper notice to the NSC. 
If another bond is submitted and there is a lapse in bond coverage, 
Medicare would not pay for items or services furnished during the gap 
in coverage, and the DMEPOS supplier would be held liable for the items 
or services (that is, the DMEPOS supplier would not be permitted to 
charge the beneficiary for the items or services). Failure by the 
DMEPOS supplier to submit another bond would result in revocation of 
the DMEPOS supplier's Medicare billing privileges. The supplier would 
be required to refund the beneficiary any amounts collected for 
services or supplies furnished during the gap in the surety bond 
coverage.
    Also, a supplier or surety may not place any limitations on the 
surety bond except as specifically provided for in this section. Any 
attempt to do so may result in revocation of the DMEPOS supplier's 
billing privileges and a determination that the surety is an 
unauthorized surety.
     Sec.  424.57(c)(26)(vi) would specify that the bond must 
provide that actions under the surety bond may be brought by our 
contractors or us.
     Sec.  424.57(c)(26)(vii) would specify that the surety 
must provide information regarding their physical location including 
their name, street address, city, state, and zip code and, if 
different, their mailing address, including name, post office box, 
city, state, and zip code.
     Sec.  424.57(c)(26)(viii) would specify the submission 
date and the term of the DMEPOS supplier bond.
     Sec.  424.57(c)(26)(viii)(A) would specify that each 
enrolled DMEPOS supplier that does not meet the criteria for exception 
must submit to the NSC an initial surety bond before (60 days following 
the publication date of the final rule).
     Sec.  424.57(c)(26)(viii)(B) would specify the type of 
bond required to be submitted by a DMEPOS supplier under this subpart 
must be either a continuous bond or an annual bond, with the exception 
of the initial bond which may differ as specified in this section.
     Sec.  424.57(c)(26)(ix) would specify the loss of a DMEPOS 
supplier exception. A DMEPOS supplier that no longer qualifies for a 
exception as a government-operated DMEPOS supplier must submit a surety 
bond to the NSC within 60 days after it receives notice that it no 
longer meets the criteria for and exception.
     Sec.  424.57(c)(26)(x) would specify the conditions under 
which a DMEPOS supplier changes a surety.
     Sec.  424.57(c)(26)(xi) would specify who the parties are 
to the bond.
     Sec.  424.57(c)(26)(xii) would specify the effect of a 
DMEPOS supplier's failure to obtain, maintain, and timely file a surety 
bond.
     Sec.  424.57(c)(26)(xii)(A) would specify that we may 
revoke the DMEPOS supplier's billing privileges if an enrolled supplier 
fails to obtain, file timely, and maintain a surety bond as specified 
in this subpart and as instructed by us. The revocation is effective 
with the date the bond lapsed and any payments for items or services 
furnished on or after that date must be repaid to us by the DMEPOS 
supplier.
     Sec.  424.57(c)(26)(xii)(B) would specify that we refuse 
to issue billing privileges to the DMEPOS supplier if a DMEPOS supplier 
seeking to become an enrolled DMEPOS supplier fails to obtain and file 
timely a surety bond as specified in this subpart and our instructions.
     Sec.  424.57(c)(26)(xiii) would specify the documentation 
that a DMEPOS supplier must have to be in compliance with these 
requirements and that we may require a supplier to produce 
documentation that it has a bond and that it meets the requirements of 
this section.
     Sec.  424.57(c)(26)(xiv) would specify the effect of 
subsequent DMEPOS supplier payments paid to us. If a surety has paid an 
amount to us on the basis of liability incurred under a bond and we 
subsequently collect from the DMEPOS supplier, in whole or in part, on 
the unpaid claims, CMPs, or assessments that were the basis for the 
surety's liability, we would reimburse the surety the amount that it 
collected from the DMEPOS supplier, up to the amount paid by the Surety 
to us, provided the surety has no other liability to us under the bond.
     Sec.  424.57(c)(26)(xv) would specify the effect of a 
review reversing an appealed determination. We would refund to the 
DMEPOS supplier the amount that the DMEPOS supplier paid us, to the 
extent that the amount relates to the matter that was successfully 
appealed, provided all review, including judicial review, has been 
completed on the matter.
    In addition, DMEPOS suppliers have the right to appeal any adverse 
decisions with respect to unpaid claims, CMPs or assessments. DMEPOS 
suppliers must use the following applicable appeals provisions 
specified

[[Page 42005]]

in 42 CFR associated with each adverse determination: Part 405, subpart 
I (claims appeals); Part 1003 (civil money penalties); and Part 498 
(Medicare participation and enrollment).
    We believe that the appeals processes as they apply to DMEPOS 
suppliers and sureties should be addressed through a private contract 
between the parties. Specifically, we believe that sureties should 
consider requiring DMEPOS suppliers to agree to repay the surety any 
payments made by a Medicare contractor resulting from a DMEPOS 
supplier's appeal of any adverse decisions with respect to unpaid 
claims, CMPs or assessments. Any such contract must be consistent with 
the applicable appeals processes referenced above. In determining 
whether a private contract is necessary, we suggest that the sureties 
and DMEPOS suppliers consider the following types provisions: 
appointment of representative, repayment of any bonding amounts paid to 
the DMEPOS supplier that were already paid by the surety and the 
potential cost of pursuing administrative appeals.
    Furthermore, we are soliciting comments on requiring DMEPOS 
suppliers to obtain a surety bond of more than $65,000 if the DMEPOS 
supplier poses a significantly higher than average risk to the Medicare 
Trust Funds. Specifically, we are soliciting comments on how to 
establish elevated amounts of surety bonds for higher risk DMEPOS 
suppliers. We are considering the option of establishing elevated 
amounts of the surety bond at a rate of $65,000 per high risk factor. 
Also, we are soliciting comments on determining the high risk factors 
that should be used. We suggest several potential high risk factors 
below, but would consider any comments on these factors, as well as 
suggestions for additional factors.
    We are considering a $65,000 increase in the surety amount for each 
occurrence when a DMEPOS supplier has a final adverse action as 
specified in section 221(g)(1)(A) of the Health Insurance Portability 
and Accountability Act of 1996 (Pub. L. 104-191) (HIPAA). Examples of 
final adverse actions include, but are not limited to, Federal and 
State criminal convictions related to the delivery of health care item 
or service, formal or official actions, such as revocation or 
suspension of a license, and exclusion from participation in Federal or 
State health care programs. The following is an example of how high-
risk criteria would be used to increase the bond amount by $65,000 per 
occurrence.
     For example, a DMEPOS supplier would be required to obtain 
a surety bond in the amount of $130,000, an increase of $65,000 from 
the base surety bond amount of $65,000, if the DMEPOS supplier or any 
of its owners, authorized officials, or delegated officials had their 
billing privileges revoked within the last 10 years. If the DMEPOS 
supplier or any of its owners, authorized officials, or delegated 
officials had more than one revocation in the last 10 years, then the 
amount of the surety bond the DMEPOS supplier would be required to 
obtain would increase $65,000 per occurrence. For example, a DMEPOS 
supplier with three different revocations during the proceeding 10 
years would be required to obtain a surety bond in the amount of 
$260,000; $65,000 for the base surety amount and $195,000 (3 x $65,000) 
for the multiple revocations.
    In addition to the elevated risk-based model described above, we 
are soliciting comments regarding the establishment of elevated bond 
amounts by classifying DMEPOS suppliers into two or three general 
categories such as--
     New DMEPOS supplier applicants that have no prior billing 
history with the Medicare program that also would be required to secure 
a surety bond;
     Current Medicare enrolled DMEPOS suppliers that do not 
have any prior history of criminal, civil or administrative sanctions 
for billing-related problems; and,
     Current Medicare enrolled DMEPOS supplier with a prior 
``adverse history'' of criminal, civil or administrative sanctions for 
billing-related problems for which the regulation would elevate the 
amount of the required surety by an appropriate amount per prior 
sanction.
    We are soliciting comments regarding the appropriate elevated 
amounts of the surety bond using this categorical approach.
    We are also soliciting comments on whether we should establish an 
exception for rural DMEPOS suppliers and the appropriate criteria that 
we should consider in establishing an exception for rural DMEPOS 
suppliers.
    Finally, we are soliciting comments on the appropriate period of 
time that a DMEPOS supplier should be required to maintain a higher 
surety bond amount. Given the higher level of risk associated with 
DMEPOS suppliers that have one or more risk factors, we are proposing 
to establish a timeframe of 5 years.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we 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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of the following issues 
pertaining to the information collection requirements discussed in this 
proposed rule.

Special Payment Rules for Items Furnished by DMEPOS Suppliers and 
Issuance of DMEPOS Supplier Billing Numbers (Sec.  424.57)

    Section 424.57(c)(26) outlines the surety bond requirements for 
DMEPOS suppliers. Specifically, Sec.  424.57(c)(26) states that each 
Medicare-enrolled DMEPOS supplier must obtain and furnish to the 
National Supplier Clearinghouse (NSC) a surety bond in the amount of 
$65,000. The bond must be obtained from an authorized surety, and must 
be submitted for each NPI obtained by a Medicare enrolled DMEPOS 
supplier.
    Section 424.57(c)(26)(i) outlines the minimum requirements for a 
DMEPOS supplier seeking to become a Medicare-enrolled DMEPOS supplier. 
Section 424.57(c)(26)(i)(A) requires a DMEPOS supplier seeking to 
become a Medicare-enrolled supplier to submit documentation verifying 
possession of a surety bond with its Medicare enrollment application. 
Section 424.57(c)(26)(i)(B) states that a DMEPOS supplier seeking to 
become an enrolled supplier through the purchase or transfer of assets 
or ownership interest of an enrolled or formerly enrolled DMEPOS 
supplier must provide a surety bond that is effective from the date of 
the purchase or transfer in order to exercise billing privileges as of 
that date. If the bond is effective at a later date, the effective date 
of the new DMEPOS supplier number will be the effective date of the 
surety bond as validated by the NSC rather than the date of the change 
of ownership.
    Section 424.57(c)(26)(i)(C) requires a DMEPOS supplier that is 
seeking to enroll a new location to obtain a new surety bond for that 
new location since

[[Page 42006]]

that new location will also require a unique NPI.
    Section 424.57(c)(26)(v) discusses the change of ownership process. 
DMEPOS suppliers are required to submit an updated enrollment 
application if they have undergone a change in ownership. As part of 
the updated application, the new owners are required to obtain and 
submit a surety bond to the NSC that is effective with the date of the 
change of ownership in order to obtain or retain billing privileges. If 
the bond is effective at a later date, the effective date of the change 
of ownership by the new DMEPOS supplier number is the date of the 
surety bond as validated by the NSC rather than the date of the 
transfer of ownership.
    The burden associated with all of the requirements in Sec.  
424.57(c)(26)(i) through (iv) is the time and effort required for a 
DMEPOS supplier to obtain a surety bond and to submit the bond as part 
of its Medicare Enrollment Application.
    A DMEPOS supplier is required to submit a Medicare enrollment 
application if it is:
     Enrolling in Medicare for the first time as a DMEPOS 
supplier.
     Currently enrolled in Medicare as a DMEPOS supplier and 
needs to report changes to its business, other than enrolling a new 
business location. Changes must be reported within 30 days of the 
effective date of the change.
     Currently enrolled in Medicare as a DMEPOS supplier but 
need to enroll a new business location. This is to add a new location 
to an organization with a TIN already listed with the NSC. (This 
differs from changing information on an already existing location.)
     Currently enrolled in Medicare as a DMEPOS supplier and 
has been asked to verify or update its information. This includes 
situations where it has been asked to attest that its organization is 
still eligible to receive Medicare payments.
     Reactivating its Medicare DMEPOS supplier billing number 
(for example, its Medicare supplier billing number was deactivated 
because of non-billing, and they wish to receive payment from Medicare 
for future claims).
     Voluntarily terminating its Medicare DMEPOS supplier 
billing number.
    The burden associated with submitting an updated enrollment 
application is approved under OMB control number 0938-0685 with an 
expiration date of April 30, 2009. We believe the requirements in Sec.  
424.57(c)(26) impose a marginal increase in burden as DMEPOS suppliers 
are already required to submit the Medicare Enrollment Application.
    We estimate the burden associated with the requirements in Sec.  
424.57(c)(26)(i) through (v) to be 60 minutes per DMEPOS supplier. In 
addition, we estimate that approximately 116,500 DMEPOS suppliers will 
comply with these requirements. Therefore, the estimated total annual 
burden is 116,500 hours.
    Section 424.57(c)(26)(v) states that a surety bond may be cancelled 
with written notice from the DMEPOS supplier to the NSC. The burden 
associated with this requirement is the time and effort necessary for 
either DMEPOS supplier to draft and submit the notice of cancellation 
to the NSC. We estimate the burden associated with this requirement to 
be 30 minutes. In addition, we anticipate that 1,000 suppliers will 
draft and submit the necessary documentation. We estimate the total 
annual burden to be 500 hours.
    Section 424.57(c)(26)(ix) requires a DMEPOS supplier that no longer 
qualifies as a government-operated DMEPOS supplier to submit a surety 
bond to the NSC within 60 days of receiving notice that it no longer 
qualifies for a exception. The burden associated with this requirement 
is the time and effort necessary for the DMEPOS supplier to obtain and 
submit a surety bond to the NSC within 60 days of receiving notice that 
it no longer qualifies for a exception. We estimate the burden 
associated with this requirement to be 30 minutes. In addition, we 
anticipate that 10 suppliers will draft and submit the necessary 
documentation. We estimate the total annual burden to be 5 hours.
    Section 424.57(c)(26)(x) requires a DMEPOS supplier that obtains a 
replacement surety bond from a different surety to cover the remaining 
term of a previously obtained bond to submit the new surety bond to the 
NSC within 30 days of expiration of the previous bond. The burden 
associated with this requirement is the time and effort necessary to 
obtain and submit the new surety bond to the NSC. We estimate the 
burden associated with this requirement to be 30 minutes. In addition, 
we anticipate that 1,000 suppliers will comply with this requirement. 
We estimate the total annual burden to be 500 hours.
    Section 424.57(c)(26)(xiii) imposes recordkeeping and reporting 
requirements. Section 424.57(c)(26)(xvi)(A) states that CMS may at any 
time require a DMEPOS supplier to show compliance with the requirements 
associated with 42 CFR part 424. The burden for this requirement is the 
time and effort associated with maintaining the necessary documentation 
on file. While this requirement is subject to the PRA, we believe the 
burden is exempt as stated in 5 CFR 1320.3(b)(2) because the time, 
effort, and financial resources necessary to comply with the 
requirement would be incurred by persons in the normal course of their 
activities.
    The burden associated with producing the documents upon request 
from CMS is estimated to be 30 minutes per DMEPOS supplier. We estimate 
that 1,000 DMEPOS suppliers will be asked to submit the requested 
documentation. The total annual burden associated with this requirement 
is estimated to be 500 hours.

                          Table 1.--Estimated Annual Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Number of     Total annual
         Regulation section               OMB control number        respondents      responses     burden hours
----------------------------------------------------------------------------------------------------------------
424.57(c)(26)(i through iv)........  0938-New...................         116,500         116,500         116,500
                                     0938-0685..................         400,000         400,000       1,000,000
Sec.   424.57(c)(26)(v)............  0938-New...................           1,000           1,000             500
Sec.   424.57(c)(26)(ix)...........  0938-New...................              10              10               5
Sec.   424.57(c)(26)(xi)...........  0938-New...................           1,000           1,000             500
Sec.   424.57(c)(26)(xii)..........  0938-New...................           1,000           1,000             500
                                    ----------------------------------------------------------------------------
    Total..........................  ...........................  ..............  ..............       1,118,005
----------------------------------------------------------------------------------------------------------------


[[Page 42007]]

    We submitted a copy of this proposed rule with comment to the OMB 
for its review of the information collection requirements. These 
requirements are not effective until approved by OMB.
    If you comment on any of these information collection and 
recordkeeping requirements, please mail copies directly to the 
following:

Centers for Medicare and Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group Attn.: 
William N. Parham, III, CMS-6006-P Room C4-26-05, 7500 Security 
Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503.

    Attn.: Carolyn Lovett, CMS Desk Officer, CMS-6006-P, [email protected]. Fax (202) 395-6974.

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, 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, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

VI. Regulatory Impact Analysis

    [If you choose to comment on issues in this section, please include 
the caption ``IMPACT'' at the beginning of your comments.]

A. Introduction

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year).
    We estimate that the surety bond requirement as specified in Sec.  
424.57(c)(26)(i) would cost approximately $198 million annually. This 
cost is based on the number of suppliers furnishing DMEPOS 
(approximately 99,000) multiplied by the average annual cost of a bond 
($2,000). Based on information received from the industry, we estimated 
that the average bond cost is approximately $2,000 or 3 percent of the 
bond's value. We are seeking comments on the accuracy of this estimate.
    A surety charges its underwriting fee based on the penal sum of the 
bond. We have determined that for this type of surety bond the industry 
usually has an underwriting charge of 2 to 3 percent. We believe that 
there is little variation of the charge based on geographical location 
or type of DMEPOS supplier although the DMEPOS supplier's financial 
soundness probably would be a factor in the rate charged by the surety 
for the bond. We are unable to make an estimate of the range of 
financial soundness of DMEPOS suppliers, or its impact on the cost of 
surety bonds for Medicare.
    While it is not possible to estimate with accuracy the savings that 
would result from the implementation of this proposed rule, we believe 
that surety bonds combined with other program integrity efforts should 
reduce the number of DMEPOS suppliers that currently bill Medicare 
fraudulently because DMEPOS suppliers would be subject to the scrutiny 
of surety companies. In addition, surety bonds would serve as a 
deterrent to others tempted to engage in fraudulent behavior because of 
the cost of the bond and the possibility of the need to post 
collateral.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year.
    In addition, 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. This 
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 100 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.
    Table 2 examines the allowed charges to the unique billing numbers 
(a DMEPOS supplier may have multiple locations, for example, a chain 
organization, but use only one unique billing number), the vast 
majority of DMEPOS suppliers are small entities (based on Medicare 
reimbursement alone).

   Table 2.--Total Number of Suppliers Arranged by Allowed Charges for
 Dates of Service (January Through December 2005 Based on Unique Billing
                                Numbers)
------------------------------------------------------------------------
                                                             Number of
                                             Number of        DMEPOS
             Allowed charge                  suppliers       suppliers
                                          reimbursed for  reimbursed for
                                                DME        non-DME only
------------------------------------------------------------------------
$0......................................           2,016           4,655
$0.01-$999..............................           2,544           6,624
$1,000-$2,499...........................           2,099           4,993
$2,500-$4,999...........................           2,285           4,459
$5,000-$9,999...........................           2,964           4,153
$10,000-$24,999.........................           4,568           4,328
$25,000-$49,999.........................           3,378           2,100
$50,000-$99,999.........................           2,780           1,245

[[Page 42008]]

 
$100,000-$499,999.......................           5,955           1,191
$500,000-$999,999.......................           1,762             220
$1,000,000-4,999,999....................           1,345             105
$5,000,000 or more......................             208               7
                                         -------------------------------
    Total...............................          31,904          34,080
------------------------------------------------------------------------

    In reviewing Table 2, the term, durable medical equipment (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). Also, the term 
DME is included in the definition of ``medical and other health 
services'' found at section 1861(s)(6) of the Act. Furthermore, the 
term is defined in Sec.  414.202 as equipment furnished by a supplier 
or a HHA that--
     Can withstand repeated use;
     Is primarily and customarily used to serve a medical 
purpose;
     Generally is not useful to an individual in the absence of 
an illness or injury; and
     Is appropriate for use in the home. Examples of DMEPOS 
supplies include items such as blood glucose monitors, hospital beds, 
nebulizers, oxygen delivery systems, and wheelchairs.
    Conversely, suppliers of non-DME only refers to items or services 
furnished by prosthetics, orthotist, and supplies found in section 
1861(s)(5) of the Act.
    As of April 2007, there were 116,471 individual DMEPOS suppliers. 
However, due to the affiliation of some DMEPOS suppliers with chains, 
there were only approximately 65,984 unique billing numbers (31,904 + 
34,080). According to Table 2, for fiscal year 2005, approximately 
15,800 billing suppliers with allowed charges of less than $1,000 
(2,016 + 4,655 + 2,544 + 6,624) would have been required to submit a 
surety bond if this proposed rule is implemented. Based on our 
analysis, we anticipate that almost all of these DMEPOS suppliers, 
excluding physician and other practitioners as defined in section 
1842(b)(18)(C) of the Act, would elect to cease their enrollment in 
Medicare because their bond cost would exceed their profit from dealing 
in Medicare-covered items. Furthermore, the majority of the 13,836 
DMEPOS suppliers with allowed charges $1,000 to $4,999 (2,099 + 4,993 + 
2,285 + 4,459) would not recoup their bond costs from Medicare 
business. Also, a portion of DMEPOS suppliers in higher charge 
categories may decide to forego their Medicare enrollment as a DMEPOS 
supplier because of the added cost of the bond. We estimate that as 
many as 15,000 DMEPOS suppliers, or 23 percent of the 65,984 entities, 
and 15 percent (or 17,471) of the 116,471 individual suppliers 
currently enrolled in Medicare could decide to cease providing items to 
Medicare beneficiaries if this proposed rule is implemented. We believe 
that approximately 22 percent of the 15,000 DMEPOS suppliers are 
located in rural areas. We further believe that most, if not all, of 
the Medicare business conducted by these DMEPOS suppliers would be 
assumed by other DMEPOS suppliers remaining in the program (for 
example, by mail order or via the World Wide Web). To assist Medicare 
beneficiaries locate a replacement DMEPOS supplier who qualifies to 
continue to participate in the Medicare program, we would conduct 
education and outreach efforts to ease the transition from a departing 
DMEPOS supplier to a DMEPOS supplier that will remain in the program.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
is currently approximately $120 million. This proposed rule would have 
no consequential effect on State, local, or tribal governments. We 
believe that the private sector costs of this rule are greater than 
these thresholds.
    Executive Order 13132 established certain requirements that an 
agency must meet when it issues a proposed rule (and subsequent final 
rule) that imposes substantial direct requirement costs on State and 
local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this rule under the threshold criteria 
of Executive Order 13132 and have determined that it does not 
significantly affect the rights, roles, and responsibilities of States.

B. Alternatives Considered

    As specified in section 4312(a) of the BBA, a surety bond is 
required as long as an entity remains a DMEPOS supplier. In the 
proposed rule published in the January 20, 1998 Federal Register (63 FR 
2926), we proposed that a DMEPOS supplier would be required to obtain a 
surety bond equal to $65,000 per TIN, the basic identification element 
for a DMEPOS supplier. However, with the more recent assignment of the 
National Provider Identifier (NPI), the TIN is no longer the basic 
identification element for a DMEPOS supplier. Accordingly, requiring a 
surety bond for each TIN is not consistent with the Agency's NPI 
implementation or with current Medicare regulations. In the Agency's 
Medicare Subpart Expectation Paper, the Agency states that each 
enrolled supplier of DMEPOS that is a covered entity under HIPAA must 
designate each practice location (if it has more than one) as a subpart 
and ensure that each subpart obtains its own unique NPI. Further, Sec.  
424.57(b)(1) requires that each practice location of a supplier of 
DMEPOS (if it has more than one) must, by law, be separately enrolled 
in Medicare and have its own unique Medicare billing number or NPI.
    Accordingly, we are proposing a $65,000 bond per DMEPOS supplier 
NPI; the basic identification element for a DMEPOS supplier.

C. Conclusion

    Any burden imposed by this proposed rule is legislatively mandated, 
and we have taken steps to ensure that the burden on DMEPOS suppliers 
is minimal. Surety bonds use a private sector mechanism to screen 
DMEPOS

[[Page 42009]]

suppliers that provide items and services to Medicare's beneficiaries 
and help ensure that they are financially responsible. Also, surety 
bonds help to ensure that the government can recoup taxpayer money from 
DME suppliers who default on their obligations to the Medicare program.
    We use a financial guarantee bond for the return of overpayments 
regardless of their source. A guarantee bond would ensure more scrutiny 
and benefits to Medicare. In underwriting this type of bond, a surety 
would pay particular attention to financial statements, business 
practices, and overpayment history. This scrutiny would provide the 
Medicare program with some of the following benefits: (1) Proprietors 
who do not have relevant program experience would be deterred from 
entering the program; (2) existing Medicare DMEPOS suppliers would be 
examined as to their business soundness; and (3) DMEPOS suppliers with 
overpayments that do not repay their overpayments would be unlikely to 
obtain a subsequent surety bond and would be removed from the Medicare 
business. Generally, all DMEPOS suppliers would be deterred from 
incurring overpayments and would have an incentive to repay any 
overpayments that are discovered.
    Screening by a surety appears to be most useful for new DMEPOS 
suppliers. The large number of DMEPOS suppliers entering the Medicare 
program with little scrutiny makes requiring surety bonds a useful 
mechanism for screening DMEPOS suppliers already in the program. 
However, the value of this scrutiny would probably diminish with a 
DMEPOS supplier's continued participation in Medicare.
    We believe that the impact on benefit payments is indeterminable. 
In accordance with the provisions of Executive Order 12866, this 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.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV, as set forth 
below:

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    1. The authority citation for part 424 is revised to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart D--To Whom Payment Is Ordinarily Made

    2. Section 424.57 is amended by--
    A. Amending paragraph (a) to add the following definitions in 
alphabetical order: ``Assessment'', ``Authorized surety'', ``Civil 
money penalty'', ``Government-operated supplier'', ``National Supplier 
Clearinghouse (NSC)'', ``Penal sum'', ``Rider'', ``Sufficient 
evidence'', ``Surety bond'', ``Unauthorized surety'', and ``Unpaid 
claim''.
    B. Adding paragraph (c)(26).
    The additions read as follows:


Sec.  424.57  Special payment rules for items furnished by DMEPOS 
suppliers and issuance of DMEPOS supplier billing privileges.

    (a) * * *
    Assessment means a sum certain that CMS or the Office of Inspector 
General (OIG) may assess against a DMEPOS supplier under Titles XI, 
XVIII, or XXI of the Social Security Act or as specified in this 
chapter.
    Authorized surety means a surety that--
    (1) Has been issued a Certificate of Authority by the U.S. 
Department of the Treasury as an acceptable surety on Federal bonds and 
the certificate has neither expired nor been revoked; and
    (2) Has not been determined by CMS to be an unauthorized surety 
under this section.
    Civil money penalty (CMP) means a sum that CMS has the authority, 
as implemented by 42 CFR 402.1(c); or OIG has the authority under 
section 1128A of the Act or 42 CFR part 1003, to impose on a supplier 
as a penalty.
* * * * *
    Government-operated supplier is a DMEPOS supplier owned or operated 
by a Federal, State, or Tribal entity.
* * * * *
    National Supplier Clearinghouse (NSC) is the contractor that is 
responsible for the enrollment and re-enrollment process for DMEPOS 
suppliers.
    Penal sum is a sum to be paid (up to the value of the bond) by the 
surety as a penalty under the terms of the surety bond when a loss has 
occurred.
    Rider means a notice issued by a surety that a change in the bond 
has occurred or would occur.
    Sufficient evidence means the documentation that CMS may supply to 
the surety in order to establish that a DMEPOS supplier had received 
Medicare funds in excess of amounts due and payable under the statute 
and regulations.
    Surety bond means a bond issued by one or more sureties under 31 
U.S.C. 9304 through 9308 and 31 CFR parts 223, 224, and 225.
    Unauthorized surety mean a surety that--
    (1) Fails, upon written request by the National Supplier 
Clearinghouse or CMS, to furnish confirmation of the issuance of a 
surety bond within 30 days.
    (2) Fails to furnish evidence of the validity and accuracy of 
information appearing on a surety bond that a supplier has presented to 
the NSC or CMS showing the company as surety on the bond.
    (3) Fails to pay CMS in full the amount requested, up to the penal 
sum of the bond when presented with a request for payment within 30 
days of written notification.
    Unpaid claim means an overpayment made by the Medicare program to 
the DMEPOS supplier for which the DMEPOS supplier is responsible, plus 
accrued interest that is effective 90 days after the date of the notice 
sent to the DMEPOS supplier of the overpayment. If a written agreement 
for payment, acceptable to CMS, is made, an unpaid claim also means a 
Medicare overpayment for which the DMEPOS supplier is responsible, plus 
accrued interest after the DME supplier's default on the arrangement.
* * * * *
    (c) * * *
    (26) Surety bond requirements for DMEPOS suppliers. Except as 
provided in paragraph (c)(26)(ii) of this section, each DMEPOS supplier 
that is a Medicare-enrolled DMEPOS supplier must obtain and furnish to 
the NSC, a surety bond of at least $65,000, from an authorized surety, 
as defined in paragraph (a) of this section of this section, for each 
NPI issued by Medicare.
    (i) Minimum requirements for a DMEPOS supplier.
    (A) A supplier enrolling in the Medicare program, making a change 
in their existing enrollment information, or responding to a 
revalidation or reenrollment request must submit a surety bond of 
$65,000 with its paper or electronic Medicare enrollment application 
(CMS-855S, OMB number 0938-0685). The term of the initial surety bond 
must be effective on the date that the application is submitted to the 
NSC.
    (B) A supplier that seeks to become an enrolled DMEPOS supplier 
through purchase or transfer of assets or ownership interest must 
provide a surety bond that is effective from the date of the purchase 
or transfer in order to exercise billing privileges as of that

[[Page 42010]]

date. If the bond is effective at a later date, the effective date of 
the new DMEPOS supplier number will be no sooner than the effective 
date of the surety bond as validated by the NSC.
    (C) A DMEPOS supplier seeking to enroll a new location under a tax 
identification number for which it already has a DMEPOS surety bond in 
place may obtain a new surety bond or can submit an amendment or rider 
to the existing bond, showing that the new location is covered by an 
additional $65,000 surety bond.
    (ii) Exception for Government-operated suppliers. Government-
operated DMEPOS suppliers are provided an exception of the surety bond 
requirement if the DME supplier has provided CMS with a comparable 
surety bond under State law, and if it does not have any unpaid claims, 
CMPs or assessments.
    (iii) Terms of the surety bond. The terms of the bond submitted by 
a DMEPOS supplier for the purpose of complying with this section must 
meet the minimum requirements of liability coverage ($65,000) and 
surety and DMEPOS supplier responsibility as set forth in this section. 
CMS requires a supplier to submit a bond that on its face reflects the 
requirements of this section. CMS will revoke or deny a DMEPOS 
supplier's billing privileges based upon the submission of a bond that 
does not reflect the requirements of this section.
    (iv) Specific surety bond requirements.
    (A) The bond must guarantee that the surety must, within 30 days of 
receiving written notice from CMS containing sufficient evidence to 
establish the surety's liability under the bond of unpaid claims, CMPs, 
or assessments, pay CMS a total of up to the full penal amount of the 
bond in the following amounts:
    (1) The amount of any unpaid claim, plus accrued interest, for 
which the DMEPOS supplier is responsible.
    (2) The amount of any unpaid claims, CMPs, or assessments imposed 
by CMS or OIG on the DMEPOS supplier, plus accrued interest.
    (B) The bond must provide the following: The surety is liable for 
unpaid claims, CMPs, or assessments that are presented to the surety 
for payment when the surety bond is in effect, regardless of when the 
payment, overpayment, or other event giving rise to the claim, CMPs, or 
assessment occurred, provided CMS or OIG make a written demand for 
payment from the surety during the term of the bond except or after 
such term in accordance with paragraph (c)(26)(iv)(C) of this section.
    (C) If the DMEPOS supplier fails to furnish a bond meeting the 
requirements of this subpart, fails to submit a rider when required, or 
if the DMEPOS supplier's billing privileges are revoked, the last bond 
or rider submitted by the DMEPOS supplier remains in effect until the 
last day of the surety bond coverage period and the surety remains 
liable for unpaid claims, CMPs, or assessments that--
    (1) CMS or the OIG imposes or asserts against the DMEPOS supplier 
based on overpayments or other events that took place during the term 
of the bond or rider; and
    (2) Were imposed or assessed by CMS or the OIG during the 2 years 
following the date that the DMEPOS supplier failed to submit a bond or 
required rider, or the date the DMEPOS supplier's billing privileges 
were terminated, whichever is later.
    (v) Cancellation of a bond. The bond may be canceled by written 
notice from the DMEPOS supplier to the NSC and the surety. The DMEPOS 
supplier must provide written notice at least 30 days before the 
effective date of the action to the NSC and the surety. Cancellation of 
a surety bond is grounds for revocation of the DMEPOS supplier's 
Medicare billing privileges unless the DMEPOS supplier provides a new 
bond before the effective date of the cancellation. The liability of 
the surety continues through the termination effective date. The bond 
is automatically canceled and the surety is excused from any liability 
for future claims after the termination effective date. If CMS receives 
notification of a lapse in bond coverage from the surety, the DMEPOS 
supplier's billing privileges will be revoked. The surety must 
immediately notify the NSC if there is a lapse in bond coverage. The 
liability of the DMEPOS supplier and the surety to CMS is not 
extinguished by any of the following:
    (A) Any action by the DMEPOS supplier or the surety to make 
amendment to a conforming bond that will terminate or limit the scope 
or term of the bond in a manner resulting in the bond no longer 
conforming to this regulation.
    (B) The DMEPOS supplier's failure to continue to meet the 
requirements of paragraph (c)(26)(i) of this section or CMS 
determination that the surety is an unauthorized surety as defined in 
paragraph (a) of this section.
    (C) Revocation of the DMEPOS supplier's billing privileges.
    (D) Any action by CMS to suspend, offset, or otherwise recover 
payments to the DMEPOS supplier unless the action results in complete 
and final recovery of the debt.
    (E) Any action by the DMEPOS supplier to--
    (1) Cease operation.
    (2) Sell or transfer any asset or ownership interest.
    (3) File for bankruptcy.
    (4) Fail to pay the surety.
    (F) Any fraud, misrepresentation, or negligence by the DMEPOS 
supplier in obtaining the surety bond or by the surety (or the surety's 
agent) in issuing the surety bond.
    (G) The DMEPOS supplier's failure to exercise available appeal 
rights under Medicare or to assign the rights to the surety.
    (vi) Actions under the bond. The bond must provide that actions 
under the bond may be brought by CMS or by CMS contractors.
    (vii) Required surety information. The bond must provide the 
surety's name, street address or post office box number, city, state, 
and zip code.
    (viii) Submission date and term of the DMEPOS supplier bond.
    (A) Each enrolled DMEPOS supplier that does not meet the criteria 
for an exception under paragraph (c)(26)(i)(D) of this section must 
submit to the NSC an initial surety bond before (60 days following the 
publication date of the final rule).
    (B) The type of bond required to be submitted by a DMEPOS supplier 
under this subpart must be either a continuous bond or an annual bond.
    (ix) Loss of a DMEPOS supplier exception. A DMEPOS supplier that no 
longer qualifies for an exception as a government-operated DMEPOS 
supplier described in paragraph (c)(26)(ii) of this section must submit 
a surety bond to the NSC within 60 days after it knows or has reason to 
know that it no longer meets the criteria for an exception.
    (x) Change of surety. A DMEPOS supplier that obtains a replacement 
surety bond from a different surety to cover the remaining term of a 
previously obtained bond must submit the new surety bond to the NSC at 
least 30 days prior to the expiration of the previous bond. There must 
be no gap in the coverage of the bond periods. If a gap in coverage 
exists, the NSC will revoke the supplier's billing privileges and not 
pay for any items or services furnished by the DMEPOS supplier during 
the period for which no bond coverage was available. If a DMEPOS 
supplier changes its surety during the term of the bond, the new surety 
will be responsible for any overpayments, CMPs, or assessments incurred 
by the DMEPOS supplier beginning with the effective date of the new 
surety bond. The

[[Page 42011]]

previous surety is responsible for any overpayments, CMPs, or 
assessments that occurred up to the date of the change of surety.
    (xi) Parties to the bond. The surety bond must name the DMEPOS 
supplier as Principal, CMS as Obligee, and the surety (and its heirs, 
executors, administrators, successors and assignees, jointly and 
severally) as surety.
    (xii) Effect of DMEPOS supplier's failure to obtain, maintain, and 
timely file a surety bond.
    (A) CMS will revoke the DMEPOS supplier's billing privileges if an 
enrolled supplier fails to obtain, file timely, or maintain a surety 
bond as specified in this subpart and CMS instructions. Notwithstanding 
paragraph (d) of this section, the revocation will be effective with 
the date the bond lapsed and any payments for items furnished on or 
after that date must be repaid to CMS by the DMEPOS supplier.
    (B) CMS will deny billing privileges to a supplier if the supplier 
seeking to become an enrolled DMEPOS supplier fails to obtain and file 
timely a surety bond as specified with this subpart and CMS 
instructions.
    (xiii) Evidence of DMEPOS supplier's compliance. CMS may at any 
time require a DMEPOS supplier to show compliance with the requirements 
of this subpart.
    (xiv) Effect of subsequent DMEPOS supplier payment. If a surety has 
paid an amount to CMS on the basis of liability incurred under a bond 
and CMS subsequently collects from the DMEPOS supplier, in whole or in 
part, on the unpaid claim, CMPs, or assessment that was the basis for 
the surety's liability, CMS will reimburse the surety the amount that 
it collected from the DMEPOS supplier, up to the amount paid by the 
surety to CMS, provided the surety has no other liability to CMS under 
the bond.
    (xv) Effect of review reversing determination. If a DMEPOS supplier 
has paid CMS on the basis of liability incurred under a bond and to the 
extent the DMEPOS supplier that obtained the bond (or the surety under 
paragraph (m) of this section) is subsequently successful in appealing 
the determination that was the basis of the unpaid claim or CMPs, or 
assessment that caused the DMEPOS supplier to pay CMS under the bond, 
CMS would refund the DMEPOS supplier the amount the DMEPOS supplier 
paid to CMS to the extent that the amount relates to the matter that 
was successfully appealed, provided all review, including judicial 
review, has been completed on the matter.

(Catalog of Federal Domestic Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: April 10, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 22, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-3746 Filed 7-27-07; 4:00 pm]
BILLING CODE 4120-01-P