Medicare Home Health Agencies

In 1997, Congress required home health agencies (HHA) to begin posting $50,000 surety bonds that would allow the Health Care Financing Administration (HCFA) to recover delinquent overpayments made for any reason--not just in cases of fraud and abuse. However, net recovered overpayments were less than one percent of Medicare's home health care expenditures in 1996. HCFA's requiring that larger HHAs obtain bonds equal to 15 percent of their Medicare revenues?and that they obtain one bond for Medicare and a separate bond for Medicaid?imposes a greater burden on them without a demonstrated commensurately greater benefit. GAO believes that requiring one $50,000 surety bond for both Medicare and Medicaid could effectively screen new HHAs to determine whether they are reasonably organized, follow sound business practices, and have financial stability. It would balance the benefit to Medicare of increased HHA scrutiny and recovery of overpayments with the burden on participating agencies to supply bond fees and collateral.

GAO noted that: (1) a surety bond is a three-party agreement in which a company, known as a surety, agrees to compensate the bondholder if the bond purchaser fails to keep a specified promise; (2) the terms of the bond determine the bond's cost and the amount of scrutiny the purchaser faces from the surety company; (3) when the terms of bonds increase the risk of default, more firms have difficulty purchasing them; (4) the likelihood that a firm will be unable to repay a surety increases fees charged and collateral requirements or the surety's unwillingness to sell it a bond; (5) Florida Medicaid's experience offers few insights into the potential effect of Medicare's surety bonds because the state implemented its surety bond requirement selectively, for new and problem HHAs, in combination with several other program integrity measures; (6) after implementation, Florida officials reported that about one-quarter of its Medicaid-participating HHAs had left the program, however, this exodus was not caused primarily by the surety bond requirement; (7) HCFA requires a surety bond guaranteeing HHAs repayment of Medicare overpayments, and it has set the minimum level of the bond as the greater of $50,000 or 15 percent of an agency's Medicare revenues out of concern that about 60 percent of HHAs had overpayments in 1996, amounting to about 6 percent of Medicare's HHA spending, and that, in their opinion, overpayments would increase in the future; (8) yet, HCFA's experience shows that most overpayments are returned, so that the net unrecovered overpayments were less than 1 percent of Medicare's home health care expenditures in 1996; (9) HCFA's implementing regulation requiring a bond guaranteeing the return of overpayments made for any reason rather than only those attributable to acts of fraud or dishonesty increases the risk of default; (10) sureties' scrutiny, which focuses primarily on an agency's business practices and financial status, is probably useful for screening new HHAs; (11) a Treasury regulation that allows the substitution of a government note for any federally required surety bond may undermine the purpose of the bond because HHAs could avoid surety scrutiny; (12) the Balanced Budget Act also requires the DME suppliers, CORFS, and rehabilitation agencies obtain a surety bond valued at a minimum of $50,000; and (13) Medicare will benefit from greater scrutiny of these organizations and their stronger incentives to avoid overpayments.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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