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Surety Bonds Remain an Underutilized Tool To Protect Medicare From Supplier Overpayments


In 2009, CMS began to require suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) to obtain a minimum of $50,000 in surety bond coverage per location. A surety bond is issued by an entity (the surety) guaranteeing that the surety will pay CMS the amount of any monetary obligations incurred during the term of the bond, and for which the supplier is responsible, up to the surety's maximum obligation. Surety bonds can discourage enrollment of fraudulent suppliers and aid the recovery of debts owed to Medicare. We set out to determine the extent to which CMS maintains complete and accurate surety bond data and to determine the amount of supplier debt that could have been recovered through surety bonds.


We requested from CMS information on all outstanding overpayments that were identified for collection between October 2, 2009, and April 1, 2011. We also requested information regarding suppliers' surety bond coverage and requested CMS's written procedures for recovering DMEPOS overpayments through surety bonds.


Two years after the surety bond requirement was implemented, CMS did not have accurate surety bond information for all suppliers. Information for thousands of bonded suppliers was missing, and surety bond amounts were not consistently maintained by supplier location. Bonded suppliers have tens of millions in uncollected overpayments. As of July 2012, CMS reported it collected $263,000 from the millions in overpayments eligible for surety bond recovery. Most of these overpayments will likely remain uncollected because a number of suppliers had overpayments of more than $50,000, and CMS can recover only up to the amount of the surety bond.


We recommend that CMS: (1) improve oversight of supplier data to ensure accurate and consistent information, (2) immediately begin utilizing the surety bond requirement to recover outstanding overpayments from suppliers' surety bonds, (3) consider using the legislative authority given by the Patient Protection and Affordable Care Act of 2010 to require increased surety bond amounts for suppliers that receive high overall Medicare payments, and (4) revise collection guidelines to state that collection of debts through surety bonds is based on dates of service. CMS concurred with all four recommendations.