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Use of Surety Bonds to Recover Overpayments Made to Suppliers of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies: Early Findings

More than 2 years after CMS published a final rule requiring certain suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) to obtain a surety bond, it has not finalized procedures for recovering overpayments to DMEPOS suppliers through surety bonds. CMS has also not recovered any overpayments through surety bonds.

Medicare Part B payments for DMEPOS have been highly vulnerable to fraud and abuse. The ease and low expense of acquiring a supplier number coupled with the potential for high revenue have attracted unscrupulous DMEPOS suppliers to Medicare. To limit Medicare's risk from fraudulent suppliers and ensure that Medicare recovers erroneous payments resulting from fraudulent or abusive billing practices, the Balanced Budget Act of 1997, P.L. 105-33, mandated that nonexempt DMEPOS suppliers must obtain a surety bond in order to receive Medicare billing privileges. On January 2, 2009, CMS published a final rule requiring certain DMEPOS suppliers to obtain a surety bond and provide it to CMS.

Generally, a surety bond enables CMS to recover overpayments (up to the amount of the surety bond) after other standard methods of collection fail. DMEPOS suppliers must obtain a surety bond of no less than $50,000 for each practice location. CMS has the authority to identify suppliers as high risk and require those suppliers to provide bonds at a higher value. To maintain their Medicare billing privileges, new and existing DMEPOS suppliers who were not exempt from this requirement had to provide CMS with a surety bond by October 2, 2009.

Requiring surety bonds is an important program integrity tool that not only limits fraudulent suppliers' access to the program, but also serves as a means for Medicare to guarantee recoupment of some overpayments. Not using this program integrity tool leaves Medicare vulnerable to losses from fraudulent suppliers.