Medicare Program; Additional Supplier Standards

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.

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

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

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