WASHINGTON--The SBA Office of Advocacy has filed a comment letter with CMS urging the agency to improve its analysis of a proposed rule that would require DME suppliers to obtain a $65,000 surety bond. (See HomeCare Monday, July 30.)

The Advocacy said it had been approached by representatives from small DME companies who were concerned that CMS had not adequately analyzed how the regulation would impact their businesses.

In a Sept. 13 letter addressed to CMS Acting Administrator Kerry Weems, the SBA Advocacy said "those stakeholders argue:

--that CMS has failed to take into account the effect of cumulative regulations on the industry;
--that CMS failed to appreciate and analyze the economically burdensome nature of this regulation on the small suppliers;
--that there are reasonable alternatives to the rulemaking that would help mitigate the burdensome nature of the rule on small suppliers;
--that the rule gives large DME suppliers a competitive advantage over small suppliers;
--and that in light of other proposed and/or final regulations on the DME industry (e.g., the DME competitive bidding rule and accreditation rule) this rule will force many of the small suppliers out of business."

In a HomeCare Web poll last month, 70 percent of those participating said the $65,000 bond proposal was a bad idea: 45 percent said they were honest providers but couldn't afford the additional costs, and another 25 percent said they thought government contractors should be held accountable for rooting out fraud. Only 30 percent of those responding to the poll said they thought the surety bond was a good idea; 15 percent of those said it would keep sham companies out of the industry.

The Advocacy letter points out that in the rule's preamble, "CMS acknowledges that of the approximately 116,500 individual DME suppliers, a large number will either not recoup their bond cost, or will decide to forgo their Medicare enrollment as a supplier. CMS calculates that if the rule is implemented 15,000 DME suppliers (suppliers affiliated with chain business entities) and 17, 471 individual DME suppliers currently enrolled in Medicare could decide to cease providing items to Medicare beneficiaries. CMS also admits that Medicare beneficiaries will be directly affected by small DME suppliers' decision to leave the program ...

"It is obvious that it will be more difficult for small suppliers to absorb the cost of the bond than it will be for larger suppliers," the letter goes on. "Allowing a significant percentage of businesses to disappear from an industry that is largely populated by small entities is tantamount to sectioning the market into those who can afford the bond and those who cannot. This market manipulation is based less on the rule's public policy objective of preventing fraud and more on the affected small businesses' economic ability to pay for the bond."

Based on discussion with industry sources and its analysis of the rule, the Advocacy office offered some suggestions for CMS to consider, among them the following:

--CMS should assess whether an increase in the surety bond amount, originally proposed in 1997 at $50,000, "will have any appreciable increase in the benefit from the rule." CMS should consider whether a tiered bond amount, with a lower amount for small suppliers, would meet its regulatory objective.

--"CMS seeks public comment on whether to exempt large, publicly traded chain suppliers from the surety bond requirements. If flexibility exists for these suppliers, CMS cannot in good faith neglect to analyze alternatives that exempt smaller suppliers, or entertain reducing the required bond for those suppliers. Eliminating small suppliers from the industry benefits the larger companies and is anti-competitive."

--"Casting such a wide regulatory net does not assure elimination of the bad actors in the Medicare program. If CMS better analyzed the demographics of those suppliers who are more likely to perpetrate fraud, it might be in a better position to determine which small DME suppliers are not likely to be part of the problem. Any suppliers not deemed to be bad actors should then be both grandfathered into the program and not required to obtain the bond, subject to a lesser bond requirement, or allowed to post one bond for multiple business sites."

--CMS should analyze alternatives to the requirement for annual "audited" financial statements because the costs of obtaining them could be "far in excess of the government's intention with the original legislation."

--"CMS should better analyze how the regulation will affect Medicare beneficiaries in rural areas, many of whom may not have Internet access, and may encounter real difficulty obtaining DME if a significant number of DME suppliers cease to exist."

Access a complete copy of the SBA Advocacy letter.

Comments on CMS' proposed surety bond rule must be submitted by Oct. 1. Comment on the rule electronically, - scroll down to CMS-6006-P.