This article is the sixth installment of our Surety EDU series, which is brought to you by nationwide surety bond agency SuretyBonds.com. Check back next Friday for another in-depth look into how surety bonds work.
Unfortunately, countless instances of fraud and malpractice have been a part of the pharmaceutical industry since its inception. This troubling trend continues to plague the current market. To counter these problems, government agencies try to regulate the industry in ways that keep consumers from being harmed by unethical professionals. They do so by reinforcing existing laws and developing new DMEPOS regulations. One significant way the government strives to limit pharmaceutical fraud is by enforcing surety bond requirements for those who supply DMEPOS products.
The Background Story
In 2009, the Centers for Medicare and Medicaid created a new federal surety bond requirement for all manufacturers and suppliers of durable medical equipment, prosthetics, orthotics and supplies (otherwise known as DMEPOS). These bonds are most commonly called “DMEPOS bonds” or “Medicare bonds.” Before we discuss DMEPOS bonds and how they affect the pharmaceutical industry, we should address how surety bonds work and why so many government agencies require them.
Surety Bond Basics
A basic definition explains that each surety bond that’s issued functions as a legally binding contract that brings three parties together.
- The obligee is the party that requires the bond to protect consumers form financial loss and other harm. With DMEPOS bonds, the Centers for Medicare and Medicaid require suppliers to get bonded to limit financial fraud within the health care industry.
- The principal is the party that purchases the bond to guarantee they will complete a specific task. With DMEPOS bonds, suppliers act as principals promising to bill Medicare ethically.
- The surety is the insurance company that issues the bond. By issuing a DMEPOS bond, the surety promises CMS that the supplier will bill Medicare appropriately and without fraud.
As with other surety bond types, the financial protection provided by Medicare bonds is used to protect consumers from any potential wrongdoing that businesses might commit. If a pharmacy or other DMEPOS supplier breaks the bond’s terms and a valid claim is made, the surety must pay reparation to the harmed party.
Pharmacy Professionals and DMEPOS Bonds
Pharmacies that are enrolled as DMEPOS suppliers with the National Supplier Clearinghouse (NSC) and bill the Durable Medical Equipment Medicare Administrative Contractor (DME MAC, formerly a DMERC) for unaccredited products — including Epoetin, immunosuppressive drugs, infusion drugs, nebulizer drugs or oral anticancer drugs — must also file the $50,000 bond.
The pharmaceutical industry heavily lobbied against being included in the federal DMEPOS bond requirements, but the group was unsuccessful as CMS ultimately decided to include pharmacies in the final law. Some suppliers can be exempted from the bond requirement if they meet certain qualifications, but pharmacies are not permitted to apply for exemptions. As such, pharmacies must undergo the same surety bond application process do other suppliers of DMEPOS products.
If any adverse legal action has been taken against a pharmacy in the 10 years prior to enrolling in the DMEPOS program, it will be required to provide an additional $50,000 surety bond. Adverse legal actions include, but are not limited to:
- being convicted of a felony
- being excluded from a federal or state health care program
- having a license suspended or revoked
- losing accreditation or having accreditation suspended
- losing Medicare billing privileges
As with other surety bond types, Medicare bonds are often considered nothing more than red tape that pharmacies have to deal with if they want to stay in the government’s good graces. However, the protection DMEPOS bonds provide consumers with is invaluable.