(a) Definitions. As used in this section, unless the context indicates otherwise—

Assets includes but is not limited to any listing that identifies Medicaid beneficiaries to whom home health services were furnished by a participating or formerly participating HHA.

Participating home health agency means a “home health agency” (HHA) as that term is defined at §440.70(d) of this subchapter.

Surety bond means one or more bonds issued by one or more surety companies under 31 U.S.C. 9304 to 9308 and 31 CFR parts 223, 224, and 225, provided the bond otherwise meets the requirements of this section.

Uncollected overpayment means an “overpayment,” as that term is defined under §433.304 of this subchapter, plus accrued interest, for which the HHA is responsible, that has not been recouped by the Medicaid agency within a time period determined by the Medicaid agency.

(b) Prohibition. FFP is not available in expenditures for home health services under §440.70 of this subchapter unless the home health agency furnishing these services meets the surety bond requirements of paragraphs (c) through (l) of this section.

(c) Basic requirement. Except as provided in paragraph (d) of this section, each HHA that is a Medicaid participating HHA or that seeks to become a Medicaid participating HHA must—

(1) Obtain a surety bond that meets the requirements of this section and instructions issued by the Medicaid agency; and

(2) Furnish a copy of the surety bond to the Medicaid agency.

(d) Requirement waived for Government-operated HHAs. An HHA operated by a Federal, State, local, or tribal government agency is deemed to have provided the Medicaid agency with a comparable surety bond under State law, and is therefore exempt from the requirements of this section if, during the preceding 5 years, the HHA has not had any uncollected overpayments.

(e) Parties to the bond. The surety bond must name the HHA as Principal, the Medicaid agency as Obligee, and the surety company (and its heirs, executors, administrators, successors and assignees, jointly and severally) as Surety.

(f) Authorized Surety and exclusion of surety companies. An HHA may obtain a surety bond required under this section only from an authorized Surety.

(1) An authorized Surety is a surety company that—

(i) Has been issued a Certificate of Authority by the U.S. Department of the Treasury in accordance with 31 U.S.C. 9304 to 9308 and 31 CFR parts 223, 224, and 225 as an acceptable surety on Federal bonds and the Certificate has neither expired nor been revoked;

(ii) Has not been determined by the Medicaid agency to be an unauthorized Surety for the purpose of an HHA obtaining a surety bond under this section; and

(iii) Meets other conditions, as specified by the Medicaid agency.

(2) The Medicaid agency may determine that a surety company is an unauthorized Surety under this section—

(i) If, upon request by the Medicaid agency, the surety company fails to furnish timely confirmation of the issuance of, and the validity and accuracy of information appearing on, a surety bond that an HHA presents to the Medicaid agency that shows the surety company as Surety on the bond;

(ii) If, upon presentation by the Medicaid agency to the surety company of a request for payment on a surety bond and of sufficient evidence to establish the surety company's liability on the bond, the surety company fails to timely pay the Medicaid agency in full the amount requested up to the face amount of the bond; or

(iii) For other good cause.

(3) The Medicaid agency must specify the manner by which public notification of a determination under paragraph (f)(2) of this section is given and the effective date of the determination.

(4) A determination by the Medicaid agency that a surety company is an unauthorized Surety under paragraph (f)(2) of this section—

(i) Has effect only within the State; and

(ii) Is not a debarment, suspension, or exclusion for the purposes of Executive Order No. 12549 (3 CFR 1986 Comp., p. 189).

(g) Amount of the bond—(1) Basic rule. The amount of the surety bond must be $50,000 or 15 percent of the annual Medicaid payments made to the HHA by the Medicaid agency for home health services furnished under this subchapter for which FFP is available, whichever is greater.

(2) Computation of the 15 percent: Participating HHA. The 15 percent is computed by the Medicaid agency on the basis of Medicaid payments made to the HHA for the most recent annual period for which information is available as specified by the Medicaid agency.

(3) Computation of 15 percent: An HHA that seeks to become a participating HHA by obtaining assets or ownership interest. For an HHA that seeks to become a participating HHA by purchasing the assets or the ownership interest of a participating or formerly participating HHA, the 15 percent is computed on the basis of Medicaid payments made by the Medicaid agency to the participating or formerly participating HHA for the most recent annual period as specified by the Medicaid agency.

(4) Computation of 15 percent: Change of ownership. For an HHA that undergoes a change of ownership (as “change of ownership” is defined by the State Medicaid agency) the 15 percent is computed on the basis of Medicaid payments made by the Medicaid agency to the HHA for the most recent annual period as specified by the Medicaid agency.

(5) An HHA that seeks to become a participating HHA without obtaining assets or ownership interest. For an HHA that seeks to become a participating HHA without purchasing the assets or the ownership interest of a participating or formerly participating HHA, the 15 percent computation does not apply.

(6) Exception to the basic rule. If an HHA's overpayment in the most recent annual period exceeds 15 percent, the State Medicaid agency may require the HHA to secure a bond in an amount up to or equal to the amount of the overpayment, provided the amount of the bond is not less than $50,000.

(7) Expiration of the 15 percent provision. For an annual surety bond, or for a rider on a continuous surety bond, that is required to be submitted on or after June 1, 2005, notwithstanding any reference in this section to 15 percent as a basis for determining the amount of the bond, the amount of the bond or rider, as applicable, must be $50,000 or such amount as the Medicaid agency specifies in accordance with paragraph (g)(6) of this section, whichever amount is greater.

(h) Additional requirements of the surety bond. The surety bond that an HHA obtains under this section must meet the following additional requirements:

(1) The bond must guarantee that, upon written demand by the Medicaid agency to the Surety for payment under the bond and the Medicaid agency furnishing to the Surety sufficient evidence to establish the Surety's liability under the bond, the Surety will timely pay the Medicaid agency the amount so demanded, up to the stated amount of the bond.

(2) The bond must provide that the Surety is liable for uncollected overpayments, as defined in paragraph (a), provided such uncollected overpayments are determined during the term of the bond and regardless of when the overpayments took place. Further, the bond must provide that the Surety remains liable if the HHA fails to furnish a subsequent annual bond that meets the requirements of this subpart or fails to furnish a rider for a year for which a rider is required to be submitted, or if the HHA's provider agreement terminates and that the Surety's liability shall be based on the last bond or rider in effect for the HHA, which shall then remain in effect for an additional 2-year period.

(3) The bond must provide that the Surety's liability to the Medicaid agency is not extinguished by any of the following:

(i) Any action by the HHA or the Surety to terminate or limit the scope or term of the bond. The Surety's liability may be extinguished, however, when—

(A) The Surety furnishes the Medicaid agency with notice of such action not later than 10 days after receiving notice from the HHA of action by the HHA to terminate or limit the scope of the bond, or not later than 60 days before the effective date of such action by the Surety; or

(B) The HHA furnishes the Medicaid agency with a new bond that meets the requirements of both this section and the Medicaid agency.

(ii) The Surety's failure to continue to meet the requirements of paragraph (f)(1) of this section or the Medicaid agency's determination that the surety company is an unauthorized surety under paragraph (f)(2) of this section.

(iii) Termination of the HHA's provider agreement described under §431.107 of this subchapter.

(iv) Any action by the Medicaid agency to suspend, offset, or otherwise recover payments to the HHA.

(v) Any action by the HHA to—

(A) Cease operation;

(B) Sell or transfer any assets or ownership interest;

(C) File for bankruptcy; or

(D) Fail to pay the Surety.

(vi) Any fraud, misrepresentation, or negligence by the HHA in obtaining the surety bond or by the Surety (or by the Surety's agent, if any) in issuing the surety bond, except that any fraud, misrepresentation, or negligence by the HHA in identifying to the Surety (or to the Surety's agent) the amount of Medicaid payments upon which the amount of the surety bond is determined shall not cause the Surety's liability to the Medicaid agency to exceed the amount of the bond.

(vii) The HHA's failure to exercise available appeal rights under Medicaid or to assign such rights to the Surety (provided the Medicaid agency permits such rights to be assigned).

(4) The bond must provide that actions under the bond may be brought by the Medicaid agency or by an agent that the Medicaid agency designates.

(i) Term and type of bond—(1) Initial term: Each participating HHA that is not exempted by paragraph (d) of this section must submit to the State Medicaid agency a surety bond for a term beginning January 1, 1998. If an annual bond is submitted for the initial term it must be effective for an annual period specified by the State Medicaid agency.

(2) Type of bond. The type of bond required to be submitted by an HHA, under this section, may be either—

(i) An annual bond (that is, a bond that specifies an effective annual period that corresponds to an annual period specified by the Medicaid agency); or

(ii) A continuous bond (that is, a bond that remains in full force and effect from term to term unless it is terminated or canceled as provided for in the bond or as otherwise provided by law) that is updated by the Surety for a particular period, via the issuance of a “rider,” when the bond amount changes. For the purposes of this section, “Rider” means a notice issued by a Surety that a change to a bond has occurred or will occur. If the HHA has submitted a continuous bond and there is no increase or decrease in the bond amount, no action is necessary by the HHA to submit a rider as long as the continuous bond remains in full force and effect.

(3) HHA that seeks to become a participating HHA.

(i) An HHA that seeks to become a participating HHA must submit a surety bond before a provider agreement described under §431.107 of this subchapter can be entered into.

(ii) An HHA that seeks to become a participating HHA through the purchase or transfer of assets or ownership interest of a participating or formerly participating HHA must also ensure that the surety bond is effective from the date of such purchase or transfer.

(4) Change of ownership. An HHA that undergoes a change of ownership (as “change of ownership” is defined by the State Medicaid agency) must submit the surety bond to the State Medicaid agency by such time and for such term as is specified in the instructions of the State Medicaid agency.

(5) Government-operated HHA that loses its waiver. A government-operated HHA that, as of January 1, 1998, meets the criteria for waiver of the requirements of this section but thereafter is determined by the Medicaid agency to not meet such criteria, must submit a surety bond to the Medicaid agency within 60 days after it receives notice from the Medicaid agency that it does not meet the criteria for waiver.

(6) Change of Surety. An HHA that obtains a replacement surety bond from a different Surety to cover the remaining term of a previously obtained bond must submit the new surety bond to the Medicaid agency within 60 days (or such earlier date as the Medicaid agency may specify) of obtaining the bond from the new Surety for a term specified by the Medicaid agency.

(j) Effect of failure to obtain, maintain, and timely file a surety bond.

(1) The Medicaid agency must terminate the HHA's provider agreement if the HHA fails to obtain, file timely, and maintain a surety bond in accordance with this section and the Medicaid agency's instructions.

(2) The Medicaid agency must refuse to enter into a provider agreement with an HHA if an HHA seeking to become a participating HHA fails to obtain and file timely a surety bond in accordance with this section and instructions issued by the State Medicaid agency.

(k) Evidence of compliance.

(1) The Medicaid agency may at any time require an HHA to make a specific showing of being in compliance with the requirements of this section and may require the HHA to submit such additional evidence as the Medicaid agency considers sufficient to demonstrate the HHA's compliance.

(2) The Medicaid agency may terminate the HHA's provider agreement or refuse to enter into a provider agreement if an HHA fails to timely furnish sufficient evidence at the Medicaid agency's request to demonstrate compliance with the requirements of this section.

(l) Surety's standing to appeal Medicaid determinations. The Medicaid agency must establish procedures for granting appeal rights to Sureties.

(m) Effect of conditions of payment. If a Surety has paid the Medicaid agency an amount on the basis of liability incurred under a bond obtained by an HHA under this section, and the Medicaid agency subsequently collects from the HHA, in whole or in part, on such overpayment that was the basis for the Surety's liability, the Medicaid agency must reimburse the Surety such amount as the Medicaid agency collected from the HHA, up to the amount paid by the Surety to the Medicaid agency, provided the Surety has no other liability under the bond.

[63 FR 310, Jan. 5, 1998, as amended at 63 FR 10731, Mar. 4, 1998; 63 FR 29654, June 1, 1998; 63 FR 41170, July 31, 1998]