Health Care Law Blog

Planning for CHOWs of Home Health Agencies and the 36-Month Rule

Due to regulatory and reimbursement constraints, health care providers are increasingly merging, affiliating, and acquiring other health care entities. In these transactions, the Medicare providers must identify whether a Medicare change of ownership (“CHOW”) will occur. Although it may appear, from a business standpoint, that a change of ownership will occur, the transaction may not necessarily be considered a CHOW for Medicare. Essentially, if the person or entity with ultimate responsibility for the provider changes, typically there will be a Medicare CHOW. Sometimes, but not always, this will be indicated by whether there has been a change in the taxpayer identification number.

CHOWs impact the Medicare provider agreement involved in the sale. Unless the buyer takes steps to affirmatively reject the seller's provider agreement, in a Medicare CHOW, the seller's provider agreement is automatically assigned to the buyer. This provides billing advantages for the buyer without having to enroll as a new Medicare provider, go through the initial enrollment process, and be re-surveyed or re-accredited, which takes several months.  

Asset purchases are generally considered CHOWs. In contrast, stock purchases, corporate membership transfers, and other transactions where providers will operate under the same taxpayer identification number pre- and post-transaction are typically not considered CHOWs, but simply Medicare “changes of information."

CMS imposes additional restrictions on the transfer of a home health agency (“HHA”). These restrictions were put in place because CMS had concerns about the “flipping” of HHAs. In the past, a significant number of HHAs were attempting to participate in a practice referred to as a “certificate mill.” In this situation, an HHA applies for Medicare certification, undergoes a survey, and becomes enrolled in Medicare, but then is immediately sold, without having actually set up a legitimate business for the purpose of serving patients. Therefore, CMS imposed additional restrictions on the transfer of HHAs to curb this practice.

Under the so-called “36-month rule," in general, if there is a change in majority ownership of an HHA by sale (including asset sales, stock transfers, mergers and consolidations) within 36 months after the effective date of the HHA’s initial enrollment in Medicare or within 36 months after the HHA’s most recent change in majority ownership, the provider agreement and Medicare billing privileges do not convey to the new owner. Instead, the prospective owner of the home health agency must enroll in the Medicare program as a new HHA and obtain a state survey or accreditation from an approved accreditation organization. This may cause unexpected delays the parties did not anticipate.

However, four helpful exceptions to this rule apply when:

1. The HHA submitted two consecutive years of full cost reports;
2. An HHA’s parent company is undergoing an internal corporate restructuring, such as a merger or consolidation;
3. The owners of an existing HHA are changing the HHA’s existing business structure and the owners remain the same; or
4. An individual owner of a home health agency dies.

Moreover, CMS has indicated that indirect changes in majority ownership do not trigger the 36-month rule.

Because of these exceptions and the fact that the rule does not apply to indirect changes in majority ownership, planning opportunities exist so that a CHOW may not be triggered. For instance, indirect changes or changes made at the parent level, if properly executed, will not trigger the 36 month rule at the HHA level. These rules are very technical, so the proposed transfer must be studied carefully prior to the transaction, to ensure that the intended result under the Medicare regulations is obtained.

If you have any questions about how these rules may impact the sale of your HHA, please contact me.

Categories: Compliance, Medicare/Medicaid, Providers