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Final Change of Ownership (CHOW) Rules for Home HealthAgencies 

Source: www.healthlaw-blog.com

On November 17, 2010, the Center for Medicare and Medicaid Services issued final Home Health PPS rate updates for the year 2011.  The regulations included final rules regarding the “36 Month” rule that is applicable to changes of ownership of home health agencies. This rule is commonly referred to as the “CHOW” rule. CMS initially proposed the home health change of ownership rule in 2010. The proposed rule applies if a home health agency owner sells, transfers or relinquishes ownership of the agency within 36 months after the initial enrollment in Medicare.  In the event of a transfer within the 36 month period, the provider agreement and Medicare billing privileges cannot be transferred to the new owner. Instead, the new owner of the agency must enroll as a new Medicare provider and obtain a new accreditation or state survey.

 

CMS initially proposed the home health CHOW rules primarily due to its concerns over home health agency “flipping.”  HHA flipping involves entrepreneurs who apply for Medicare certification, undergo a survey, and become enrolled in Medicare.  Once enrolled in Medicare, the owner immediately sells the home health agency. In effect, the original owner acts as a broker and enrolls in the Medicare program for the sole purpose of selling the certified home health agency for a profit as opposed to continuing to operate the agency as a going concern.  CMS was concerned that this practice allows a purchaser of an HHA to enter the Medicare program through the back door by change of ownership without having to undergo initial surveys and steps to meet the conditions of participation. CMS considered this to be a circumvention of the State survey process.

 

The home health change of ownership rules provide that if an owner of a home health agency sells, transfers or relinquishes ownership within 36 months after the effective date agency’s initial enrollment in Medicare, the provider agreement and Medicare billing privileges do not convey to the new owner.   Instead, the new owner is required to apply to become a new provider under Medicare and must go through the survey or accreditation process.

 

The rule applies to changes in majority ownership.   ‘‘Change in majority ownership’’ means when an individual or organization
acquires more than a 50 percent interest in an agency during the 36 months following its initial enrollment into the Medicare program or a change of ownership (including asset sales, stock transfers, mergers, or consolidations). This would include an individual or organization that acquires majority ownership in an agency through the cumulative effect of asset sales, stock transfers, consolidations, and mergers during a 36 month period.

 

There are several exceptions to the 36 month change of ownership rule and the regulations should be examined in detail if you are contemplating the transfer of a home health agency.  Some of the exceptions include situations where the home health agency has submitted 2 consecutive years of full cost reports that show significant utilization as defined in the regulations, where an owner is simply changing business structure, or where the transfer occurs as a result of the death of an individual owner.

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