The Center for Medicare and Medicaid Services (CMS) recently issued a policy memorandum to state survey agency (SSA) directors regarding the effect of rejecting a Medicare agreement in connection with the acquisition of a Medicare participating provider. The existing Medicare agreement and CMS certification number is automatically assigned to the new owner when a Medicare provider is acquired, unless it is rejected. Automatic assignment allows new owners uninterrupted participation in the Medicare program, and unless there is a concern about the quality of care, there is no required survey as a result of the change of ownership (CHOW).

Although automatic assignment of Medicare agreements are operationally beneficial to new owners, it exposes them to liabilities associated with overpayments and assessed civil monetary penalties resulting from prior actions of sellers. New owners, however, can reject existing Medicare agreements to avoid successor liability. If a purchaser rejects the Medicare agreement in connection with an ownership change, the new owner must satisfy the Medicare participation requirements, including a full unannounced survey by the applicable SSA. The time involved with completing the initial application process likely means there will be a lapse in Medicare participation and therefore payments.

Assignment of the Medicare agreement protects the Medicare Trust Fund by allowing CMS to hold the new owners responsible for the seller's liabilities. However, the agency's ability to obtain this successor liability protection is undermined if providers can quickly obtain initial surveys following the rejection of a Medicare agreement. CMS was concerned that some SSAs shortened the timeframes for initial surveys and/or deviated from CMS policy requiring unannounced surveys. Such practices have the effect of significantly shortening the period during which no Medicare payments will be made to the new provider and reducing the financial impact upon new owners that reject assignment. Thus, a new owner may be encouraged to reject assignment to avoid successor liability, since the lapse in Medicare payments and financial implications may not be significant.

The policy memorandum strengthens the requirements that SSAs must follow when new owners reject assignment and limits the ability of SSAs to shorten the time period for the initial survey. The new policy, for example, requires that:

  • The initial survey cannot be conducted until after the acquisition is complete, the facility is under new ownership and is fully operational and providing services to patients.
  • The initial survey cannot be conducted until the applicable Medicare Administrative Contractor recommends approval of the new owner's enrollment application.
  • The initial survey must be a full, standard survey and must be unannounced. Initial surveys that take place shortly after the acquisition date may suggest discussions and planning with the new owner.
  • Surveys that occur close to the acquisition date could warrant closer scrutiny by CMS regional offices.
  • SSAs must first demonstrate that they can complete all higher priority surveys, such as complaint investigations and recertifications. The initial surveys should be completed in addition to, and not instead of, the higher priority workload.