On January 1, 2010, new regulations at 42 CFR §424.550 governing changes of ownership of home health agencies went into effect. These regulations require that a buyer enter into a new Medicare provider agreement and undergo a new survey upon a change of ownership of a home health agency, if the change of ownership occurs within 36 months of the home health agency’s initial certification, or within 36 months of a prior change of ownership. The practical effect of these new regulations preclude some previously permissible transactions due to the inability of the home health agency to transfer the existing home health agency Medicare provider number (which is most often the process with a change of ownership of other Part A providers), leading to the buyer’s loss of revenue from the effective date of the change of ownership until the buyer is able to obtain Medicare certification.

During 2010, Centers for Medicare & Medicaid Services (CMS) issued a transmittal (which was subsequently rescinded) and an MLN Matters article attempting to further clarify the regulations. On July 23, 2010, CMS published the home health prospective payment system rule for 2011, which included further proposed changes to the newly implemented regulations.

On November 2, 2011, CMS published the final home health prospective payment system rule for 2011, which includes revisions to the regulations concerning the 36-month rule. The regulations clarify that a change of ownership applies to a “change in majority ownership” of a home health agency within 36 months after initial Medicare certification, or within 36 months after a change in a majority ownership.

A change in majority ownership is defined as an occasion “when an individual or organization acquires more than a 50 percent direct ownership interest in an HHA during the 36 months following the HHA’s initial enrollment into the Medicare program or the 36 months following the HHA’s most recent change in majority ownership (including asset sale, stock transfer, merger, and consolidation). This includes an individual or organization that acquires majority ownership in an HHA through the cumulative effect of asset sales, stock transfers, consolidations, or mergers during the 36-month period after Medicare billing privileges are conveyed or the 36-month period following the HHA’s most recent change in majority ownership.” CMS has clarified that the 36-month rule applies to a “50 percent direct ownership interest” and not to changes in indirect ownership interests. owever, CMS has stated that it will continue to analyze and monitor this issue, and may make further revisions in future rulemaking.

In response to comments received to the proposed rule, CMS has clarified and revised the exceptions to 36-month rule change of ownership requirements. A home health agency will not be subject to the 36-month rule (and the requirement to obtain a new initial certification) if any of the following exceptions are met:

  1. The home health agency submitted two consecutive years of full (not low utilization or no utilization) cost reports;
  2. The HHA’s parent company is undergoing an internal corporate restructuring;
  3. The owners of the existing home health agency are changing the home health agency’s business structure and the owners remain the same; or
  4. An individual owner of a home health agency dies.