As we reported to you in our September 27 update (please visit to view this and other previous updates), several dozen comments associated with CMS’s proposed rule for the Medicare Home Health Prospective Payment System (HH PPS) Rate Update for Calendar Year 2011 addressed the so-called “36-month rule” for home health agencies (HHAs) that went into effect in January 2010.

Under the 36-month rule, the provider agreement and Medicare billing privileges do not convey to a new owner if an HHA owner sells, transfers or relinquishes ownership within 36 months after the effective date of Medicare enrollment. Exemptions were proposed by CMS in response to concerns that the rule would have the unintended consequence of harming the business of legitimate HHAs and potentially affecting financing to the industry. Such exemptions included:

  • A publicly-traded company is acquiring another HHA and both entities have submitted cost reports to Medicare for the previous five years;
  • An HHA parent company is undergoing an internal corporate restructuring, such as a merger or consolidation, and the HHA has submitted a cost report to Medicare for the previous five years;
  • The owners of an existing HHA decide to change the existing business structure (e.g., partnership to a limited liability company or sole proprietorship to subchapter S corporation), the individual owners remain the same, and there is no change in majority ownership (i.e., 50 percent or more ownership in the HHA); and
  • The death of an owner who owns a 49 percent or less interest in an HHA (where several individuals and/or organizations are co-owners of an HHA and one of the owners dies).

In response to the comments received in September, CMS revised its exemptions in the final HH PPS rule – which was published in the November 17 Federal Register – to clarify the following:

  • The publicly-traded company exception was expanded to include both public and private HHAs, and the time period for submitting cost reports was reduced to two consecutive years (down from five in the proposed rule);
  • The cost report requirement in the internal corporate restructuring exemption has been eliminated;
  • When an existing HHA’s business structure is changed, there is no longer a requirement that there be no change in majority ownership to meet the exemption; and
  • The death of owner exemption will apply to any owner and will not be based on the above ownership percentage.

CMS also addressed concerns over access to capital and the belief that the 36-month rule would block new investments in the home health industry, therefore causing the costs of the rule to outweigh its benefits to Medicare beneficiaries. In response to such comments, CMS stated, “We disagree with the assertion that the costs of the proposed rule outweigh its benefits. Beyond the issue of ‘certificate mills’ and HHAs’ ‘flipping’ ownership to a third-party, we remain concerned about: (1) The sale or transfer of HHAs that have little or no enterprise value except the Medicare billing number, and (2) new owners entering Medicare without the HHA having to undergo a State survey.”