In the past, an owner of a Home Health Agency (HHA) was free to transfer their ownership interest in such entity without concern of having the purchaser have to undergo a survey and/or accreditation. Any transfer of stock in HHA merely was reported to Medicare as a “change of information,” and not a “change of ownership.” A “change of ownership” was limited to a merger of one entity into an entirely different entity with different employer identification number, or an asset purchase.

Effective January 1, 2010, the Code of Federal Regulations was changed to create a restriction in the ability of an owner of a home health care agency to transfer their ownership interest. This has come to be known as the “36 month rule.” The new regulation provided the following:

If an owner of a HHA sells (including asset sales or stock transfers), transfers or relinquishes ownership of the HHA within 36 months after the effective date of the HHA’s enrollment in Medicare, the provider agreement and the Medicare billing privileges do not convey to the new owner. The perspective provider/owner of the HHA must instead: (i) enroll in the Medicare program as a new HHA under the provisions of Section 424.510, and (ii) obtain a state survey or an accreditation from an approved accreditation organization.

After the adoption of the new regulation, Medicare issued a transmittal providing guidance for the implementation of the new regulation. Transmittal 318 (“transmittal”) expanded the scope of the “36 month rule.” In particular, the transmittal provided that a HHA may not undergo a change of ownership if the effective date of said change occurs within 36 months after (1) the effective date of the provider’s enrollment in Medicare, or (2) the effective date of the last ownership change of the HHA. The transmittal provided that an “ownership change” included the traditional CHOW as well as change request reporting a 5% or greater ownership change (e.g. stock transfer, asset sale). Transmittal 318 created several questions and posed different problems for any party looking to transfer ownership in a HHA. The transmittal and the “36 month rule” also created other open questions such as how to treat the shares of stock of a deceased shareholder or how to treat the shares of stock that are redeemed by a corporation (not transferred to another third party).

In the face of such controversy, Medicare recently rescinded Transmittal 318. Therefore, at this time the additional restrictions and language of the Transmittal are no longer applicable. It is very important to understand however, the “36 month rule” is still applicable to HHAs. Accordingly, at this time, if an owner wishes to sell their stock in a HHA within 36 months within the date of enrollment, the purchaser must undergo their own survey. It appears that any transfer of stock of a HHA cannot take place until after the agency has had its enrollment effective for 36 months.

It is expected that a new transmittal will be issued sometime in the near future. Hopefully such transmittal will answer questions such as how to deal with shares of a deceased shareholder and how to handle a situation where the stock is redeemed by the corporation rather than transferred to a third party.

If you have any questions regarding this e-Newsletter article or Home Health Care in general, please contact me at tmcginn@lavellelaw.com.