Effective January 1, 2010, a federal regulation was adopted that prohibited the transfer of an interest in a home healthcare company that had its provider number less than 36 months. Shortly thereafter, the Centers for Medicare/Medicaid Services (CMS) issued a transmittal in an attempt to provide guidance as to how this new rule would be implemented. These rules were aimed at preventing the “certificate mill” whereby individuals established a home healthcare agency with the sole intention of flipping such agency upon obtaining the provider number at a significant profit. The 36 Month Rule however, created other problems not contemplated when the restrictions were adopted (what happens in the event of the death of an owner or legitimate restructuring by the owners of the home healthcare company). In the face of these problems, CMS received numerous complaints and/or comments regarding the difficulty with the new rule and the uncertainty that existed. CMS then rescinded its transmittal.

Following the rescission of the transmittal, CMS issued statements to any inquiries that the 36 Month Rule would only be applied in the event of a transfer of a 100% interest in a home healthcare company. Any transfer less than the full amount would be governed under the prior rules, or in other words treated as a “change in information.” A transfer of 100% of the ownership would require the purchaser to undergo their own enrollment and/or state survey.

Currently under consideration are new proposed rules intended to provide further explanation and guidance with respect to the 36 Month Rule. Under consideration are certain exceptions to the applicability of the rule for (1) publicly traded companies, (2) corporate restructuring, or (3) to situations where an owner dies who owns less than 49%. In addition, under consideration is a change in the definition in a “change of majority ownership” to mean a change of greater than 50% of the interest in the home healthcare company. In other words, if the proposed rules are adopted, the 36 Month Rule would apply to any transfer of 50% or more of the ownership interest in a home healthcare company during its first 36 months after enrollment. Further, the purchaser, if triggered, would have to undergo their own enrollment. The rule would apply to both a single transaction, or a series of transactions with a cumulative effect to constitute a 50% or greater transfer. We expect this rule to become final in the near future, most likely effective beginning in 2011. However, there is a chance it could become effective sooner.

We will continue to monitor these developments, including if and when the new rules become effective.