Healthcare Licensing and Certificates of Need in M&A

A healthcare acquisition can involve several separate regulatory workstreams. A facility license, a certificate of need, a controlled-substance registration, laboratory certification, accreditation, and payer enrollment answer different questions. The parties need to identify which authorizations apply to the actual services and transaction, who holds them, and what must happen before or after closing.

Start with the target's legal entities, facilities, services, and registrations. Then compare the proposed structure with the rules of each issuing authority. An asset sale and an equity sale can raise different questions, and a state requirement for one facility type should not be assumed to apply to another. Healthcare regulatory counsel and the relevant agencies can help determine the steps for the particular transaction.

Map the facilities, entities, and authorizations

Create an inventory for each site. Record the legal name of the holder, facility address, services provided, license or certificate number, issuing authority, expiration date, and any conditions. Identify the entity that employs clinicians, holds leases, operates the laboratory, handles controlled substances, and bills each payer. An organizational chart is a starting point; compare it with the underlying documents and operating records.

Identify the transaction and responsible parties

Describe what will change at closing: the legal owner of an entity, the entity operating the facility, the assets being transferred, the facility location, or the services offered. The answer affects which authorities need notice or applications. Ask counsel to determine how the applicable law defines the relevant change of ownership and whether the same transaction is treated differently by different programs.

Assign an owner for each workstream. The target's licensing team may know the existing documents, while the buyer must provide information about its proposed ownership and operations. Anticipate questions from state agencies, accrediting organizations, Medicare contractors, payers, and other authorities where they apply. Keep submissions and agency responses in a shared transaction checklist.

Separate a filing from permission to operate

A submitted application, a notice, an approval, and an effective operating authorization are different events. For each item, identify what action is required, whether a decision is needed before closing, who will receive the response, and what evidence will be supplied to the closing team. Avoid treating a projected processing time as an approval. If an item remains open, counsel and the parties should assess the contractual and operational options under the applicable rules.

Review state facility licenses

State licensing requirements depend on the jurisdiction, facility type, services, and proposed change. A hospital, ambulatory surgery center, nursing facility, laboratory, and pharmacy may be regulated under different frameworks. The starting questions are which entity holds the current license, what change is proposed, and what the issuing agency requires for that change.

Ask the licensing authority about the specific structure

Identify the controlling statute, regulations, application materials, and agency contacts for each facility. Determine whether the transaction calls for advance notice, approval, an application by a new operator, an update to existing information, or another procedure. Confirm the required timing and documents with qualified local counsel and the authority. The answer may turn on whether the licensed entity remains in place or a different entity will operate the site.

Collect the existing license, inspection and survey history, pending corrective actions, and correspondence relevant to the transaction. Compare the authorized services and location with the buyer's operating plan. If the buyer proposes a new service or a physical change, analyze that proposal separately from the ownership transaction. A change in business plans can create a different regulatory question from the purchase itself.

Build a decision record

For every license, record the agency's stated requirements and the legal basis for the team's conclusion. Include the application owner, any prerequisite, expected decision point, and closing dependency. If the answer is uncertain, flag the issue for counsel rather than using the same process for all facilities. Update the purchase agreement checklist when an agency identifies a condition or a required document.

Determine whether certificate of need review applies

Certificate of need, or CON, programs are state-specific. A state may regulate particular facilities, services, projects, expenditures, or changes in ownership, and the treatment of a proposed acquisition depends on its own law. The existence of a CON program alone does not establish that every facility purchase in that state requires a new certificate or transfer application.

Ask the state-specific questions

Identify the facility and service, the transaction structure, any proposed expansion, and the state authority responsible for review. Counsel should check the current statute, regulations, agency guidance and existing approvals. Determine whether the acquisition itself, a change in operator, a service change, or a planned capital project is reviewable. If a notice, exemption, determination, or application is needed, confirm the applicable procedure and evidence with the agency.

Review conditions attached to existing approvals and determine whether the proposed operator must satisfy or amend them. Consider the relationship between CON review and facility licensure, but keep them as separate workstreams. A facility license does not by itself answer whether a planned project is subject to CON review, and a CON determination does not replace the separate licensing analysis.

Reflect the answer in the agreement

Where an approval or determination affects the transaction, the parties can address who prepares submissions, supplies information, pays costs, and communicates with the authority. Consider how the closing condition and outside date interact with the regulatory process. If the proposed operating plan changes, reassess the analysis and update the schedule rather than assuming the original conclusion covers the new plan.

Plan controlled-substance registration

A facility that handles controlled substances must assess the DEA registration and any applicable state requirements for the activities it will perform. Identify the current registrant, registered location, authorized activity, controlled substances on hand, and the proposed post-closing operator. Controlled-substance handling should be coordinated with specialist counsel and the DEA before the transaction is implemented.

21 CFR 1301.52 addresses termination and transfer of registration. It provides that a registration or its authority may be transferred only under DEA-designated conditions and with written consent. It also describes notice and inventory requirements for certain transfers of business activities and controlled substances. The provision's details and other applicable requirements must be reviewed for the actual transaction.

Do not assume that a change in ownership automatically gives the buyer the seller's authority or that a universal interim period permits operation. The termination result depends on the transaction and applicable rules. Ask the DEA and counsel about the proposed structure, registration status, required request or application, timing, inventories, and recordkeeping. Agree who will remain responsible for the controlled substances and their records at each stage.

Review CLIA certification for laboratory testing

If a facility performs laboratory testing, identify each laboratory, its location, certificate type, director, test menu, and legal owner. Determine whether the proposed transaction changes ownership, tax identification, location, director, or the tests performed. A certificate and a change-of-ownership procedure should be reviewed in the context of the laboratory's actual operations.

Contact the appropriate State Agency

CMS's CLIA certification guide directs laboratories to notify the State Agency within 30 days of specified changes, including ownership changes affecting the tax identification number. CMS's CLIA quick-start guide also lists ownership notification for certificate types and notes that an accrediting organization may need notice where applicable. Confirm the current requirement, timing, and recipient for the laboratory and certificate at issue.

Ask the State Agency how the proposed change affects the laboratory's certificate and what documentation it needs. CMS's application guidance explains how to apply and directs applicants to the appropriate State Agency. Confirm the authority to operate during any unresolved transition. Obtain specific guidance and incorporate the answer into the closing plan.

Match the test menu to the certificate

The buyer should understand which tests the laboratory performs and whether the certificate category remains appropriate for the planned menu. A change in ownership and a change in testing may raise distinct issues. Assign responsibility for any notice or application and confirm who will maintain records, supervise testing, and communicate with the agency during the transition.

Coordinate accreditation and Medicare enrollment

Accreditation and Medicare participation are separate from state licensure. CMS explains that accreditation by a CMS-approved program can be used to demonstrate compliance with certain Medicare conditions, a status commonly called deemed status. See CMS's accrediting organization overview.

For a proposed ownership change, ask the accrediting organization and CMS about the specific provider, the proposed transaction, notification, survey and accreditation decisions. Do not presume that accreditation automatically transfers, that deemed status always lapses, or that a particular survey is unavoidable. CMS's change-of-ownership guidance describes scenarios that depend on the new owner's treatment of the provider agreement and the accreditor's decision. Confirm current agency guidance before relying on an older memorandum.

Medicare enrollment also requires analysis of provider type and transaction structure. The CMS enrollment application directory identifies forms for different providers and suppliers. Determine with the Medicare Administrative Contractor and counsel which application or update applies and how any provider agreement will be treated. Medicaid and commercial payer arrangements require separate review under their own rules and contracts.

Review 340B status and other program participation

If the target participates in the 340B Drug Pricing Program, identify the registered covered entity, eligibility category, affected locations, and the proposed ownership or operational change. HRSA's registration guidance explains that covered entities register so eligibility can be verified. The 340B OPAIS help describes change requests for covered-entity records.

The correct action depends on the entity, eligibility, and change. Consult HRSA guidance and qualified counsel about whether an update, new registration, or other step is needed and when participation is effective. An acquisition agreement alone does not establish that the buyer may use the seller's program status. Include pharmacy purchasing, vendor arrangements, and related financial assumptions in the transaction review.

Connect regulatory work to closing and operations

A closing checklist should show the legal entity, facility, authority, action, evidence of completion, and owner for each workstream. Distinguish required pre-closing approvals from notices or work that can occur later. Track dependencies such as a state license needed for a registration application or an operating plan needed for a payer review. Ask responsible advisers to identify uncertainty and update the parties when an agency response changes the schedule.

The purchase agreement can assign responsibility for submissions, cooperation, costs, closing conditions, and records. It should also address what happens if an approval is delayed or a proposed operating arrangement changes. Those provisions allocate responsibilities between the parties; a required agency authorization remains separate. Coordinate the legal work with finance, operations, clinical leadership, and the people who will run the facility after closing.

For the broader transaction context, see the Healthcare M&A Legal Guide, the M&A Due Diligence Checklist, Asset Purchase vs. Stock Purchase, and the Representations and Warranties Insurance Guide.

Frequently asked questions

Does every healthcare acquisition require a new facility license?

The answer depends on the jurisdiction, facility type, licensed entity, and proposed transaction. Identify the current license holder and ask qualified counsel and the issuing agency which notice, application, or approval applies.

Does a CON state require approval for every acquisition?

Not necessarily. State CON programs cover different facilities, services, projects and changes. Review the current state law and the specific acquisition and operating plan.

Can a DEA registration be transferred?

Federal regulation permits transfer only under conditions designated by DEA and with its written consent. The proposed activity, parties, location, controlled-substance inventory, and other applicable requirements need specific review.

Where should a laboratory report a CLIA ownership change?

CMS guidance directs laboratories to the appropriate State Agency for specified ownership changes. The details depend on the change and certificate. Confirm current requirements with the State Agency and any applicable accrediting organization.