Healthcare Licensing and Certificates of Need in M&A Transactions

Healthcare M&A transactions carry a regulatory burden that general commercial acquisitions do not. When a buyer acquires a hospital, ambulatory surgery center, nursing facility, home health agency, clinical laboratory, or pharmacy, it is not simply purchasing assets or equity. It is stepping into a web of facility-specific licenses, certificates, registrations, accreditations, and program designations that govern the legal authority to operate, to bill government payors, and to handle regulated products. Each of those authorizations exists in the name of the current owner and does not automatically vest in the buyer at closing.

This sub-article is part of the Healthcare M&A Legal Guide. It addresses the full spectrum of licensing and regulatory transfer requirements in healthcare acquisitions: state facility licensure by facility type, state medical board reciprocity and transfer, DEA Controlled Substances Act registration, state board of pharmacy requirements, change of ownership reporting by facility type, CLIA certificate transfer, the certificate of need framework and which states and service types it covers, the CON application and public notice process, CON transfer versus new issuance, state-specific CON thresholds, accreditation by Joint Commission, DNV, and CIHQ, Medicare deemed status, provider-based billing and hospital outpatient department rules, 340B covered entity transfer, workforce credentialing timelines, and the critical task of coordinating all of these workstreams against a single closing date.

Acquisition Stars advises buyers and sellers in healthcare facility acquisitions on regulatory diligence, licensure strategy, CON analysis, and closing timeline coordination. Nothing in this article constitutes legal advice for any specific transaction or facility.

Facility Licensure Overview by Facility Type

Every category of healthcare facility operates under a state-issued license that authorizes the facility to provide specific services to patients. Licensure is facility-specific and entity-specific. When ownership changes, the license held by the seller does not carry over to the buyer. The buyer must either obtain a new license or, in states that permit it, apply for a change of ownership endorsement that results in the existing license being reissued in the buyer's name. Either process requires a formal application, a state agency review, and in many cases an on-site inspection before the new license is issued.

Hospitals are licensed under state hospital licensure statutes that specify the bed capacity, service lines, physical plant standards, and staffing requirements the facility must maintain. A change of hospital ownership requires prior notice to the state health department and, in most states, prior approval before the facility can operate under the new owner's name. Hospital licensure applications require disclosure of the acquiring entity's ownership structure, financial capacity, and compliance history, and some states require public hearings or community benefit reviews as part of the licensure CHOW process.

Ambulatory surgery centers are licensed under state ASC or outpatient surgical facility statutes, which set standards for surgical suite configuration, anesthesia services, infection control, and patient discharge planning. ASC licensure change of ownership processes are generally less involved than hospital licensure transfers, but they still require agency notification, application, and in many states an on-site survey. Nursing homes and skilled nursing facilities are licensed under state nursing facility statutes and are subject to both state licensure change of ownership requirements and federal Medicare and Medicaid CHOW notification obligations. Home health agencies, hospices, clinical laboratories, and pharmacies each operate under separate licensure frameworks that vary by state and must be analyzed individually for every facility in the transaction.

State Medical Board Reciprocity and License Transfer

Individual practitioner licenses issued by state medical boards, nursing boards, and other professional licensing authorities govern the right of physicians, advanced practice registered nurses, physician assistants, and other licensed professionals to practice in a given state. These licenses are personal to the individual practitioner and are not affected by a change in facility ownership. However, a healthcare acquisition that involves the employment or engagement of practitioners who are not already licensed in the target facility's state requires those practitioners to obtain state licensure before they can legally provide clinical services at the acquired facility.

The Interstate Medical Licensure Compact, which as of 2026 includes the majority of US states, provides an expedited pathway for physicians licensed in a Compact member state to obtain licensure in other member states. Rather than filing a complete new application in each state, a Compact-eligible physician can designate a state of principal licensure and apply for expedited licensure in other member states through a streamlined process. This pathway can reduce the physician licensure timeline from several months to a matter of weeks in participating states, which is relevant in acquisitions where the buyer plans to deploy employed physicians from existing operations into the acquired facility.

Similar compact arrangements exist for nurses (the Nurse Licensure Compact), physical therapists (the Physical Therapy Licensure Compact), and other licensed professions. Healthcare buyers acquiring facilities in states where their current workforce is not licensed should assess compact eligibility for each affected professional category during due diligence. Non-compact states require full independent licensure applications, which can take 60 to 120 days or longer and may include examination requirements, background check processing, and board review cycles that cannot be accelerated.

DEA Controlled Substances Act Registration Transfer

The Drug Enforcement Administration issues Controlled Substances Act registrations to individual practitioners and to facilities, authorizing the registrant to handle, dispense, prescribe, manufacture, or distribute controlled substances in accordance with the registrant's registration category. DEA registrations are non-transferable. When a healthcare facility changes ownership, the acquiring entity must obtain its own DEA registration before it can lawfully conduct controlled substance activities at that facility.

The DEA has established a CHOW protocol under 21 C.F.R. Part 1301 that governs the handling of DEA-registered facilities during a change of ownership. Under this protocol, the new owner must submit a DEA registration application for the facility prior to or immediately following the closing. The DEA allows the new owner to continue operating the facility under the prior registrant's DEA registration for a transition period not to exceed a specified number of days following the closing, provided that the new owner submits a timely and complete registration application. The seller's DEA registration terminates by operation of law upon the change of ownership, and the new owner assumes responsibility for all controlled substance inventories and records at that point.

For hospitals with in-house pharmacies, ASCs with anesthesia programs, and any facility that stores or dispenses Schedule II through V substances, the DEA transition is operationally critical. An interruption in controlled substance handling authority for even a brief period can disrupt surgical schedules, inpatient treatment protocols, and pharmacy dispensing operations. Buyers should initiate the DEA registration application process before closing, coordinate with the seller on inventory documentation and records transfers, and confirm that the DEA has received and processed the new registration application before assuming operational control of controlled substance stores.

State Board of Pharmacy and Change of Ownership Reporting

State boards of pharmacy regulate the licensure of retail pharmacies, hospital pharmacies, mail-order pharmacies, compounding facilities, and specialty pharmacies. Pharmacy licenses are issued to the owner of the pharmacy and are not transferable. A change of pharmacy ownership requires the new owner to apply for a new pharmacy license in each state where the acquired pharmacy operates. State boards of pharmacy have varying pre-approval requirements: some states require the new owner to obtain approval before operating the pharmacy under the new ownership, while others permit the new owner to operate under the prior license for a limited transition period while the new license application is pending.

In addition to state pharmacy licensure, a healthcare acquisition involving pharmacy operations may trigger notification or approval obligations with the pharmacy's drug wholesaler relationships, group purchasing organization agreements, and specialty drug distribution contracts. Many wholesale pharmaceutical distribution agreements include change of control provisions that require the distributor's consent before the buyer can assume the seller's purchasing relationship. A failure to manage wholesaler consent requirements can interrupt the pharmacy's drug supply chain during the post-closing transition period.

Change of ownership reporting requirements for healthcare facilities more broadly vary by facility type and state. Most states require that the existing owner notify the relevant licensing agency of a pending or completed CHOW within a specified window, commonly 30 to 90 days before the anticipated change. Some states require pre-closing approval from the licensing agency as a condition of the transaction, meaning that the acquisition cannot close legally until the agency has issued its approval. Healthcare buyers should identify all applicable CHOW notification and approval requirements across every facility in the target portfolio during the due diligence phase and build the resulting timelines into the closing schedule.

CLIA Certificate Transfer

The Clinical Laboratory Improvement Amendments program, administered by CMS in coordination with the CDC and FDA, establishes quality standards for all laboratory testing performed on human specimens in the United States. Any laboratory that performs testing on human specimens for the purpose of diagnosis, prevention, or treatment of disease must hold a CLIA certificate appropriate to its testing complexity: a certificate of waiver for waived tests, a certificate for provider-performed microscopy, a certificate of compliance for moderate or high complexity testing, or a certificate of accreditation if the laboratory is accredited by an approved accrediting organization.

CLIA certificates are issued to specific laboratories at specific locations and are not transferable between ownership entities. When a clinical laboratory changes ownership, the acquiring entity must notify the appropriate CMS regional office of the CHOW within 30 days of the closing date and must apply for a new CLIA certificate or for reissuance of the existing certificate in the acquiring entity's name. CMS will typically allow the laboratory to continue operating under the prior CLIA certificate for a limited transition period following notification and application, provided that the laboratory continues to meet all applicable CLIA requirements during the transition.

For hospital-based laboratories, health system reference laboratories, and independent clinical labs, CLIA compliance is directly linked to the facility's ability to perform and bill for diagnostic testing. A lapse in CLIA certification, even briefly, can require the laboratory to cease testing operations until the certificate is reinstated, with significant clinical and financial consequences. Buyers acquiring laboratory operations should engage CLIA counsel during due diligence to confirm that the target laboratory is in current compliance, that there are no pending deficiency citations or sanctions, and that the CHOW notification and application process is properly sequenced with the closing date.

Certificate of Need Framework: States, Service Types, and Thresholds

Certificate of need laws require healthcare providers to obtain prior state approval before establishing new facilities, adding new services, or making capital expenditures above specified thresholds. The theoretical basis for CON regulation is that healthcare markets are not efficient markets in the traditional sense, and that unregulated capital investment in healthcare infrastructure can produce excess capacity that drives up costs without improving access or quality. CON programs implement this theory through a planning and approval process that requires applicants to demonstrate that proposed facilities or services are needed in the service area, that they are financially feasible, and that they will not result in unnecessary duplication of existing services.

Approximately 35 states and the District of Columbia currently maintain CON programs, though the scope of what each program covers varies considerably. Common service types subject to CON review include: hospital beds (new construction, addition of licensed beds, or conversion of bed categories); major medical equipment including CT scanners, MRI units, and PET scanners above specified cost thresholds; nursing home beds (new facilities and bed additions); ASCs (new facility construction or establishment, with some states exempting physician-owned ASCs below certain size thresholds); and home health agencies (new agency establishment or service area expansion). Some states also require CON for cardiac catheterization laboratories, lithotripsy equipment, organ transplant programs, and psychiatric and substance use disorder beds.

CON thresholds, which determine what capital expenditure or bed addition level triggers the review requirement, differ by state and by facility type. A hospital capital project that triggers mandatory CON review in one state may fall below the threshold in an adjacent state. In a multi-state healthcare acquisition, the CON applicability analysis must be conducted separately for each state and each facility type. The analysis must also address whether the proposed acquisition itself constitutes a change of ownership that triggers CON review, separate from any capital projects the buyer plans to undertake post-closing.

CON Application and Public Notice Process

The CON application process varies by state but generally follows a common structure. The applicant files a letter of intent with the state health planning agency specifying the proposed project, the service area, the estimated capital cost, and the service volume projections. The agency reviews the letter of intent to determine whether the application is subject to full CON review or qualifies for an expedited or exemption determination. If full review is required, the applicant then files a complete CON application that includes a needs assessment, a financial feasibility analysis, architectural and operational plans, and evidence of the applicant's capability to operate the proposed facility or service.

Most CON states require public notice of a pending CON application, allowing existing healthcare providers in the service area to review the application and file competing applications or formal objections. Competing applications, sometimes called comparative reviews, pit multiple applicants against each other for a limited number of approved projects in a given service area or review cycle. The existence of a competing application can significantly extend the CON timeline and increase legal costs, as the competing applicant and any objectors may participate in agency hearings and, if adverse decisions are issued, in administrative appeals.

CON review cycles operate on fixed schedules in many states, with application windows opening monthly or quarterly. An application filed after a cycle's deadline will not be reviewed until the next cycle, which can add months to the process. Full CON review, including public notice, agency review, potential hearing, and decision, can take six months to two years in states with active competing applications or contested review proceedings. Healthcare buyers who need CON approval before they can operate an acquired facility at the intended service level must account for this timeline in their transaction planning and negotiate appropriate purchase agreement conditions that address the risk of CON denial or delay.

CON Transfer Versus New Issuance

A central question in every healthcare acquisition in a CON state is whether the buyer must obtain a new CON or can obtain a transfer of the seller's existing CON. The answer determines both the process and the timeline. CON transfer, where available, typically involves the buyer demonstrating to the state health planning agency that it will operate the acquired facility in substantially the same manner as the seller, that the facility will continue to meet the conditions under which the CON was issued, and that the buyer has the financial and operational capacity to sustain the services. A CON transfer application is generally less burdensome than a new CON application because the buyer is not required to independently demonstrate community need; that determination was made when the original CON was issued.

However, not all CON states permit simple transfer. Some states treat any change of ownership as equivalent to a new facility establishment, requiring the buyer to file a full CON application demonstrating independent need. This is more common in states with highly competitive CON markets where existing providers actively use the CON process to limit entry by new competitors. In these states, a healthcare acquisition that would otherwise be straightforward from a corporate and securities law perspective may be subject to a contested CON proceeding before the buyer can lawfully operate the acquired facility.

Even in states that permit CON transfer, the agency may impose conditions on the transfer. Conditions can include commitments to maintain specific service volumes, to preserve charity care or uncompensated care levels, to continue operating specific service lines that the buyer might otherwise discontinue, or to make capital improvements within a specified post-closing period. Buyers must review any conditions attached to the seller's existing CON as part of due diligence to understand what operational constraints will be inherited, and should anticipate that transfer approval may impose additional conditions beyond those in the existing CON.

State-Specific CON Thresholds and Strategic Considerations

CON thresholds define the dollar value of capital expenditures or the number of beds or units that trigger mandatory review. In Virginia, for example, capital expenditures above $15.5 million at an existing healthcare facility require CON review, as does any addition of hospital beds or construction of an ASC. In Georgia, the CON threshold for major medical equipment is set per unit, and any acquisition or replacement of CT, MRI, or PET equipment above the threshold at a covered facility requires prior CON approval. In Michigan, nursing home bed additions and new home health agency certifications are subject to CON review, but the state's CON program does not cover ASCs or most outpatient services.

State-specific threshold analysis requires reviewing both the capital expenditure threshold and any service-type-specific rules. A buyer may be below the capital expenditure threshold but still require CON approval because the transaction involves a specific service type that is categorically covered, such as an addition of nursing home beds or establishment of a new home health service area. Conversely, a large capital expenditure for renovation of an existing service may not trigger CON review if it falls within a defined exemption, such as an exemption for projects that do not change the facility's licensed capacity or service lines.

CON thresholds are adjusted periodically by state legislatures and health planning agencies. Threshold levels that were current at the time a healthcare system designed its acquisition strategy may have changed by the time the transaction reaches the regulatory review stage. Healthcare buyers should confirm current thresholds directly with state agencies or specialized regulatory counsel, not rely on secondary sources that may not reflect recent amendments or regulatory updates.

Accreditation, Medicare Deemed Status, and Provider-Based Billing

Healthcare facility accreditation by the Joint Commission, DNV Healthcare, or CIHQ serves two distinct functions in a healthcare acquisition. First, it is an independent quality certification that demonstrates the facility meets nationally recognized standards for patient safety and care quality. Second, and more practically significant for billing purposes, accreditation by a CMS-approved accrediting organization confers Medicare deemed status on the facility, meaning that the facility is deemed to meet CMS Conditions of Participation without a separate CMS survey. Deemed status allows the facility to participate in Medicare and bill for Medicare-covered services.

Accreditation does not transfer automatically in a change of ownership. Each accrediting organization has its own CHOW notification requirements and post-notification survey procedures. The Joint Commission requires prompt notification of a change of ownership and typically conducts an on-site evaluation of the facility under the new owner within a specified post-closing window. DNV and CIHQ have comparable requirements. During the period between closing and completion of the accrediting organization's review, the facility may operate under a provisional or conditional accreditation status. If the accrediting organization determines that re-survey is required before confirming accreditation, the facility's deemed status is in a transitional state that requires careful coordination with the relevant CMS regional office and Medicare Administrative Contractor.

Provider-based billing, which allows hospital outpatient departments to bill at the facility rate under the Medicare Outpatient Prospective Payment System rather than at the lower physician fee schedule rate, is contingent on CMS provider-based designation of the relevant outpatient department. Provider-based status is tied to the hospital's Medicare provider agreement and requires that the outpatient department meet CMS provider-based standards, including physical proximity requirements, administrative integration standards, and compliance with the hospital's Conditions of Participation. A change of hospital ownership can affect provider-based designation for existing outpatient departments if the new owner's Medicare provider agreement does not seamlessly encompass those departments. Buyers acquiring hospital systems with significant provider-based outpatient operations should analyze the Medicare enrollment and provider-based designation implications of the acquisition structure before closing.

340B Covered Entity Transfer

The 340B Drug Pricing Program, established under Section 340B of the Public Health Service Act and administered by HRSA, requires pharmaceutical manufacturers to provide discounted drug pricing to eligible covered entities, including disproportionate share hospitals, federally qualified health centers, Ryan White HIV/AIDS program grantees, and certain other safety-net providers. The 340B discount can be substantial, representing significant savings on outpatient drug purchasing for hospitals and health systems that qualify.

340B covered entity status is specific to the covered entity that registered with HRSA and is not transferred to a new owner by operation of a purchase agreement. When a 340B-eligible facility changes ownership, the acquiring entity must independently qualify as an eligible covered entity type and must register or re-register through HRSA's OPAIS system to obtain 340B status for the acquired facility. The acquiring entity must demonstrate that it independently meets the statutory eligibility criteria, including the disproportionate share adjustment percentage threshold for DSH hospitals, HRSA grant recipient status for FQHC-lookalikes, or applicable grantee status for Ryan White entities.

A gap in 340B coverage between the closing date and HRSA's processing of the new covered entity registration can be financially significant. During any gap period, the facility cannot purchase drugs at 340B prices and cannot dispense 340B drugs to patients. For hospitals that rely on 340B savings to cross-subsidize care for underserved populations or to fund safety-net services, a prolonged 340B gap is a material financial event. Buyers should engage HRSA-experienced counsel early in the transaction to assess the target's 340B eligibility, confirm the acquiring entity's independent eligibility, and prepare the OPAIS registration so it can be filed at or immediately after closing.

Workforce Credentialing Timeline and Closing Coordination

Workforce credentialing in a healthcare acquisition encompasses two distinct but related processes: medical staff credentialing and privileging at the facility level, and Medicare and Medicaid provider enrollment at the payor level. Both must be completed before the relevant providers can lawfully treat patients and bill for services under the acquiring entity's name and provider numbers. Neither process is instantaneous, and both must be planned against the anticipated closing date.

Medical staff credentialing requires the acquiring facility's credentials committee or medical staff office to verify each physician's and advanced practice provider's licensure, board certification, training, malpractice history, and clinical competence before granting privileges to practice at the facility. The credentialing process typically takes 60 to 120 days from the submission of a complete credentialing application to the granting of privileges. Hospitals with high volumes of employed and affiliated physicians face the practical challenge of processing a large number of credentialing applications simultaneously in connection with an acquisition. Buyers should negotiate seller cooperation obligations in the purchase agreement that require the seller to assist in assembling practitioner credentialing files and to begin the transfer of credentialing records to the buyer's medical staff office before closing.

Medicare and Medicaid provider enrollment under the acquiring entity's provider numbers requires filing CMS Form 855 series applications for each facility and, where applicable, for each individually enrolled provider who will reassign billing rights to the acquiring entity. Medicare enrollment processing times vary by Medicare Administrative Contractor but commonly run 30 to 90 days for facility enrollment applications and similar timelines for individual provider reassignment applications. CMS does provide a 90-day provisional billing period for certain provider types that allows billing on a contingent basis while enrollment is pending, but this provision is not universally available and has conditions that must be assessed for each provider category. Coordinating the credentialing and enrollment workstreams, the facility licensure applications, the CON transfer process, the CLIA and DEA applications, and the accreditation notifications around a single closing date is one of the most operationally demanding aspects of a healthcare facility acquisition and requires a master regulatory timeline that is actively managed from the execution of the purchase agreement through the post-closing transition period.

Frequently Asked Questions