Key Takeaways
- Stock purchases and asset purchases have materially different Medicare implications. A stock purchase preserves the provider agreement but transfers all overpayment and cost report liabilities to the buyer. An asset purchase allows the buyer more control over assumed liabilities but requires new enrollment or CHOW processing that can create a billing gap.
- The 36-month rule restricts the cost limits available to buyers of home health agencies and hospices through asset purchases. Buyers must analyze the target's Medicare cost limit position relative to their own before closing, because the rule locks in the lower of the two positions for three years.
- Medicare Advantage contracts and managed Medicaid plan agreements are not automatically assigned in a healthcare acquisition. Each contract must be individually reviewed for assignment provisions, and health plan consent must be secured before closing to avoid out-of-network disruptions post-transaction.
- Medicaid enrollment requirements are state-specific and do not follow a uniform federal framework. Multi-state providers require separate enrollment analysis and applications in each state, with timelines that vary significantly by state and provider type.
In any healthcare acquisition, the target's Medicare and Medicaid enrollment status determines whether the buyer can bill federal healthcare programs for services provided after closing. A break in billing privileges is not merely an administrative inconvenience: it means that services rendered to patients covered by Medicare or Medicaid generate no reimbursable claim. For providers where federal program revenue represents a material portion of total revenue, enrollment continuity is a direct determinant of whether the acquisition delivers the financial performance the buyer underwrote. Managing that continuity requires understanding the Medicare change of ownership framework, the CMS 855 enrollment forms applicable by provider type, the structural difference between stock and asset purchases from a Medicare perspective, the 36-month rule applicable to home health and hospice acquisitions, Medicaid state-by-state enrollment requirements, successor liability for cost reports and overpayments, and the separate treatment of Medicare Advantage and managed Medicaid contracts.
This sub-article is part of the Healthcare M&A Legal Guide. It addresses the Medicare change of ownership framework under 42 CFR 489.18, the CMS 855A/B/I/S forms by provider type, the Medicare implications of stock versus asset purchase structures, CHOW assumption of provider agreements and the distinction between assignment of a provider number and new enrollment, tie-in notice timing and content, the 36-month rule for home health agencies and hospices, Medicaid state plan provider enrollment variation by state, billing privileges and effective dates, retroactive enrollment risk, cost report and overpayment successor liability, Civil Monetary Penalties exposure, escrow structures for post-closing payor recoupments, revalidation cycles and their interaction with CHOW filings, the non-automatic assignment of Medicare Advantage contracts, and the novation requirements for prescription drug plans and managed Medicaid agreements.
Acquisition Stars advises healthcare buyers, sellers, and health system clients on Medicare and Medicaid enrollment continuity planning in M&A transactions, including CHOW structuring, enrollment gap mitigation, and payor contract novation. Nothing in this article constitutes legal advice for any specific transaction.
The Medicare Change of Ownership Framework
The Medicare change of ownership rules are codified at 42 CFR 489.18 and define when a transaction constitutes a CHOW requiring notification to CMS and triggering the automatic assignment provisions of the Medicare provider agreement. A CHOW occurs when there is a transfer of ownership of a provider entity, including the sale or transfer of assets of a sole proprietorship, the addition, withdrawal, or substitution of a partner in a partnership, the transfer of a corporation's ownership interest, the formation of a new corporation, a leasing arrangement, and any other event that CMS determines to constitute a change of ownership. The breadth of the CHOW definition means that virtually every structure through which a buyer acquires a Medicare-participating provider triggers CHOW notification requirements, with different procedural consequences depending on whether the acquisition is structured as a stock purchase, an asset purchase with assumption, or an asset purchase with new enrollment.
Under 42 CFR 489.18(c), when a CHOW occurs, the new owner has the option of accepting assignment of the existing provider agreement or declining assignment and enrolling as a new provider. If the new owner accepts assignment, the provider agreement is deemed automatically assigned to the new owner as of the effective date of the change of ownership, and the new owner receives all of the rights and obligations under that agreement, including the right to bill Medicare for covered services and the obligation to satisfy all outstanding liabilities, cost reports, and overpayment obligations. If the new owner declines assignment, the existing provider agreement terminates as of the CHOW date, and the new owner must enroll as a new provider through the applicable CMS 855 form before billing Medicare.
The CHOW notification must be submitted to the Medicare Administrative Contractor responsible for the provider's geographic jurisdiction. The MAC processes the CHOW filing, verifies the provider's conditions of participation status, and issues an updated tie-in notice confirming the new ownership and effective date of the assignment. The tie-in notice is the document that formally links the new owner to the existing provider agreement and authorizes Medicare billing under the provider's existing National Provider Identifier. Processing timelines for CHOW filings vary by MAC and provider type, but buyers should plan for a minimum of 30 to 60 days from the submission of a complete CHOW package to issuance of the updated tie-in notice.
CMS 855 Forms by Provider Type: 855A, 855B, 855I, and 855S
CMS has designed distinct enrollment forms for different categories of Medicare providers and suppliers, reflecting the different organizational structures, licensing requirements, and billing relationships applicable to each provider type. The CMS 855A is used by institutional providers, including hospitals, critical access hospitals, home health agencies, hospices, skilled nursing facilities, comprehensive outpatient rehabilitation facilities, and community mental health centers. The 855A captures information about the institution's legal structure, ownership interests, managing employees, adverse legal history, and conditions of participation compliance. Changes of ownership for institutional providers are reported through the 855A by submitting a change of information request or a full revalidation application depending on the nature of the ownership change.
The CMS 855B is used by non-physician outpatient suppliers and facility-based entities, including ambulatory surgery centers, independent diagnostic testing facilities, portable x-ray suppliers, and certain outpatient therapy providers. The 855B captures similar ownership, managing employee, and adverse legal history information as the 855A but is tailored to the organizational and supplier categories it covers. Changes of ownership for 855B entities follow a similar process: the new owner submits a change of information request or a new enrollment application depending on whether the transaction is structured as a CHOW with assignment or as a new enrollment following an asset purchase.
The CMS 855I is used by individual physicians and non-physician practitioners to enroll in Medicare or to update their enrollment information. In a healthcare acquisition that results in physicians or practitioners moving from one group practice or entity to another, each individual practitioner may need to update their 855I to reflect the new group's NPI and billing structure. The CMS 855S is used by DMEPOS suppliers, including durable medical equipment suppliers, prosthetics and orthotics suppliers, and parenteral and enteral nutrition suppliers. DMEPOS enrollment carries additional requirements, including a surety bond requirement and periodic site inspection requirements, that must be addressed in acquisitions involving DMEPOS suppliers. Each form type has specific instructions for CHOW scenarios, and buyers should engage Medicare enrollment specialists familiar with the relevant form type during pre-closing diligence.
Stock Purchase vs. Asset Purchase: Medicare Structural Implications
The structural choice between a stock purchase and an asset purchase carries material Medicare implications that must be analyzed before the definitive agreement is signed. In a stock purchase, the buyer acquires the equity interests of the legal entity that holds the Medicare provider agreement. Because the legal entity itself does not change, the provider agreement, the National Provider Identifier, the Medicare certification, the conditions of participation status, and the billing history all remain with the entity. CMS generally treats a stock purchase as a change of ownership that triggers 42 CFR 489.18, and the new owner (the entity under its new ultimate ownership) must file a CHOW notification with the MAC. However, because the legal entity continues in existence with the same provider agreement and NPI, billing continuity is generally maintained without a gap, provided the CHOW notification is filed and processed in a timely manner.
The significant disadvantage of the stock purchase structure from a Medicare perspective is that the buyer assumes all of the entity's pre-closing Medicare liabilities without limitation, including outstanding cost report obligations, overpayments identified in pending MAC audits or Zone Program Integrity Contractor reviews, Civil Monetary Penalties assessments, and any excluded persons issues involving the entity's employees, contractors, or managing employees. These liabilities transfer automatically with the entity regardless of whether they were disclosed in the seller's representations or discovered in diligence. An entity with material undisclosed Medicare overpayments or pending government investigations creates direct financial exposure for the buyer through the stock purchase structure. Purchase agreement representations, warranties, and indemnification provisions, backed by escrow funding, are the primary mechanisms for allocating that exposure contractually, but they do not eliminate the underlying regulatory liability.
In an asset purchase, the buyer acquires the operational assets of the provider business rather than the equity of the entity that holds the provider agreement. The buyer can structure the transaction to accept assignment of the seller's provider agreement (triggering the CHOW assumption framework with its attendant liabilities) or to decline assignment and enroll as a new provider (which creates a billing gap but limits the liabilities that follow the provider agreement). The asset purchase with new enrollment structure is the most common approach for buyers who have identified material Medicare liability exposure in the target and wish to avoid assuming that exposure through the provider agreement. The tradeoff is the billing gap risk during the enrollment processing period, which must be managed through interim operating arrangements, gap funding reserves, or accelerated enrollment strategies specific to the provider type.
CHOW Assumption of Provider Agreements: Assignment vs. New Enrollment
When a buyer in a healthcare asset transaction elects to assume the seller's provider agreement through the CHOW process, the buyer accepts the provider agreement as it existed as of the CHOW date, including all rights and obligations. The practical effect of assumption is that the buyer steps into the seller's Medicare shoes: the buyer bills under the seller's NPI (until the NPI is updated to reflect the new owner's information), receives reimbursement under the seller's existing rate structure and cost limits, and is subject to the same conditions of participation and certification requirements that governed the seller. The buyer also inherits the seller's outstanding Medicare liabilities, which under 42 CFR 489.18(d) includes all claims for overpayment by the provider, all cost reports that have not been settled, and all requirements and conditions applicable under the Medicare program.
The tie-in notice issued by the MAC after the CHOW filing formally documents the new owner's assumption of the provider agreement and specifies the effective date of the assignment. The effective date is typically the date of the change of ownership as reported in the CHOW filing. For buyers, the tie-in notice is the critical document confirming that billing authority has been transferred to the new owner and that claims submitted after the effective date will be reimbursed to the new owner rather than the seller. Buyers should ensure that the CHOW filing includes all required attachments (proof of ownership transfer, organizational documents, managing employee disclosures, adverse legal history disclosures, and any required certification or licensure documentation) to avoid processing delays.
When a buyer elects to decline assumption and enroll as a new provider, the buyer must submit a complete CMS 855 application for the applicable provider type. New enrollment applications require the same information as a CHOW filing but result in the issuance of a new provider agreement with an effective date tied to the date CMS approves the application, not to the date of the asset acquisition. Services provided between the acquisition date and the Medicare enrollment effective date are not reimbursable by Medicare as a matter of billing eligibility. Buyers who elect new enrollment must plan for this gap period operationally, which may involve retaining the seller to provide services under the seller's still-active provider agreement through a management services arrangement or similar structure during the enrollment processing period, subject to applicable regulatory constraints on such arrangements.
Tie-In Notice Timing and the Billing Effective Date
The tie-in notice is the formal CMS document that establishes a provider's relationship to the Medicare program under a new or changed set of ownership facts. For institutional providers subject to the 855A, the tie-in notice is issued by the MAC after it has processed the CHOW filing and verified that the provider meets applicable conditions of participation under the new ownership. For suppliers and non-institutional providers subject to the 855B or 855S, the equivalent document is the enrollment approval letter or supplier number notification issued by the National Supplier Clearinghouse or the applicable MAC.
The effective date specified in the tie-in notice determines when the buyer's Medicare billing authority begins. For CHOW assumptions, CMS typically back-dates the effective date to the actual date of the change of ownership, provided the CHOW filing was submitted within the required timeframe. This back-dating is critical to billing continuity: if the effective date matches the CHOW date, there is no gap period during which services were provided without Medicare billing authorization. If the CHOW was not filed timely or the MAC is unable to confirm the provider's conditions of participation status as of the CHOW date, the effective date may be later than the actual ownership transfer, creating a gap period for which claims cannot be submitted to Medicare.
Buyers should request a provisional billing authorization from the MAC in writing at the time the CHOW filing is submitted, documenting that the buyer is operating in reliance on the CHOW and that the billing effective date should be set as of the CHOW date. While MAC responses to such requests are not always formal authorizations, the correspondence creates a record supporting the buyer's good-faith reliance on the CHOW framework. Buyers should also retain documentation showing that services were provided under conditions that met applicable Medicare conditions of participation as of the CHOW date, so that billing for the gap period can be substantiated if the MAC questions the effective date.
The 36-Month Rule for Home Health and Hospice
The 36-month rule, codified at 42 USC 1395nn(l) and implemented at 42 CFR 424.550, imposes a specific restriction on buyers of home health agencies and hospices through asset purchases. Under the rule, if a buyer acquires a home health agency or hospice through a change of ownership in an asset purchase, and the buyer or any of its principals previously owned a home health agency or hospice that was the subject of a termination, cancellation, or non-renewal of a Medicare agreement within 36 months of the current acquisition, the buyer takes the lower of the buyer's own cost limits or the seller's cost limits for the 36-month period following the acquisition.
The practical effect of the 36-month rule in healthcare M&A is that buyers cannot use repeated acquisitions of home health agencies or hospices to capture favorable cost limit positions by absorbing the seller's higher cost limits into the buyer's rate structure. A home health buyer with low cost limits that acquires a target with higher cost limits does not inherit the target's higher limits: the buyer is capped at its own lower limits for 36 months following the acquisition. This can significantly affect the financial underwriting for a home health or hospice acquisition if the buyer's cost limit position is materially less favorable than the target's and the acquisition economics assumed that the buyer would benefit from the target's higher payment rates.
Diligence for home health and hospice acquisitions should include a specific analysis of the target's Medicare cost limits relative to the buyer's existing cost limit position, using the most recent settled cost reports for both entities. If the buyer's cost limits are lower, the acquirer should model the financial impact of operating under the buyer's cost limits for 36 months post-closing and determine whether the acquisition economics are still supportable at the restricted payment level. Counsel should also confirm whether the 36-month rule applies to the specific transaction structure being used, as the rule has been interpreted to apply to asset purchases and certain other transaction forms but not to stock purchases where the legal entity holding the provider agreement continues without a change.
Medicaid State Plan Provider Enrollment by State
Medicaid is administered by each state under a state plan approved by CMS, and each state's Medicaid program has its own provider enrollment processes, forms, and change of ownership notification requirements. Unlike Medicare, where the CHOW framework provides a relatively uniform federal process across provider types, Medicaid provider transfers require state-by-state analysis with no single federal template. A provider that participates in Medicaid in multiple states faces a matrix of enrollment requirements that must be addressed in each state independently, with timelines that can vary from a few weeks to several months depending on the state, the provider type, and the state Medicaid agency's current processing capacity.
Most state Medicaid programs require a new provider enrollment application when a change of ownership occurs in an asset purchase, even if the provider retains the same physical location and staff. Some states will link a Medicaid enrollment change to a concurrent Medicare CHOW filing, which can accelerate the Medicaid processing timeline. Others require fully independent enrollment applications that are processed without reference to the Medicare enrollment status. States with enhanced screening requirements for particular provider types, including home health agencies, personal care attendant agencies, and behavioral health providers, may impose site inspections or background check requirements as part of the Medicaid enrollment process, adding time and operational complexity to the post-closing integration.
The Medicaid enrollment effective date is determined by each state independently. Some states back-date Medicaid enrollment to the actual CHOW date when the application is submitted promptly and the enrollment is approved without issues. Others set the effective date as the date the enrollment application is approved, regardless of when the change of ownership occurred. A Medicaid billing gap during the period between the CHOW date and the state Medicaid enrollment effective date can generate significant uncollectable revenue for providers in states where Medicaid represents a large share of the patient population. Buyers of providers in Medicaid-heavy markets should initiate state Medicaid enrollment applications as early in the pre-closing process as state rules permit, which in many states means after the purchase agreement is signed but before closing, using a conditional enrollment submission that becomes effective only upon closing.
Billing Privileges and Effective Dates: Managing Retroactive Enrollment Risk
Medicare billing privileges are the operational authorization that allows a provider to submit claims to Medicare and receive reimbursement for covered services. Billing privileges are tied to the provider's enrollment status, and they become effective as of the date CMS determines based on the enrollment application or CHOW filing. For new provider enrollments, CMS generally sets the effective date of billing privileges as the later of the date the application is signed or 30 days before the date the application was received by the MAC, subject to a maximum retroactive billing period that varies by provider type.
Retroactive enrollment risk arises when there is a period between the actual date services began and the effective date of the Medicare enrollment, during which claims submitted to Medicare for services provided to Medicare beneficiaries may be rejected or recouped. For institutional providers enrolling through the 855A, CMS allows retroactive billing for up to 90 days before the date the application was received by the MAC, provided the provider meets all conditions of participation during the retroactive period. For suppliers enrolling through the 855B, the retroactive period is generally 30 days. For DMEPOS suppliers, billing privileges do not extend retroactively at all: suppliers cannot bill for services provided before the date their supplier number is issued.
The practical implication for healthcare acquisitions is that buyers who begin providing services to Medicare beneficiaries before their enrollment is formally approved face the risk that claims for those services will be denied if the retroactive billing window has expired. Buyers in asset purchases who decline to assume the seller's provider agreement should not begin full operations under the buyer's name until the Medicare enrollment is approved or the retroactive billing window is confirmed to cover the services already provided. Buyers who accept assignment through the CHOW process have more flexibility because the CHOW effective date generally aligns with the closing date, but they must confirm that the tie-in notice effective date actually matches the intended start of operations before billing Medicare for post-closing services.
Cost Report and Overpayment Successor Liability
Medicare cost reports are annual financial reports submitted by institutional providers (hospitals, skilled nursing facilities, home health agencies, hospices, and certain other Part A providers) that reconcile interim Medicare payments with the provider's actual allowable costs for the cost reporting period. Cost reports are subject to audit by the MAC and by the OIG, and they may result in either additional payments to the provider (if allowable costs exceeded interim payments) or repayment obligations (if interim payments exceeded allowable costs). Open cost report years at the time of a healthcare acquisition represent contingent liabilities for either the buyer or the seller depending on how the purchase agreement allocates cost report responsibility.
In a stock purchase, all pre-closing cost report liabilities follow the entity to the buyer automatically. The buyer owns the entity that filed those cost reports and is responsible for any additional payments or repayments that result when those reports are settled. In an asset purchase with CHOW assumption, the buyer assumes the provider agreement subject to all outstanding liabilities, which under the regulations includes unsettled cost reports. In an asset purchase with new enrollment, the buyer does not assume the seller's cost reports: those remain with the seller entity (or its successor) and must be settled between the seller and the MAC following the termination of the seller's provider agreement. The allocation of cost report responsibility should be explicitly addressed in the purchase agreement, including provisions for cost report preparation after closing, cooperation obligations for MAC audits, and indemnification for cost report settlements that result in amounts owed to Medicare.
Medicare overpayments are amounts paid by Medicare to a provider in excess of the amounts that should have been paid under applicable coverage, coding, and billing rules. When a MAC, ZPIC, or Recovery Audit Contractor (RAC) identifies an overpayment through post-payment review, the provider has 60 days from the identification of the overpayment to report and return it under the 60-day overpayment rule (42 USC 1320a-7k(d)). Failure to return an identified overpayment within 60 days is an independent FCA violation. In a healthcare acquisition, the buyer who assumes the provider agreement through CHOW or stock purchase becomes responsible for overpayments identified after closing but attributable to pre-closing billing. Diligence should assess the target's RAC audit history, any open MAC additional development requests (ADRs), and the results of any internal billing compliance audits to estimate the magnitude of potential pre-closing overpayment exposure.
Civil Monetary Penalties Exposure and Escrow for Post-Closing Payor Recoupments
Civil Monetary Penalties under the Civil Monetary Penalties Law (42 USC 1320a-7a) can be imposed on providers for a range of Medicare and Medicaid compliance violations, including submitting claims for services not provided, submitting claims for services that were medically unnecessary, employing or contracting with excluded persons, and making false statements in connection with a healthcare benefit program. CMP assessments can accompany overpayment demands or can be imposed independently. In a healthcare acquisition, CMP exposure that has been assessed but not yet paid, or that arises from conduct that occurred before closing but is not assessed until after closing, transfers to the buyer in a stock purchase or a CHOW assumption transaction.
Escrow arrangements for post-closing payor recoupments are a standard feature of healthcare M&A purchase agreements. The escrow is funded at closing from the purchase price and is held by an escrow agent for a specified period, typically 12 to 36 months, during which any post-closing overpayment demands, RAC recoupments, MAC additional payment requests, or CMP assessments attributable to pre-closing conduct can be drawn from escrow. The escrow amount should be calibrated based on the diligence findings regarding the target's billing compliance history, the volume and type of services billed to Medicare and Medicaid, the results of any prior government audits, and the look-back period applicable to the types of overpayments identified. A well-structured healthcare M&A escrow covers not just the recoupment amounts but also the legal costs of responding to post-closing government audit requests and defending against overpayment demands through the MAC appeals process.
The MAC appeals process for overpayment demands provides providers with multiple levels of administrative review, including redetermination by the MAC, reconsideration by a Qualified Independent Contractor, hearing before an Administrative Law Judge at the Office of Medicare Hearings and Appeals, review by the Medicare Appeals Council, and judicial review in federal district court. Buyers who inherit overpayment exposure through a healthcare acquisition should evaluate each stage of the appeals process and decide whether to appeal, accept the overpayment, or seek a repayment plan from the MAC. The decision to appeal should be made in consultation with healthcare regulatory counsel, because the appeals process involves strict procedural deadlines and documentation requirements, and an improperly filed appeal or missed deadline can result in the forfeiture of appeal rights.
Revalidation Cycles and Their Interaction with CHOW Filings
CMS requires all Medicare-enrolled providers and suppliers to periodically revalidate their enrollment information to confirm that the provider continues to meet applicable enrollment requirements. Revalidation cycles are set by provider type: institutional providers enrolled through the 855A are generally required to revalidate every five years, while suppliers enrolled through the 855B and DMEPOS suppliers enrolled through the 855S are required to revalidate every three years. CMS sends revalidation notices to providers through the Provider Enrollment, Chain and Ownership System (PECOS) and by mail to the address on file with the MAC. Providers who fail to respond to revalidation notices within the specified deadline face deactivation of their Medicare billing privileges.
In a healthcare acquisition, the interaction between the CHOW filing and any pending revalidation is a potential source of processing delays. If the target provider has an outstanding revalidation request at the time of the acquisition, the MAC may require that the revalidation be completed as part of or before the CHOW processing, which can extend the timeline for issuance of the updated tie-in notice. Buyers should confirm the target's revalidation status with the applicable MAC before signing the purchase agreement and build any anticipated revalidation-related delays into the closing timeline and post-closing integration plan. Providers whose revalidation has lapsed and whose billing privileges have been deactivated require full re-enrollment rather than CHOW processing, which is a more time-intensive process and may affect the buyer's ability to bill Medicare from closing.
PECOS records should be reviewed as part of healthcare M&A diligence to confirm the accuracy of the target's enrollment information, including ownership disclosures, managing employee disclosures, practice location addresses, and NPI information. Discrepancies between PECOS records and the actual ownership structure or operational facts of the target can complicate CHOW processing and, in cases where the discrepancies reflect unreported prior ownership changes, can raise False Claims Act concerns if the provider billed Medicare during a period when it was operating outside its reported enrollment parameters. Correcting PECOS discrepancies before initiating the CHOW filing reduces the risk that the MAC will require additional documentation or corrections during CHOW processing.
Medicare Advantage Contracts, PDP Agreements, and Managed Medicaid Plan Novation
Medicare Advantage contracts are private insurance contracts between a provider and a health plan that offers Medicare benefits through Part C of the Medicare program. Unlike the traditional Medicare provider agreement, which follows a standardized federal framework and transfers through the CHOW process, Medicare Advantage contracts are private bilateral agreements governed by their own terms and by applicable state and federal law governing insurance contracts. MA contracts typically contain assignment provisions that require the prior written consent of the health plan before the contract can be assigned to a new owner. In a healthcare acquisition, each MA contract in the target's payor mix must be individually reviewed for assignment provisions, and the buyer must initiate a consent or novation process with each MA plan before closing.
The consequence of failing to obtain MA plan consent before closing is that the health plan may treat the buyer as a non-contracted provider for its MA members following the change of ownership, which triggers out-of-network reimbursement rates that are typically lower than contracted rates and may require plan members to obtain prior authorization for services they could previously access without authorization. For providers where MA enrollment represents a significant portion of the patient population, the loss of contracted status, even temporarily, can materially affect revenue and patient retention. Transaction timelines should account for the time needed to obtain MA plan consent, which can take 60 to 90 days or longer if the health plan requires credentialing review of the new owner before approving the assignment.
Prescription drug plan agreements (Part D plans) and managed Medicaid contracts are subject to similar non-automatic assignment principles. PDP contracts are governed by CMS's Part D program rules and by the contract terms between the provider (typically a pharmacy or pharmacy benefit manager) and the Part D plan. Managed Medicaid contracts are governed by state law and the contract terms between the provider and the managed care organization that holds the Medicaid managed care contract from the state. Both PDP and managed Medicaid agreements generally require plan consent for assignment, and buyers of providers participating in these programs should identify all such contracts during diligence, review their assignment provisions, and initiate novation or consent processes concurrently with the Medicare enrollment and CHOW filings. Coordinating all enrollment and contract assignment processes in parallel, with a single post-closing integration timeline that accounts for the longest expected processing period across all payors, is the most effective approach to minimizing payor enrollment disruption in a healthcare acquisition.
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Frequently Asked Questions
Does a stock purchase or an asset purchase have different Medicare implications?
Yes. In a stock purchase, the legal entity holding the Medicare provider agreement does not change. The buyer acquires ownership of the entity, but the entity itself, including its Medicare provider number, conditions of participation status, and billing history, continues in existence. CMS generally treats a stock purchase as a change of ownership that triggers automatic assignment of the provider agreement to the new owner, carrying with it all outstanding overpayment obligations, cost report liabilities, and compliance history. In an asset purchase, the transaction does not automatically assign the seller's provider agreement to the buyer. The buyer must enroll as a new provider or, where applicable, request a new tie-in notice and assumption of the provider agreement. The asset purchase structure gives the buyer more control over which Medicare obligations it assumes, but it also means the buyer may face a gap in billing privileges while enrollment is processed unless the transaction is structured to minimize that gap.
When must a CHOW notification be filed with CMS?
Under 42 CFR 489.18, a provider must notify its Medicare Administrative Contractor of a change of ownership in advance of the transaction when possible, and no later than 30 days after the change of ownership occurs. In practice, CHOW filings are typically initiated before closing so that the MAC has the opportunity to process the filing and issue a new tie-in notice before the transaction date. Failure to file a timely CHOW notification does not invalidate the change of ownership, but it can delay the issuance of an updated provider agreement and billing acknowledgment, and it may trigger MAC scrutiny of the provider's enrollment history. For asset purchases that require new enrollment rather than CHOW processing, the timing requirements and forms differ by provider type, as specified in the applicable CMS 855 form instructions.
What does the 36-month rule prohibit in home health and hospice acquisitions?
The 36-month rule, codified at 42 USC 1395nn(l) and implemented at 42 CFR 424.550, prohibits a buyer from acquiring a home health agency or hospice through an asset purchase and then billing Medicare at the higher of the seller's cost limits or the buyer's cost limits for a period of 36 months following the change of ownership. The rule was enacted to prevent the artificial inflation of Medicare cost limits through repeated acquisitions of home health agencies or hospices. In practice, the 36-month rule means that the buyer of a home health agency or hospice through an asset transaction cannot obtain the seller's favorable cost limits or payment rates by acquiring the business. Buyers must evaluate the target's Medicare cost limits relative to the buyer's own limits before closing, because the rule locks in the lower of the two cost limit positions for the 36-month period following the acquisition.
What is the risk of a billing gap between closing and enrollment approval?
The billing gap risk is one of the most operationally significant issues in healthcare M&A involving Medicare-participating providers. If the buyer begins providing services to Medicare beneficiaries before CMS has processed and approved the buyer's enrollment or the CHOW filing, the buyer is providing services under conditions where its billing privileges have not been formally established. Services provided during this gap period may be uncompensable if CMS determines that the buyer was not an enrolled provider at the time services were rendered. In asset purchase transactions, where the buyer must enroll as a new provider rather than assuming the seller's agreement, the enrollment processing period can extend from several weeks to several months depending on the provider type and the MAC's workload. Transaction structures that include a management agreement or interim operating arrangement under the seller's Medicare number during the enrollment gap period require careful legal analysis under both the anti-kickback and False Claims Act frameworks.
Is the buyer in a healthcare acquisition liable for the seller's Medicare overpayments?
In a stock purchase, the buyer acquires the legal entity that holds the provider agreement, and that entity's overpayment obligations transfer with the entity. The buyer assumes full successor liability for pre-closing overpayments identified by CMS or a MAC after closing, regardless of when the overpayments were incurred. In an asset purchase that includes assumption of the seller's provider agreement, the assumption documents and the applicable regulations determine the scope of overpayment liability that transfers. Under 42 CFR 489.18(d), a new owner that assumes a provider agreement assumes it subject to all outstanding liabilities, which includes overpayment obligations. Buyers seeking to limit overpayment successor liability in an asset transaction should structure the transaction as a new enrollment rather than an assumption of the existing provider agreement, though this approach creates the billing gap risk described above. Regardless of transaction structure, purchase agreements should include seller representations regarding the absence of known overpayments and indemnification for pre-closing overpayments identified post-closing.
Do Medicaid enrollment requirements vary by state?
Yes, significantly. Medicaid is a joint federal-state program, and each state administers its own Medicaid provider enrollment process through its state Medicaid agency or managed care organization contracting framework. There is no uniform federal CHOW equivalent for Medicaid: each state has its own enrollment forms, application requirements, processing timelines, and change of ownership notification requirements. A healthcare acquisition involving a provider that participates in Medicaid across multiple states requires separate enrollment analysis and applications in each state. Some states process Medicaid enrollment changes quickly when linked to an existing Medicare enrollment action; others require fully independent enrollment processes that can take months. Multi-state providers should map Medicaid enrollment requirements by state during diligence and build those timelines into the integration plan.
Are Medicare Advantage contracts automatically assigned in a healthcare acquisition?
No. Medicare Advantage contracts between a provider and a Medicare Advantage plan are not automatically assigned to a new owner in a healthcare acquisition. MA contracts are governed by the private contract terms between the provider and the MA plan, supplemented by applicable state and federal law. Most MA contracts include provisions requiring prior written consent for assignment, and many require the health plan to evaluate the new owner's credentials, quality profile, and network fit before approving an assignment. In an acquisition involving a provider that derives significant revenue from Medicare Advantage enrollment, the buyer must identify all MA contracts, review their assignment provisions, and initiate assignment consent or novation negotiations with each health plan in advance of closing. Failure to obtain assignment consent can result in the MA plan refusing to recognize the new owner as a contracted provider, which disrupts reimbursement and may require the provider to operate out-of-network for MA members during the transition period.
What are the enrollment timing risks associated with the CMS revalidation cycle?
CMS requires all Medicare-enrolled providers and suppliers to revalidate their enrollment information on a cycle specified by provider type, generally every three to five years. If a change of ownership occurs while the target provider is in a revalidation cycle or has an outstanding revalidation request, the enrollment processing for the CHOW or new enrollment may be linked to the pending revalidation, which can extend processing timelines and create additional documentation requirements. Buyers should verify the target's revalidation status with the applicable MAC before closing and assess whether any outstanding revalidation issues could delay enrollment processing for the post-closing entity. Providers with lapsed or deactivated enrollment at the time of acquisition face longer enrollment timelines and potential retroactive billing issues that must be addressed in the transaction structure.
Plan Your Healthcare Acquisition's Enrollment Strategy
Acquisition Stars advises healthcare buyers and sellers on Medicare CHOW structuring, CMS 855 enrollment strategy, billing gap mitigation, 36-month rule analysis, Medicaid state enrollment, overpayment successor liability, and Medicare Advantage contract novation. Submit your transaction details for an initial assessment.