medicare provider agreement assignment following change of...

Medicare Provider Agreement Assignment

Following Change of Ownership: Evaluating

Automatic Assignment vs. Rejection Identifying When a CHOW Occurs, Navigating Medicare Rules,

Weighing Benefits and Risks for Buyers and Sellers

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WEDNESDAY, JULY 23, 2014

Presenting a live 90-minute webinar with interactive Q&A

Hedy Rubinger, Partner, Arnall Golden Gregory, Atlanta

Monica Wallace, Partner, McDermott Will & Emery, Chicago

Jessica Grozine, Arnall Golden Gregory, Atlanta

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Change of Ownership:

- Overview of Healthcare Transactions

- Implications for Skilled Nursing Facilities

Presented by Hedy Rubinger, Esq.

Sponsored by the Legal Publishing Group of Strafford Publications

July 23, 2014

6

Overview: What constitutes a CHOW?

Structure of transaction

– Change of control v. change of operator

– Asset sale v. Stock transfer

– Mergers

– Other transactions

Medicare

State Licensure

Certificate of Need

Medicaid

© 2014. Arnall Golden Gregory LLP

7

What constitutes a CHOW?

Definitions of a CHOW do not always contemplate certain common

transactions (e.g., internal reorganizations, real estate sales, stock

sales of distant parent)

Regulatory focus is often on the actual operating entity

If that entity (i.e., the entity that holds the license and provider

numbers) is changing, then there most likely will be a full CHOW

If the transaction is removed from the operating level, certain

agencies may not require full CHOW filings and may only

require certain abbreviated filings, or no filings at all


8

Diagram #1: What constitutes a CHOW?

Change in operator (Traditional CHOW)


Operator A Operator B

Parent A Parent B

Before After

9


Change in immediate parent (often considered a CHOW)


Operator A Operator A

Parent A Parent B

Before After

10


Change in grandparent (sometimes considered a CHOW)


Operator A

Parent A

Before After

Grandparent A

Operator A

Parent A

Grandparent B

11

What constitutes a CHOW for Medicare purposes?

(a) What constitutes change of ownership—

(1) Partnership. In the case of a partnership, the removal, addition, or

substitution of a partner, unless the partners expressly agree otherwise, as

permitted by applicable State law, constitutes change of ownership.

(2) Unincorporated sole proprietorship. Transfer of title and property to

another party constitutes change of ownership.

(3) Corporation. The merger of the provider corporation into another

corporation, or the consolidation of two or more corporations, resulting in

the creation of a new corporation constitutes change of ownership.

Transfer of corporate stock or the merger of another corporation into

the provider corporation does not constitute change of ownership.

(4) Leasing. The lease of all or part of a provider facility constitutes change

of ownership of the leased portion. 42 CFR 489.18


12

What constitutes a CHOW from a state

perspective?

State licensure, CON, and Medicaid agencies vary in

their positions with respect to whether a transaction

constitutes a CHOW and whether any filings are

required for various transactions

– State licensure agencies typically look to whether there is a

change in the entity or individuals that control the operations

– Medicaid agencies often defer to whether there is a change in

Tax ID or NPI

– Certificate of Need agencies vary, and may defer to licensure in

their determination


13

Skilled Nursing Facilities: Medicare

CHOW Process

CHOW Process New Owner/Purchaser must submit a “buyer” CMS-855A no later

than 30 days post-closing (can be submitted pre-closing)

Former Owner/Buyer must submit a “seller” CMS-855A no later than 30 days post-closing.

The Bill of Sale or equivalent transaction document is required to complete processing

Medicare Administrative Contractor will make a recommendation to the Regional Office, which may done through the state survey agency.

State Certification – must submit certification materials for providers and certified suppliers and prepare for potential compliance surveys

Once certification is complete, CMS will provide tie-in notice indicating New Owner/Purchaser is enrolled as a Medicare provider


14

Skilled Nursing Facilities: Medicare

Change of Information Process

A CMS-855A change of information filing must be submitted no later than 90 days following the change

– Changes to the authorized or delegated officials must be

submitted within 30 days

– The provider should receive a letter from the MAC confirming that PECOS has been updated to reflect the change of information


15

Skilled Nursing Facilities: Medicare 855-A

Enrollment Initiatives Under the Affordable Care Act – Overhaul of CMS-855A enrollment form

Expanded Ownership Interest and/or Managerial Control Information – Section 5 (organizations) and Section 6 (individuals)

Disclosure of lenders, trusts, holding companies

Organizational structure diagram

Identification of management entity

Individual owners’ titles and birth places

Percentage of ownership

Identification of holding companies

Permission for MAC to request documents not listed on the 855


16

Skilled Nursing Facilities: What constitutes a

CHOW for State licensure purposes?

CHOW analysis and filing requirements vary state by state.

Colorado: “The Department shall consider the following criteria in determining whether there is a change of ownership of a health care entity that requires a new license: . . .

– (D) Limited Liability Companies:

(1) The transfer of at least 50 percent of the direct or indirect ownership interest in the company shall be considered a change of ownership.

(2) The termination or dissolution of the company and the conversion thereof into any other entity shall be considered a change of ownership if the conversion also includes a transfer of at least 50 percent of the direct or indirect ownership to one or more new owners.

(3) Change of ownership does not include transfers of ownership interest between existing members if the transaction does not involve the acquisition of ownership interest by a new member. For the purposes of this subsection, "member" means a person or entity with an ownership interest in the limited liability company.” 6 CCR 1011-1, Chapter II, Part 2.7.3.

– A change of control typically requires an abbreviated filing.


17



Pennsylvania: “(a) A health care facility shall notify the Department in

writing at least 30 days prior to transfer involving 5% or more of the stock

or equity of the health care facility. (b) A health care facility shall notify the

Department in writing at least 30 days prior to a change in ownership or a

change in the form of ownership or name of the facility. A change of

ownership shall mean any transfer of the controlling interest in a health

care facility. (c) A health care facility shall notify the Department in writing

within 30 days after a change of management of a health care facility. A

change in management occurs when the person responsible for the day to

day operation of the health care facility changes.” 28 Pa. Code § 51.4

– The agency reviews transactions on a case by case basis, which may

require an initial filing detailing the transaction (10 questions).


18



Maryland: “Transfer or Assignment of License. If the sale, transfer,

assignment, or lease of a facility causes a change in the person or

persons who control or operate the facility, the facility shall be

considered a "new facility" and the licensee shall conform to all

regulations applicable at the time of transfer of operations. The

transfer of any stock which results in a change of the person or

persons who control the facility, or the transfer of any stock in

excess of 25 percent of the outstanding stock, constitutes a sale.”

COMAR 10.07.02.03B(6)

– The licensure agency typically considers only a change of the

operator to be a CHOW.


19


CHOW for State Medicaid purposes?

Medicaid Enrollment

States have varying approaches with respect to Medicaid

enrollment

Some look to Medicare or other state agencies for direction with

respect to CHOWs

If a CHOW, must file Enrollment Application with state Medicaid

agency (or state’s contracted entity (e.g., ACS))

Some states require providers to be enrolled with Medicare in order

to participate in Medicaid

Some states impose successor liability whether or not providers

choose to accept or reject the provider agreement


20


CHOW for State Medicaid purposes?

Massachusetts: If there is a change in indirect

ownership, without a change in NPI, EIN, etc., an

updated ownership disclosure is required following the

transaction.

New Jersey: If licensure considers a transaction to be

a change of ownership (even though no change in

operator, NPI, EIN, etc.), Medicaid typically requires

new enrollment applications.


21

Skilled Nursing Facilities: CON CHOW

Process

Certificate of Need (CON)

Notice and filing requirements vary among states with

CON laws

Some states require simple notification which may

entail minimal review

Others may have more detailed notice requirements,

possibly including public notice requirements, and

detailed application review


22

Skilled Nursing Facilities: What Constitutes

a CHOW for CON Purposes?

West Virginia: “’Acquire a Health Care Facility’ means to obtain by purchase, donation, lease, stock transfer or comparable arrangement a health care facility’s assets used in the provision of health services or a majority of stock, including the transfer of a health care facility from a subsidiary corporation to its parent corporation or vice versa or including a change or transfer of the licensee of the health care facility.” See W. Va. Code St. R. § 65-7-2.1

Georgia: “Any person who acquires a health care facility [including a nursing home] by stock or asset purchase, merger, consolidation, or other lawful means shall notify the [Department of Community Health] of such acquisition, the date thereof, and the name and address of the acquiring person.” See O.C.G.A. § 31-6-40.1(a)


23

Skilled Nursing Facilities: Other CHOW

Requirements

Other facility-specific permits and authorizations may be required,

including, but not limited to:

Food Service

Pharmacy Permits

Accreditation

Certificate of Occupancy

General business license

Fictitious name registration

Beautician/barber permit

Radioactive materials permit

Solid waste handling permit

Passenger elevator operating permits

Boiler permits


24

Skilled Nursing Facilities: CHOW Implications if Landlord

Must Terminate Relationship With Operator

Landlord cannot bring in a new Operator without

regulatory approval

If Operator refuses to vacate, a court order may be

necessary for regulators to approve replacement

Operator

Regulators may expedite review process so that

resident care is not impacted

Exiting Operator Cost Reports

Transaction documents evidencing transfer


25

Skilled Nursing Facilities: CHOW

Implications for Internal Reorganizations

Internal Reorganizations

Example – presuming that the operating entity is Corp A, its parent is Corp B, the grandparent is Corp C, and the great-grandparent is Corp D, which is owned by individuals, and both Corp A and Corp B are transferred to a related entity owned by Corp D, regulators tend to view this as not constituting a CHOW, as the direct parent of the operating entity is not changing

Nonetheless, because certain previously disclosed information is changing, states may require an update filing to its application, most likely the submission of a new ownership disclosure


26


Implications for Sale of Real Estate

Sale of Real Estate

Common for operations and real estate to be held by unrelated entities

In the event of a sale of the real estate (i.e., bricks and mortar), there may be filing requirements.

Usually the state CON agency is the agency most concerned with sale of real estate and may consider it a CHOW under the CON regulations

CON is often tied to the land, and the owner of the real estate may hold the CON and leases the right to the property as well as the right to operate to the operator

Often formal notification / request for exemption from CON review will be required

State licensure often views these transactions as not triggering CHOWs.

However, they may require formal notification and submission of

transaction documents (i.e., bill of sale, new lease agreements)

Medicare and Medicaid typically require little to no action under these

circumstances


27


Implications for Change of Manager

Management Agreements

Some states explicitly regulate the management entity for the facility and

subject this entity to the same review process as the operating entity

Accordingly, when such management entity changes, some states may require CHOW filings similar to that seen for operating entities

If Operator relinquishes all operational authority, change in manager could trigger a CHOW

For example: If the governing body of a health care facility does not retain the "immediate authority and jurisdiction" to do the following, Rhode Island considers there to be a "change in operator"— – Hire or fire the chief executive officer of the health care facility;

– Maintain and control the books and records of the health care facility;

– Dispose of assets and incur liabilities on behalf of the health care facility;

– Adopt and enforce policies regarding operation of the health care facility.


www.mwe.com

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Strategic alliance with MWE China Law Offices (Shanghai) © 2014 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome.

Impact on Hospitals and ASCs

July 23, 2014

Monica Wallace

Impact on Hospitals

CHOW rules apply to all providers (42 CFR 489.2(b))

Hospitals, including critical access hospitals and long-

term care hospitals, are providers

Complex transaction structures

– Medicare enrollment terminology

• Standard CHOW, Consolidation, Acquisition/Merger

– Survey and Certification terminology

• Acquisition, Combination

29

Impact on Hospitals

Acquisitions

– Person or entity purchases or leases a certified hospital

– With or without combination

– Automatic assignment of provider agreement

– New owner may reject assignment

30

Impact on Hospitals

Combination

– Two or more certified hospitals are combined under one provider agreement and one CCN

– One location becomes the main location and the remaining locations become provider-based

• Must satisfy provider-based criteria

• Must demonstrate compliance with applicable Medicare regulations as one hospital

– Medicare provider agreement subsumed (not terminated)

– CCN retired (not terminated)

– May have negative impact on participation or payment

31

Impact on Hospitals

Combination With Acquisition

– Owner of existing Medicare provider agreement acquires one or more

new providers and combines all or some of them under one Medicare

provider agreement

Combination Without Acquisition

– Owner of existing Medicare provider agreement combines two or more

providers the owner already owns under one Medicare provider

agreement

– No opportunity to accept or reject automatic assignment of Medicare

provider agreement

32

Impact on Hospitals

Mission Regional Hospital Medical Center (Mission) DAB CR

1248 (2011)

– Mission acquired assets of South Coast Medical Center (South Coast)

on 6/30/09

– South Coast voluntarily terminated its provider agreement and Mission

expressly declined to accept automatic assignment of South Coast’s

provider agreement

– Mission submitted a CMS-855A adding South Coast’s location as a

new Mission practice location effective 7/1/09 and intending to bill

under Mission’s CCN

33

Impact on Hospitals

Mission (Cont’d)

– CMS notified Mission that it could not bill for services at the new

location until a full Medicare certification survey was performed and

CMS determined that applicable Medicare requirements were met

which was 3/18/10

– DAB held Mission not entitled to Medicare reimbursement for services

provided at the new location from 7/1/09 to 3/18/10

– District Court affirmed DAB’s decision and rejected Mission’s request

for $1.4 million in Medicare reimbursement for services provided at the

new location

34

Impact on Hospitals

September 2013 CMS Policy Memorandum

– Issued to State Survey Agency Directors

– Confirmed that new owners that do not accept automatic assignment but want to participate in Medicare will be considered new enrollment applicants, subject to a lengthy enrollment period and unable to bill for services retroactively

– Medicare Administrative Contractors (MACs) must not complete review of CMS-855 until after the acquisition complete

– Initial certification surveys must not be conducted until after the acquisition is complete and the MAC issues its recommendation

– Initial surveys that take place shortly after acquisition will be suspect

– Reiterated outcome in Mission

35

Impact on Hospitals

Not uncommon for processing of initial enrollments to take

upwards of a year

Most transactions involving hospitals tend to be structured as

equity transactions or transactions involving acceptance of

the Medicare provider agreement

36

Impact on Hospitals

Notify applicable CMS Regional Office Survey and

Certification staff whether new owner will accept or reject

automatic assignment

– 45 days in advance

Notify applicable MAC by submitting CMS-855A

– CHOW may be reported up to 90 days in advance of effective date

– Ownership changes must be reported within 30 days following change

– Include detailed cover letter describing transaction

– Must submit final sales agreement/bill of sale before MAC processing

can be completed

37

Impact on Hospitals

State Medicaid CHOW Processing

– May or may not follow Medicare rules

– Typically new enrollment triggered

– Effective date of billing privileges key

38

Impact on ASCs

CHOW rules apply to suppliers that have category-specific

agreements with the Secretary of DHHS or must file cost reports

ASCs have agreements with the Secretary

Treated like providers despite enrolling in Medicare using CMS-

855B

– Limitations of CMS-855B

Issued new PTAN even if accept assignment

Mission equivalent?

State Medicaid CHOW Processing

39

Change of Ownership: Implications for Home

Health Agencies and Hospice Providers

Presented by Jessica Grozine, Esq.


July 23, 2014

41

Home Health & Hospice CHOWs

Licensure and Certificate of Need Issues

State Specific Issues and Obstacles

Medicare CHOW Rules

– The 36 Month Rule for Home Health Agencies


42

HHA & Hospice: Licensure and CON Issues

CON Varies By State

– Home Health and Hospice is often exempted from CON

Deal Structure Can Impact Licensure and CON Timing

– Change of Ownership v. Change of Control

– Consolidation of existing providers / addition of practice

locations

Compliance with conditions of participation in structuring

creative transactions

– Employing Key Hospice Personnel


43

HHA & Hospice: Licensure and CON Issues

Multi-Site Licensure Issues

– Certain states license each location separately

– Proximity of locations

– Limitations on the number of inpatient units per license

– Staffing ratios

Scope of CON

– Radius or county limitations

– Size of operation

– Contiguous county rules


44

HHA & Hospice: State Specific CHOW

Determinations

Determination of CHOW v. Change of Control

Florida Licensure: “Change of ownership” means:

– (a) An event in which the licensee sells or otherwise transfers its ownership to a different individual or entity as evidenced by a change in federal employer identification number or taxpayer identification number; or

– b) An event in which 51 percent or more of the ownership, shares, membership, or controlling interest of a licensee is in any manner transferred or otherwise assigned. This paragraph does not apply to a licensee that is publicly traded on a recognized stock exchange.

– A change solely in the management company or board of directors is not a change of ownership. Florida Stat. 408.803(5).

Alabama CON: “(1) Any change in ownership of an existing health care facility, other than a stock purchase only, shall require that a notice of change in ownership be provided to the State Agency by the acquiring entity at least thirty (30) days before the transaction occurs.” Ala. Admin. Code r. 410-1-7-.04.


45

HHA & Hospice: Planning for Acquisitions

Ability to add new provider to existing Medicaid number

– Adding additional practice sites

Delays in application processing

– Licensure

– State Survey for Medicare

– Medicaid


46

HHA: Navigating the 36-Month Rule

The 36-Month Rule Applies to HHA Transactions

– 42 C.F.R. 424.550(b)(1)

– Goal is to prevent the “flipping” of HHA provider agreements and

to ensure that purchasers satisfy the Medicare Conditions of

Participation

Revisions since initial introduction in 2010

– CMS issued a transmittal that was subsequently rescinded

– Final Rule went into effect on January 1, 2011

CMS maintains that it will continue to monitor the rule


47


If there is a “change in majority ownership” within 36 months of

initial Medicare enrollment, or within 36 months following a change

in majority ownership, the provider agreement and Medicare billing

privileges do not convey to the new owner.

– The prospective owner must:

Enroll in the Medicare program as a new provider; and

Obtain a State survey or an accreditation from an approved

accreditation organization


48


What Constitutes a “Change in Majority Ownership”?

– An individual or organization acquires more than a 50

percent direct ownership interest (use of holding

companies avoids the 36-Month Rule)

– Including asset sale, stock transfer, merger, or

consolidation

– CMS will look to the cumulative effect of transactions

within the applicable 36 month period


49


Exceptions to the rule:

– The existing HHA has submitted two consecutive years of full cost reports

following initial enrollment in Medicare or within 36 months after the HHA’s most

recent change in majority ownership

Low utilization or no utilization cost reports do not qualify for the exception

– The HHA’s parent company is undergoing an internal corporate restructuring,

such as a merger or consolidation

– The owners of the existing HHA are changing the HHA’s existing business

structure, such as from a corporation to a limited liability company, and the

owners remain the same

– An individual owner of the HHA dies


50


Implications for HHA Transactions – Analyze implications prior to entering into any transaction

– Structuring your organization

– Consider adding holding companies

– Address short and long-term goals for the company from the outset of

the transaction

– Include warranties regarding changes of majority ownership in the deal

documents

– Make closing date contingent on the occurrence of an exception

– If necessary, build in time for new enrollment and certification


51

HHA & Hospice: Transaction Structures

Creative structures can streamline the process – Change in control v. CHOW

Acquisitions by existing providers offer the most potential for creative structures – Consolidation

– Merger

– Consider successor liability issues

Addition of Practice Locations – Must review state licensure proximity requirements and other

licensure limitations

Capitalization Requirements for HHAs – Applies to new enrollment and CHOWs (if the change of ownership

results in a new provider number being issued).


www.mwe.com

Boston Brussels Chicago Düsseldorf Frankfurt Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Seoul Silicon Valley Washington, D.C.

Strategic alliance with MWE China Law Offices (Shanghai) © 2014 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome.

Accepting Automatic Assignment

July 23, 2014

Monica Wallace


Pros

–No break in Medicare participation

• Approved Accrediting Organization may extend

Medicare deemed status

– Will conduct an extension survey within 6 months

53


Pros

–No break in Medicare payments

• New owner may bill during CHOW processing

– Payments sent to prior owner’s bank account until CHOW processed

– Purchase agreement should specify billing procedures

– CMS not bound by parties’ agreement

• New owner may wait to bill until after CHOW processed

– Payments retroactive to CHOW effective date

54


Pros

–New owner entitled to any underpayments, including

those related to reimbursement appeals

–Data for IPPS calculations continue, including:

• Cost to charge ratio, wage index reclassification, GME

residency slots, EHR incentive payments

55


Pros

– Hospital IPPS-excluded statuses continue as long as all requirements are met, including:

• Psychiatric hospital or unit, rehabilitation hospital or unit, long-term care hospital

– Special payment classifications continue as long as all requirements are met, including:

• Sole community hospital, transplant center, indirect GME costs, disproportionate share hospital

–

56


Pros

–Grandfathering retained, including:

• Critical access hospital necessary provider

determination, co-location and provider-based distance

–Provider-based status retained depending upon

acquisition structure

57


Cons

–New owner responsible for:

• Plans of correction

• Health and safety standards

• Ownership and financial disclosure requirements

• Compliance with Civil Rights requirements

58


Cons

– New owner responsible for all known and unknown Medicare liabilities including any Medicare overpayments

• Regardless of who had ownership of the Medicare agreement at the time the overpayment was discovered

• Liabilities may result from billing noncompliance, financial relationships with referral sources, violations of conditions of participation or enrollment

• Liabilities may carry CMP or FCA risk

• Limited exception for fraud by prior owner

59

Change of Ownership:

- Rejecting a Seller’s Medicare Provider Agreement

- CHOW Best Practices

Presented by Jessica Grozine, Esq.


July 23, 2014

61

Rejecting a Medicare Provider Agreement

New owners have the option to reject automatic assignment,

resulting in the termination of the prior Medicare provider

agreement.

If the new owner rejects assignment, the new provider is treated as

an initial applicant and will experience a period of time without

Medicare payments.

Generally, rejecting assignment precludes the new owner from

having successor liability for Medicare overpayments.

Purchaser must affirmatively reject the assignment of the provider

agreement by notifying the Regional Office in writing at least 45

days in advance of the CHOW’s effective date.


62

September 2013 CMS Memorandum

On September 6, 2013, CMS issued a policy memorandum to State

Survey Agency (SA) Directors regarding the CHOW process and the

assignment of Medicare provider agreements to new owners. The

memorandum emphasized policies meant to encourage automatic

assignment of the prior Medicare agreement.

CMS focused on survey timing in particular, stating that if an initial survey

of an applicant that rejected assignment is conducted shortly after the

CHOW date, it raises significant doubts that the survey was unannounced.

CMS also stated that SAs must not conduct initial surveys until they are

able to complete their higher priority workload. Also, CMS clarified that the

last day of an initial Medicare survey conducted by the SA or accreditation

organization will not necessarily be the effective date of the new Medicare

provider agreement.


63

CHOW Best Practices

Consider a variety of structures in planning an acquisition or sale

Contact state agencies to discuss implications of each transaction and the filing requirements

Consider liabilities that may be assumed in each transaction and whether they can or should be avoided.

Be mindful of deadlines for reporting CHOWs and changes of information

Understand cash flow implications of transaction


For more information, please contact:

All rights reserved. This presentation is intended to provide general information on various regulatory and legal

issues. It is NOT intended to serve as legal advice or counsel on any particular situation or circumstance.


Hedy Rubinger, Esq.

404.873.8724

[email protected]

Jessica Grozine, Esq.

404.873.8526

[email protected]

Monica Wallace

312.984.7757

[email protected]

© 2014. McDermott Will & Emery

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