CMS’s July, 2010 Proposed Rule Most Likely Changes Mergers and Acquisitions Landscape

Good Morning MFS Bloggers, The following text was taken directly from the CMS Proposed Rule and changes the landscape (if published in final form) for all mergers and acquisitions in the HHA industry:

“In last year’s home health prospective payment system final rule titled, “Medicare Program: Home Health Prospective Payment System Rate Update for Calendar Year 2010,” we finalized several home health program integrity provisions. Specifically, we finalized a provision in 42 CFR 424.550(b) (1) stating that if an owner of an HHA sells (including asset sales or stock transfers), transfers or relinquishes ownership of the HHA within 36 months after the effective date of the HHA’s enrollment in Medicare, the provider agreement and Medicare billing privileges do not convey to the new owner. The prospective provider/owner of the HHA must instead: (i) Enroll in the Medicare program as a new HHA under the provisions of §424.510, and (ii) Obtain a State survey or an accreditation from an approved accreditation organization.

In particular, we are proposing to revise 42 CFR §424.550(b) by adding subparagraph (2) as exemptions to 42 CFR §424.550(b)(1):
– A publicly traded company is acquiring another HHA and both entities have submitted cost reports to Medicare for the previous five (5) years.
– An HHA parent company is undergoing an internal corporate restructuring, such as a merger or consolidation, and the HHA has submitted a cost to report to Medicare for the previous five (5) years.
– The owners of an existing HHA decide to change the existing business structure (e.g., partnership to a limited liability corporation or sole proprietorship to subchapter S corporation), the individual owners remain the same, and there is no change in majority ownership (i.e., 50 percent or more ownership in the HHA.)
– The death of an owner who owns 49 percent or less (where several individuals and/or organizations are co-owners of an HHA and one of the owners dies) interest in an HHA.
Change in Majority Ownership within 36 months of Initial Enrollment or Change in Ownership. HHA’s and other provider organizations must report a change of ownership of 5 percent or more of the equity in the company.

Accordingly, in §424.550(a)(1) we are proposing that any change in majority control and/or ownership during the first 36 months of when the HHA is initially conveyed Medicare billing privileges or the last change of ownership (including assets sale, stock transfer, merger or consolidation) would trigger the provisions of §424.550(b)(1). We believe that this approach would allow individuals or organizations to purchase or sell an ownership interest in an HHA as long as it did not change majority ownership or control within the first 36 months of ownership.
Consequently, we are proposing a definition of “Change in Majority Ownership” to mean an individual or organization acquires more than 50 percent interest in an HHA during the 36 months following the initial enrollment into the Medicare program or a change of ownership (including asset sale, stock transfer, merger, or consolidation). This includes an individual or organization that acquires majority ownership in an HHA through the cumulative effect of asset sales, stock transfers, consolidations, and/or mergers during a 36 month period.“

(See Pages 123-128 of the Rule for More Detail)

Have a great day! Chris

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