AHLA
S. Navigating the Maze
of Ownership
Changes–Emphasis on
Medicare and Medicaid
Enrollment Strategies
Mary Beth Johnston
K & L Gates LLP
Morrisville, NC
Health Care Transactions
● April 10-11, 2014
Navigating the Maze of Ownership
Changes – Emphasis on Medicare &
Medicaid Enrollment Strategies
AHLA Healthcare Transactions Conference
April 10-11, 2014
Mary Beth Johnston, Esq. – K&L Gates LLP
© Copyright 2014 by K&L Gates LLP. All rights reserved.
NAVIGATING THE MAZE
 Dependency on Medicare/Medicaid reimbursement
adds significant complexity to health care transactions
 Complicates the organization of a new provider or
supplier
 Similarly adds unavoidable hurdles in the sale or
purchase of an existing enrolled provider
or supplier
 Failure to plan for and address provider
enrollment or change of ownership
matters may have substantial financial
consequences and create legal risk
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NAVIGATING THE MAZE
 Medicare/Medicaid enrollment matters must also be
navigated in conjunction with a number of other
significant permits and approvals
 Examples include:
 State Facility License
 State Certificate of Need
 CLIA
 DEA & State Controlled Substance Permit
 Accreditation
 Nonprofit Attorney General Approval
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Medicare and Medicaid Enrollment 101
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MEDICARE AND MEDICAID ENROLLMENT 101
 Terminology
 Provider, supplier or both (42 C.F.R. § 400.202, 400.203)
 Medicare
 Medicaid
 Basic Premise
 Provider/supplier receives billing privileges after successful
completion of the Medicare/Medicaid enrollment process
 May be retroactive in certain circumstances
 May result in a reimbursement gap that cannot be recouped
 Often results in reimbursement delay
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MEDICARE AND MEDICAID ENROLLMENT 101
 Form CMS-855A
 Providers and certain suppliers
 Certification survey
 After the 855A has been reviewed and approved
 By state survey agency (“SSA”) or a private accreditation
organization (“AO”) with “deeming” authority
 Lowest priority for SSA if there’s a deemed accreditation option
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MEDICARE AND MEDICAID ENROLLMENT 101
 Form CMS-855A (continued)
 Reimbursement gap
 Start of services until at least date of survey
 All requirements must be met as of survey or effective date can be
even later
 Reimbursement delay
 Date of survey/all other requirements met until approval letter
issued
 Can take months
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MEDICARE AND MEDICAID ENROLLMENT 101
 Form CMS-855B
 Suppliers
 Typically does not require a certification survey
 Exceptions, e.g.: ambulatory surgical center, independent clinical
laboratory
 Reimbursement gap
 Can typically be avoided with advance planning and filing
 If not, gap is typically start of services until receipt of 855B that can
be processed to approval
 Reimbursement delay
 Can take months for approval letter to be issued
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MEDICARE AND MEDICAID ENROLLMENT 101
 State Medicaid Programs
 Frequently less developed regulatory scheme and often less
accessible guidance than Medicare
 Requirements may greatly differ from state to state




Forms
Provider types
Timing
Process
 Consider consulting pertinent state agencies and local counsel
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Structuring the Transaction – Asset
versus Stock Deals
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STRUCTURING THE TRANSACTION – ASSET
VERSUS STOCK DEALS
 The acquisition of an already enrolled Provider or Supplier
prompts certain threshold questions:
 Do the business terms include a change of control in the existing
provider?
 Does the initially proposed transaction structure further constitute
a CHOW under 42 CFR 489.18(a)?
 Does the proposed initial timeline for the transaction permit a
smooth transition under federal and state CHOW notice
requirements?
 Are there likely or suspected billing compliance issues which
might warrant special transaction structure discussions?
 Does the particular type of provider have additional
CHOW/enrollment issues?
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STRUCTURING THE TRANSACTION – ASSET
VERSUS STOCK DEALS
 Asset Transactions
 Transfer of assets to new tax identification number requires filing
a Form CMS-855A and/or Form CMS-855B
 Contract between buyer and seller governs assumption of
liabilities
 Medicare options
 Change of Ownership (“CHOW”) filing with assignment of the
provider agreement
 New enrollment/CHOW without assignment of the provider
agreement
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STRUCTURING THE TRANSACTION – ASSET
VERSUS STOCK DEALS
 Stock or Other Similarly Structured Equity Transactions
 Transfer of legal entity ownership with no change in seller’s tax
ID number
 Buyer assumes all assets and liabilities as a matter of law
 Medicare implications
 Change of Information filing, requiring an update to existing
enrollment data
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STRUCTURING THE TRANSACTION – ASSET
VERSUS STOCK DEALS
 State Medicaid Programs
 Often Different Principles from Medicare
 Example – State statute or application form may impose successor
liability regardless of whether transaction is structured as a new
enrollment
 Example – Change of control may be considered a CHOW even
when there is no change in legal entity/tax identification number
 Highly variable from state to state
 Cash flow impact
 Timing of reporting or provision of advance notice, with potential
financial consequences for late notice
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Assuming the Provider Agreement –
Cash Flow and Successor Liability
ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
Structure of Transaction and Associated Risk
CASH FLOW
DISRUPTION/GAP
Lower
Risk
Stock Transaction (COI)
Asset Transaction With
Assumption of Provider
Number (CHOW)
SUCCESSOR
LIABILITY
Higher
Risk
Asset Transaction Without
Assumption of Provider
Number (New Enrollment)
Higher
Risk
Lower
Risk
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Stock Transactions and Change of Information
 Advantages
 Business continues to operate with no direct impact on revenue or
cash flow
 Fairly straightforward regulatory filing that removes old owners and
identifies new ones
 Challenges
 Successor liability
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Asset Transaction and CHOW With Assumption of
Provider Agreement
 Advantages compared to new enrollment
 No certification survey required
 No revenues/reimbursement gap (if handled properly) and limited
cash flow impact
 Challenges
 Extra regulatory step (compared to COI)
 Likelihood of successor liability
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Case Law: Successor Liability (Assumption of Provider
Agreement)
 Seminal case – buyer assuming provider agreement incurs
successor liability
 US v. Vernon Home Health, Inc. (5th Cir. 1994) – “buyer agreed
(albeit unknowingly) to accept the terms and conditions of the
regulatory scheme,” which included successor liability for
overpayments in this case
 Deerbrook Pavilion, LLC v. Shalala (8th Cir. 2000) – new owner
“acquire[d] the compliance history, good or bad, and the penalty
carries over to the subsequent owner”
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Case Law: Successor Liability (Assumption of Provider
Agreement) (continued)
 Triad at Jeffersonville I, LLC v. Leavitt (D.D.C. 2008) – new
owner responsible for prior owner’s receipt of overpayments
“even when its contract with a former owner provides otherwise”
 Delta Health Group, Inc. v. HHS (N.D. Fla. 2006) – successor
liability for unresolved civil monetary penalties is not a violation
of due process rights
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 False Claims Act and Successor Liability
 US ex rel. Geschrey v. Generations Healthcare, LLC (N.D. Ill.
2012)
 Test for successor liability
 Whether successor had notice of claim prior to acquisition
 Whether there was substantial continuity in operation of business after
acquisition
 Court held that substantial continuity existed where successor took
over same building, employees, patients and services as prior
owner
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 False Claims Act and Successor Liability (continued)
 United States ex rel. Watine v. Cypress Health Sys. Fla., Inc., 23
Fla. L. Weekly Fed. D. 181, 2012 WL 467894 (N.D. Fla. 2012):
 Court denied a defendant hospital’s motion to dismiss Federal FCA
claims in a stock deal – corporate stock transfer is not a CHOW
 Court recognized Florida statute defines change of ownership
differently, but noted the state definition is not applicable to Federal
FCA liability.
 Defendant did not argue its liability under Florida law was different
than under Federal law: “the Court will not speculate whether the
differences between the change of ownership provisions in the
federal regulations and the Florida law result in a different result for
Cypress Florida’s liability under the Florida False Claims Act.”
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Enrollment Error as Basis for False Claims?
 United States ex rel. Hobbs v. MedQuest Assocs., Inc. (6th Cir.
April 1, 2013)
 Government intervened in False Claims Act case brought by former
employee against diagnostic imaging company
 Allegation that company submitted false claims when it continued to
bill using physician’s Medicare number after acquisition of practice
and transition to IDTF
 District court granted government’s motion for summary judgment
 6th Circuit reversed, holding that entity was in reality an IDTF
despite the delay in updating its enrollment; the enrollment form
itself was not a condition of payment for FCA purposes
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Asset Transaction and CHOW Without Assumption of
Provider Agreement
 Advantages
 Potential to avoid successor liability
 Challenges
 Survey required – reimbursement gap
 Severing of connection to data from previous provider number could
be helpful for other business reasons
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Challenges
 Survey Required and Reimbursement Gap → Potentially
Significant Reimbursement Gap
 September 6, 2013 Memorandum to SSA , Acquisition of
Providers/Suppliers with Rejection of Automatic Assignment of the
Medicare Provider Agreement: Implications for Timing of Surveys
and Participation Effective Date (Sept. 6, 2013).
 Per CMS, enrollment process when assignment of provider
agreement is rejected = initial enrollment
 MAC must confirm transaction closed before recommending 855 for
approval
 Survey must not occur until 855 approved
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Challenges
 Surveys must be unannounced
“Given the lead time normally required to schedule and prepare for a
full survey, if an initial survey takes place shortly after the acquisition
date, such timing suggests discussion with the new owner prior to the
acquisition date to arrange the timing of the survey to occur shortly
thereafter, compromising the requirement that survey be
unannounced.”
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Challenges
 SSAs must complete all higher priority workload items (e.g.,
complaint investigations, recertification surveys, etc.) before
conducting initial surveys
“[SSAs] must be able to demonstrate that they can complete all of
their higher priority workload and that initial certification surveys are
conducted in addition to this higher priority work, rather than instead of
it.”
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Challenges
 Required survey must be a full survey
 Wesley Med. Ctr., LLC d/b/a Galichia Heart Hosp. (CCN: 170202), DAB
No. CR3033 (H.H.S. 2013) – In a transaction where buyer rejected seller
hospital’s provider agreement, CMS determined that AO did not conduct
full, standard survey when it initially surveyed hospital. AO resurveyed
the hospital more than two months later and date of acceptance of plan
of correction from the second survey was upheld as effective date
“CMS is entitled to summary judgment because the parties agree -- and
undisputed evidence establishes -- that the hospital failed to meet program
requirements prior to the April 20, 2012 effective date. As a matter of law,
CMS was authorized to reject the adequacy of the February survey, and to
order a valid one, and I have no authority to review its decision to do so.”
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ASSUMING THE PROVIDER AGREEMENT – CASH
FLOW AND SUCCESSOR LIABILITY
 Challenges
 Eliminates previous data tied to the provider number that may be
helpful for other business reasons, e.g.:
 Commercial payors/Medicaid may require pre-existing Medicare
enrollment
 Sub-provider PPS excluded units – re-enrollment only at the start of
the provider’s fiscal year
 340B enrollment tied to historical DSH percentage
 May not be able to completely avoid successor liability under
state or common law principles
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Provider Transaction Scenarios –
Medicare Form CMS-855A Perspective
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 How the Form CMS-855A is completed affects the Buyer
and Seller’s provider agreements and Medicare provider
number/CMS Certification Number (CCN)
 If the provider agreement is assumed, the transaction
can be reported as a:
 Change of ownership
 Acquisition/merger
 Consolidation
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 Effect of Reporting a Change of Ownership
 Buyer assumes Seller’s Medicare provider agreement
 Continues to operate provider under same provider number/CCN
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CHANGE OF OWNERSHIP
Legal
Entity A
APA
Legal
Entity B
Legal
Entity B
=
Hospital
A
CCN A
Hospital
B
CCN B
Hospital
A
CCN A
Hospital
B
CCN B
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 Effect of Reporting an Acquisition/Merger
 Existing Medicare provider purchases another provider, but only
Buyer’s Medicare provider number remains post-closing
 Seller’s provider agreement incorporated into Buyer’s
 In effect, the prior separately certified provider is operated as a
practice location of Buyer
 Assess whether it is feasible to structure the transaction as an
acquisition/merger:





Only certain provider types (e.g., hospital)
Provider-based rules
Sub-provider PPS-excluded units
Separate MAC jurisdictions or states
Reimbursement implications (including 340B)
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ACQUISITION/MERGER
Legal
Entity A
APA
Legal
Entity B
Legal
Entity B
=
Hospital
A CCN A
Hospital
B CCN B
Hospital
B CCN B
Main
Campus
Hospital
B CCN B
Campus 2
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 Acquisition/Merger cannot be used as a means to reject Seller’s
provider agreement while avoiding Medicare reimbursement gap
 If Buyer assumes Seller’s provider agreement, Buyer can often bill
for services as of closing date
 But consider:
 Hospice: “When an existing hospice intends to add a multiple
location, it must notify CMS, the [SSA], and, if deemed, it should
notify its’ approved national AO, in writing, of the proposed location if
it expects this location to participate in Medicare or Medicaid. . . .
The provider must obtain CMS approval of the new location before it
is permitted to bill Medicare for services provided from the new
location.” State Operations Manual (SOM), Ch. 2, Sec. 2088
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 But consider:
 HHA: “As part of the provider certification process, an existing
Medicare-approved HHA must provide notification to CMS through
the [SSA] of its proposal to add a non-parent location, i.e., branch or
subunit. (See §3224.) . . . A provider may not bill Medicare for
services provided by either a branch or subunit where the branch or
subunit is not a part of an approved HHA or where the branch or
subunit has not been determined to meet the applicable CoPs.”
Memorandum to SSA Directors, Home Health Agency (HHA) State
Operations Manual (SOM) revisions: Appendix B, HHA Enforcement
Guidance and revisions to Chapter 2, Certification Process 13
(March. 14, 2014), SOM Sec. 2182.4.
 If Buyer rejects Seller’s provider agreement, the new location
will be treated as if it is an initial enrollment and be required to
go through a full certification survey and there will be a
reimbursement gap
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 Effect of Reporting a Consolidation
 Buyer is not enrolled in Medicare
 Buyer purchases two or more existing Medicare providers and is
assigned a new provider number
 Sellers’ Medicare provider numbers are retired
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CONSOLIDATION
Legal
Entity A
APA
Legal
Entity C
APA
Hospital
A
CCN A
Legal
Entity B
Hospital
B
CCN B
=
Legal
Entity C
Hospital
C CCN C
Main
Campus
Hospital
C
CCN C
Campus 2
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MULTI-CAMPUS HOSPITAL SPLIT
Legal
Entity A
APA
=
Legal
Entity B
(Remote Location)
Hospital
A
CCN A
Hospital
B Main
Campus
CCN B
Hospital B
Remote
Location
CCN B
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Legal
Entity A
Hospital
A
CCN A
Hospital A
Remote
Location
CCN A
Legal
Entity B
Hospital
B
CCN B
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PROVIDER TRANSACTION SCENARIOS –
MEDICARE FORM CMS-855A PERSPECTIVE
 Draft Form CMS-855A (January 2014) Highlights
 Reporting CHOWs 30 days in advance
 If Buyer is rejecting assignment of the provider agreement, the
MAC will not begin processing application until after the date the
sale is complete and it receives a copy of the final sales
agreement/transaction and bill of sale.
 Types of CHOWs (Draft v. Current 855A)
 Acquisition (Draft) = CHOW (Current)
 Acquisition-Combination (Draft) = Acquisition/Merger (Current)
 Consolidation of Multiple Corporations (Draft) = Consolidation
(Current)
 Combining Medicare Enrolled Providers (Same Owner) (Draft)
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Special Risks/Impact of Medicare
Enrollment and Certification
Requirements
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS
 Temporary Enrollment Moratoria (42 C.F.R. § 424.570;
42 C.F.R. § 455.470)
 May be imposed on certain provider or supplier types or the
addition of practice locations in a given geographic area
 Lasts for 6 months and may be extended in 6-month increments
 Does not affect ability to file changes of information, changes of
practice location, or changes of ownership
 Exception: HHA changes of ownership subject to “36-Month Rule”
 Does affect most transactions involving Part B suppliers (e.g.
DMEPOS) that require new enrollment in an asset transaction
 State Medicaid agencies must impose on Medicaid providers
when a Medicare moratorium has been imposed, unless
beneficiary access to care would be adversely impacted
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS
 Moratoria Currently in Effect
 Home Health Agencies and Branch Locations
 Metropolitan areas of Chicago, IL and Miami, FL – effective July 30,
2013, extended for an additional 6 months, effective January 30,
2014
 Metropolitan areas of Fort Lauderdale, FL, Detroit, MI, Dallas, TX,
and Houston TX – effective January 30, 2014
 Ground Ambulance
 Greater Philadelphia area – effective January 30, 2014
 Houston area – effective July 30, 2013, extended for an additional 6
months, effective January 30, 2014
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS

Denials Related to Unpaid Debt (42 C.F.R. § 424.530;
Medicare Program Integrity Manual (PIM), Ch. 15, Sec.
15.8.4.A., 15.13)
 Organization enrollment application can be denied if an owner
reported in Section 5 or 6 of the applying provider/supplier has
an existing or delinquent overpayment of $1,500 or more
 Applies to the 855A, 855B, and 855S
 Applies to new owners in changes of ownership or initial
enrollments
 Does not apply if there is an approved repayment plan or
overpayment being offset or appealed
 Similar rule for individual enrollment applications
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS
 Home Health Agencies – 36-Month Rule (42 C.F.R. §
424.550(b)(1); PIM, Ch. 15, Sec. 15.26.1.B)
 Could apply to either stock or asset transaction
 Prohibits assumption of provider agreement of HHA that
undergoes a “change in majority ownership” (defined term)
within 36 months of initial enrollment or of most recent change in
majority ownership
 Some exceptions apply
 Medicare and Medicaid implications
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS
 Long-Term Care Hospitals
 Demonstrating average length of stay ("ALOS") in a CHOW –
LTCH will continue to be excluded from the PPS only if the
hospital met the required ALOS for the period of at least 5
months of the 6 months immediately preceding the CHOW (42
C.F.R. § 412.23(e)(3)(iv))
 LTCH Moratorium – Protecting Access to Medicare Act of 2014,
signed April 1, 2014, re-establishes the LTCH moratorium for
new LTCHs/satellites and increases in beds effective April 1,
2014 – September 30, 2017, with certain exceptions
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SPECIAL RISKS/IMPACT OF MEDICARE ENROLLMENT
AND CERTIFICATION REQUIREMENTS

PPS-Excluded Hospitals/Units and Grandfathered/
Special Status
 Provided any other requirements are met, status is typically
retained in a CHOW with assignment of the provider agreement
 Examples include:






Critical Access Hospitals
Cancer Hospitals
Hospitals-Within-a-Hospital
Psychiatric Hospitals/Units
Rehabilitation Hospitals/Units
Satellite Facilities
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