CMS Pub. 100-08, ch. 10, § 10.6.1.1.5

A. Background – 36-Month Rule

1. General Principles

In accordance with 42 CFR § 424.550(b)(1), if there is a change in majority ownership of an

HHA or hospice by sale (including asset sales, stock transfers, mergers, and consolidations)

within 36 months after the effective date of the HHA’s or hospice’s initial enrollment in

Medicare or within 36 months after the HHA’s or hospice most recent change in majority

ownership, the provider agreement and Medicare billing privileges do not convey to the new

owner. The prospective provider/owner of the HHA or hospice must instead:

• Enroll in the Medicare program as a new (initial) HHA or hospice under the provisions of §

424.510, and

• Obtain a state survey or an accreditation from an approved accreditation organization.

For purposes of § 424.550(b)(1), a “change in majority ownership” (as defined in 42 CFR §

424.502) occurs when an individual or organization acquires more than a 50 percent direct

ownership interest in an HHA or hospice during the 36 months following the HHA’s or

hospice’s initial enrollment into the Medicare program or the 36 months following the HHA’s or

hospice’s most recent change in majority ownership (including asset sales, stock transfers,

mergers, or consolidations). This includes an individual or organization that acquires majority

ownership in an HHA or hospice through the cumulative effect of asset sales, stock transfers,

consolidations, or mergers during the 36-month period after Medicare billing privileges are

conveyed or the 36-month period following the HHA’s or hospice’s most recent change in

majority ownership.

2. Exceptions

There are several exceptions to § 424.550(b)(1). Specifically, the requirements of §

424.550(b)(1) do not apply if:

• The HHA or hospice has submitted 2 consecutive years of full cost reports since initial

enrollment or the last change in majority ownership, whichever is later. (For purposes of this

exception, low utilization or no utilization cost reports do not quality as full cost reports.)

• The HHA’s or hospice’s parent company is undergoing an internal corporate restructuring,

such as a merger or consolidation.

• The HHA or hospice is changing its existing business structure – such as from a corporation,

a partnership (general or limited), or a limited liability company (LLC) to a corporation, a

partnership (general or limited) or an LLC - and the owners remain the same.

• An individual owner of the HHA or hospice dies.

In addition, § 424.550(b)(1) does not apply to “indirect” ownership changes. For purposes of the

36-month rule’s application, an indirect owner is a party that owns a direct or indirect owner of

the provider. Consider the following illustrations:

EXAMPLE 1: Smith Hospice is established as a corporation. It is listed as the provider in

Section 2 of the Form CMS-855A. The corporation has four shareholders (W, X, Y, and Z),

each of which own 25% of Smith. Since Smith is the enrolling provider and W, X, Y, Z own

Smith’s stock, W, X, Y, and Z are considered direct owners of Smith. Thus, if W, X, and Y sell

their 25% shares to Jones, Jones now directly owns 75% of Smith. A change in majority

enrollment under § 424.550(b)(1) has occurred.

EXAMPLE 2: Smith Hospice is established as an LLC. It is listed as the provider in Section 2 of

the Form CMS-855A. The corporation has two owners, Company X and Company Y. X owns

80% of Smith, and Y owns 20%. X and Y are accordingly direct owners of Smith. Company Z

owns 100% of X, making Z an indirect owner of Smith. Now suppose that Company V

purchases Z in its entirety. Since the transaction involves a sale of one of Smith indirect owners,

§ 424.550(b)(1) is not invoked.

To the extent this previously occurred, hospices and HHAs should not assume that – using the

above examples: (1) the corporation is the direct owner of Smith; (2) W, X, Y, and Z were

therefore merely indirect owners of Smith; and (3) the sale of W/X/Y’s shares to Jones is an

indirect ownership change that does not trigger the 36-month rule. To the contrary, the

corporation – as Smith Hospice – IS the provider, hence making W/X/Y/Z direct owners of

Smith.

3. Timing of 36-Month Period for Hospices

The provisions of 42 CFR § 424.550(b)(1) and (2) with respect to hospices (as enacted in “CMS-

1780-F, Medicare Program; Home Health Prospective Payment System Rate Update for

Calendar Year 2024”) became effective January 1, 2024. This means these provisions impact

only those hospice ownership transactions whose effective date is on or after January 1, 2024.

However, the provisions can apply irrespective of when the hospice first enrolled in Medicare.

Consider the following illustrations:

• Example 1 – Smith Hospice initially enrolled in Medicare effective February 1, 2022. Smith

undergoes a change in majority ownership effective February 1, 2024. The provisions of §

424.550(b)(1) apply to Smith because it underwent a change in majority ownership within 36

months of its initial enrollment.

• Example 2 – Jones Hospice initially enrolled in Medicare effective February 1, 2016. Jones

undergoes its first change in majority ownership effective February 1, 2024. Section

424.550(b)(1) does not apply to this transaction because it occurred more than 36 months

after Jones’s initial enrollment. Suppose, however, that Jones undergoes another change in

majority ownership effective February 1, 2025. Section 424.550(b)(1) applies to this

transaction because it took place within 36 months after Jones’s most recent change in

majority ownership (i.e., on February 1, 2024).

• Example 3 – Davis HHA initially enrolled in Medicare effective February 1, 2012. It

underwent its first change in majority ownership effective February 1, 2016. This change

was not affected by § 424.550(b)(1) because it occurred more than 36 months after Davis’s

initial enrollment. Davis underwent another change in majority ownership effective February

1, 2023. This change, too, was unaffected by § 424.550(b)(1), for it occurred more than 36

months after the HHA’s most recent change in majority ownership (i.e., on February 1,

2016). Davis underwent another majority ownership change on February 1, 2025. This

change is impacted by § 424.550(b)(1), since it occurred within 36 months of the HHA’s

most recent change in majority ownership (i.e., on February 1, 2023).

B. Determining the 36-Month Rule’s Applicability

If the contractor receives a Form CMS-855A application reporting an HHA or hospice

ownership change (and unless a CMS instruction or directive states otherwise), it shall undertake

the following steps:

Step 1 – Change in Majority Ownership

The contractor shall determine whether a change in direct majority ownership has occurred.

Through its review of the transfer agreement, sales agreement, bill of sale, etc., the contractor

shall verify whether:

• The ownership change was a direct ownership change and not a mere indirect ownership

change, and

• The change involves a party assuming a greater than 50 percent ownership interest in the

HHA or hospice.

Assumption of a greater than 50 percent direct ownership interest can generally occur in one of

three ways. First, an outside party that is currently not an owner can purchase more than 50

percent of the business in a single transaction. Second, an existing owner can purchase an

additional interest that brings its total ownership stake in the business to greater than 50 percent.

For instance, if a 40 percent owner purchased an additional 15 percent share of the HHA or

hospice, this would constitute a change in majority ownership. This is consistent with the

verbiage in the above-mentioned definition of “change in majority ownership” regarding the

“cumulative effect” of asset sales, transfers, etc. Another example of a change in majority

ownership would be if a 50 percent owner obtains any additional amount of ownership

(regardless of the percentage) and hence becomes a majority owner; thus, for instance, if a 50

percent owner were to acquire an additional .001 percent ownership stake, the owner becomes a

majority owner and the transaction involves a change in majority ownership.

If the transfer does not qualify as a change in majority ownership, the contractor can process the

application normally (which will typically be as a change of information under 42 CFR §

424.516(e)). If it does qualify, the contractor shall proceed to Step 2:

Step 2 – 36-Month Period

The contractor shall determine whether the effective date of the transfer is within 36 months after

the effective date of the HHA’s or hospice’s (1) initial enrollment in Medicare or (2) most recent

change in majority ownership. The contractor shall verify the effective date of the reported

transfer by reviewing a copy of the transfer agreement, sales agreement, bill of sale, etc., rather

than relying upon the date of the sale as listed on the application. It shall also review its records –

and, if necessary, request additional information from the HHA or hospice – regarding the

effective date of the HHA’s or hospice’s most recent change in majority ownership, if applicable.

If the effective date of the transfer does not fall within either of the aforementioned 36-month

periods, the contractor may process the application normally; specifically, the contractor shall, as

applicable and depending upon the facts of the case, process the application as a change of

information under 42 CFR § 424.516(e) or as a potential change of ownership under 42 CFR §

489.18.

If the transfer’s effective date falls within one of these 36-month timeframes, the contractor shall

proceed to Step 3.

Step 3 – Applicability of Exceptions

If the contractor determines that a change in majority ownership has occurred within either of the

above-mentioned 36-month periods, the contractor shall determine whether any of the exceptions

in § 424.550(b)(2) apply. As alluded to earlier, the exceptions are as follows:

i. The HHA or hospice has submitted 2 consecutive years of full cost reports.

(A) For purposes of this exception, low utilization or no utilization cost reports do not qualify as

full cost reports. (See 42 CFR § 413.24(h) for a definition of low Medicare utilization.)

(B) The cost reports must have been: (1) consecutive, meaning that they were submitted in each

of the 2 years preceding the effective date of the transfer; and (2) accepted by the contractor.

ii. The HHA’s or hospice’s parent company is undergoing an internal corporate restructuring,

such as a merger or consolidation.

iii. The HHA or hospice is changing its existing business structure – such as from a corporation,

a partnership (general or limited), or an LLC to a corporation, a partnership (general or limited)

or an LLC - and the owners remain the same.

(A) If the HHA or hospice is undergoing a change in business structure other than those which

are specifically mentioned in this exemption (e.g., corporation to an LLC), the contractor shall

contact its PEOG Business Function Lead (BFL) for guidance.

(B) For the exemption to apply, the owners must remain the same.

iv. An individual owner of the HHA or hospice dies – regardless of the percentage of ownership

the person had in the HHA or hospice.

Step 4 - Determination

If the contractor concludes that one of the aforementioned exceptions applies (and unless a CMS

instruction or directive states otherwise), it may process the application normally; specifically,

the contractor shall, as applicable and depending upon the facts of the case, process the

application as a change of information under 42 CFR § 424.516(e) (via the instructions in section

10.6.1.2 of this chapter) or as a potential change of ownership under 42 CFR § 489.18 (via the

instructions in section 10.6.1.1 of this chapter).

If no exception applies, the contractor shall refer the case to its PEOG BFL for review. Under no

circumstances shall the contractor apply the 36-month rule to the HHA or hospice and require an

initial enrollment based thereon without the prior approval of PEOG. If PEOG agrees with the

contractor’s determination:

(1) PEOG will terminate the seller in ASPEN.

(2) The contractor shall identify the voluntary termination action in PECOS as a deactivation ----

and hence shall deactivate the HHA’s or hospice’s billing privileges pursuant to § 424.540(a)(8)

--- with a status reason of “Voluntarily Withdrawal from the Medicare Program.” Per §

424.540(d)(1)(ii)(E), the effective date of the deactivation shall be the date of the sale.

(3) The contractor shall send to the HHA or hospice the “36-Month Rule Voluntary Termination

Letter” in section 10.7.5.1. This letter will include, among other things, rebuttal rights regarding

the deactivation as well as language stating that, as a result of § 424.550(b)(1), the HHA or

hospice must:

• Enroll as an initial applicant; and

• Obtain a new state survey or accreditation survey after it has submitted its initial enrollment

application and the contractor has made a recommendation for approval to the state.

(In preparing this letter, the contractor may, if applicable to the situation, change any reference

therein to “HHA” or “home health agency” to “hospice.”)

(4) The HHA or hospice need not submit a Form CMS-855A voluntary termination application.

Providers and/or their representatives (e.g., attorneys, consultants) shall contact their local MAC

with any questions concerning (1) the 36-month rule in general and (2) whether the rule and/or

its exceptions apply in a particular provider’s case.

C. Additional Notes

The contractor is advised of the following:

1. If the contractor learns of an HHA or hospice ownership change by means other than the

submission of a Form CMS-855A application, it shall notify its PEOG BFL immediately.

2. If the contractor determines, under Step 3 above, that one of the § 424.550(b)(2) exceptions is

applicable, the ownership transfer still qualifies as a change in majority ownership for purposes

of the 36-month clock. To illustrate, assume that an HHA initially enrolled in Medicare effective

July 1, 2010. It underwent a change in majority ownership effective February 1, 2012. The

contractor determined that the transaction was exempt from § 424.550(b)(1) because the HHA

submitted full cost reports in the previous 2 years. On February 1, 2014, the HHA underwent

another change in majority ownership that did not qualify for an exception. The HHA thus had

to enroll as a new HHA under § 424.550(b)(1) because the transaction occurred within 36

months of the HHA’s most recent change in majority ownership - even though the February

2012 change was exempt from § 424.550(b)(1).