CMS Pub. 100-08, ch. 10, § 10.6.1.1.6

Note that section 10.6.1.1.6 negates the longstanding general rule that a DMEPOS supplier

change of ownership resulting in a new tax identification number (TIN) requires the

submission of an initial application and enrollment as a new DMEPOS supplier. All

ownership changes are now governed by § 424.551. Accordingly, even in situations where an

ownership change results in a new TIN, a new initial application is unnecessary if § 424.551

does not apply.

A. Background – 36-Month Rule

1. General Principles

In accordance with 42 CFR § 424.551, if there is a change in majority ownership of a DMEPOS

supplier by sale (including asset sales, stock transfers, mergers, and consolidations) within 36

months after the effective date of the DMEPOS supplier’s initial enrollment in Medicare or

within 36 months after the DMEPOS supplier’s most recent change in majority ownership, the

supplier’s Medicare billing privileges do not convey to the new owner. The prospective

supplier/owner of the DMEPOS supplier must instead:

• Enroll in the Medicare program as a new (initial) DMEPOS supplier, and

• Undergo a survey by, and obtain a new accreditation from, a CMS-approved DMEPOS

accrediting organization in accordance with §§ 424.57 and 424.58.

For purposes of § 424.551, a “change in majority ownership” occurs when an individual or

organization acquires more than a 50 percent direct ownership interest in a DMEPOS supplier

during the 36 months following the DMEPOS supplier’s initial enrollment in the Medicare

program or the 36 months following the DMEPOS supplier’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 a DMEPOS supplier 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

DMEPOS supplier’s most recent change in majority ownership.

2. Exceptions

There are several exceptions to § 424.551. Specifically, the requirements of § 424.551 do not

apply if:

• The DMEPOS supplier’s parent company is undergoing an internal corporate

restructuring, such as a merger or consolidation.

• The DMEPOS supplier 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 DMEPOS supplier dies.

In addition, § 424.551 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

DMEPOS supplier. Consider the following illustrations:

EXAMPLE 1: Smith DMEPOS Supplier is established as a corporation. It is listed as the

supplier in Section 2 of the Form CMS-855S. The corporation has four shareholders (W, X, Y,

and Z), each of which own 25% of Smith. Since Smith is the enrolling supplier 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 § 424.551 has occurred.

EXAMPLE 2: Smith DMEPOS Supplier is established as an LLC. It is listed as the supplier in

Section 2 of the Form CMS-855S. The LLC 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’s indirect

owners, § 424.551 is not invoked.

DMEPOS suppliers should not assume that – using Example 1 above: (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 DMEPOS Supplier – IS the supplier,

hence making W/X/Y/Z direct owners of Smith.

3 Timing of 36-Month Period for DMEPOS Supplier

The provisions of 42 CFR § 424.551 with respect to DMEPOS suppliers (as promulgated in the

CY 2026 Home Health Prospective Payment System (HH PPS) final rule) are effective January

1, 2026. This means these provisions impact only those DMEPOS ownership transactions whose

effective date is on or after January 1, 2026. However, the provisions can apply irrespective of

when the DMEPOS supplier enrolled in Medicare or had its most recent previous change in

majority ownership, as shown in the following:

• Example 1 – Smith DMEPOS Supplier initially enrolled in Medicare effective February

1, 2024. It undergoes a change in majority ownership effective February 1, 2026. The

provisions of § 424.551 apply to Smith because it underwent a change in majority ownership

within 36 months of its initial enrollment.

• Example 2 – Jones DMEPOS Supplier initially enrolled in Medicare effective February

1, 2022. It undergoes its first change in majority ownership effective October 1, 2025. Section

424.551 does not apply to this transaction because it occurred: (i) more than 36 months after

Jones’s initial enrollment; and (ii) prior to January 1, 2026. Suppose, however, that Jones

undergoes another change in majority ownership effective February 1, 2027. Section 424.551

applies to this transaction because it took place on/after January 1, 2026, and within 36 months

after Jones’s most recent change in majority ownership (i.e., on October 1, 2025).

• Example 3 – Davis DMEPOS Supplier initially enrolled in Medicare effective February

1, 2025. It undergoes its first change in majority ownership effective February 1, 2029. This

change would not be affected by § 424.551 because it occurred more than 36 months after

Davis’s initial enrollment. Davis undergoes another change in majority ownership effective

February 1, 2033. This change, too, would be unaffected by § 424.551, for it occurred more

than 36 months after the supplier’s most recent change in majority ownership (i.e., on February

1, 2029). Davis undergoes another majority ownership change on February 1, 2035. This

change would be impacted by § 424.551, since it occurred within 36 months of the supplier’s

most recent change in majority ownership (i.e., on February 1, 2033).

B. Determining the 36-Month Rule’s Applicability

If the contractor receives a Form CMS-855S application reporting a DMEPOS supplier

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

undertake the following steps:

Step 1 – Change in Majority Ownership

Based on the information furnished on the Form CMS-855S, the supplier’s existing enrollment

record and the bill of sale/sales agreement, the contractor shall determine whether a change in

direct majority ownership has occurred. This includes verifying 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

DMEPOS supplier.

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

DMEPOS supplier, 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 0.1 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.

Note that DMEPOS suppliers must submit with their Form CMS-855S a copy of the bill of sale

or sale/transfer agreement for all ownership changes, regardless of the percentage involved

(e.g., new 15 percent owner). (The Form CMS-855A contains a similar requirement.) If the

supplier does not include the bill of sale/sale-transfer agreement with its Form CMS-855S

submission, the contractor shall request it. However - and unless CMS directs otherwise - the

contractor need only review the bill of sale/sales-transfer agreement for purposes of determining

whether the 36-month rule applies.

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 DMEPOS supplier’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 sales/transfer 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 DMEPOS supplier – regarding the

effective date of the DMEPOS supplier’s most recent change in majority ownership, if

applicable.

If the transfer’s effective date does not fall within either of the aforementioned 36-month periods,

the contractor may process the submission normally.

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 § 424.551 (cited in subsection (A)(2) above) apply. This can be done by reviewing

the sales/transfer agreement, bill of sale, etc.

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. 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 DMEPOS supplier and require

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

the contractor’s determination:

1. The contractor shall identify the voluntary termination action in PECOS as a

deactivation ---- and hence shall deactivate the DMEPOS supplier’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 date of the sale shall be the effective date of the

deactivation.

2. The contractor shall send to the DMEPOS supplier the “36-Month Rule Voluntary

Termination Letter” in section 10.7.21. This letter will include, among other things, rebuttal

rights regarding the deactivation as well as language stating that, as a result of § 424.551, the

DMEPOS supplier must:

• Enroll as an initial applicant; and

• Obtain a new survey and accreditation by a CMS-approved DMEPOS accreditation

organization.

The contractor shall copy the DMEPOS supplier’s accreditation organization on the letter.

(3) The DMEPOS supplier need not submit a Form CMS-855S voluntary termination

application.

DMEPOS suppliers and/or their representatives (e.g., attorneys, consultants) shall contact their

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

rule and/or its exceptions apply in a particular DMEPOS supplier’s case.

C. Additional Notes

The contractor is advised of the following:

1. If the contractor learns of a DMEPOS supplier ownership change by means other than the

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

2. If the contractor determines, under Step 3 above, that one of the § 424.551 exceptions is

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

the 36-month clock. To illustrate, assume that a DMEPOS supplier initially enrolled in

Medicare effective July 1, 2023. It undergoes a change in majority ownership effective February

1, 2025. The contractor determines that the transaction is exempt from § 424.551. On February

1, 2027, the DMEPOS supplier undergoes another change in majority ownership, but no

exception applies. The DMEPOS supplier must enroll as a new DMEPOS supplier under §

424.551 because the transaction occurred within 36 months of the supplier’s most recent change

in majority ownership - even though the February 2025 change was exempt from §

424.550(b)(1).