Presenting a live 90-minute webinar with interactive Q&A 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 WEDNESDAY, JULY 23, 2014 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Hedy Rubinger, Partner, Arnall Golden Gregory, Atlanta Monica Wallace, Partner, McDermott Will & Emery, Chicago Jessica Grozine, Arnall Golden Gregory, Atlanta The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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July 23, 2014 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
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 6
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 7
Diagram #1: What constitutes a CHOW? Change in operator (Traditional CHOW) Before After Parent A Parent B Operator A Operator B 8
Diagram #2: What constitutes a CHOW? Change in immediate parent (often considered a CHOW) Before After Parent A Parent B Operator A Operator A 9
Diagram #3: What constitutes a CHOW? Change in grandparent (sometimes considered a CHOW) Before After Grandparent A Grandparent B Parent A Parent A Operator A Operator A 10
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 11
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 12
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 13
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 14
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 15
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. 16
Skilled Nursing Facilities: What constitutes a CHOW for State licensure purposes? 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). 17
Skilled Nursing Facilities: What constitutes a CHOW for State licensure purposes? 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. 18
Skilled Nursing Facilities: What constitutes a 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 19
Skilled Nursing Facilities: What constitutes a 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. 20
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 21
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) 22
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 23
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 24
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 25
Skilled Nursing Facilities: CHOW 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 26
Skilled Nursing Facilities: CHOW 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. 27
Impact on Hospitals and ASCs July 23, 2014 Monica Wallace 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.
Impact on Hospitals CHOW rules apply to all providers (42 CFR 489.2(b)) Hospitals, including critical access hospitals and longterm 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
July 23, 2014 Change of Ownership: Implications for Home Health Agencies and Hospice Providers Presented by Jessica Grozine, Esq. Sponsored by the Legal Publishing Group of Strafford Publications
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 41
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 42
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 43
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. 44
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 45
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 46
HHA: Navigating the 36-Month Rule 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 47
HHA: Navigating the 36-Month Rule 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 48
HHA: Navigating the 36-Month Rule 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 49
HHA: Navigating the 36-Month Rule 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 50
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). 51
Accepting Automatic Assignment July 23, 2014 Monica Wallace 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 Pros No break in Medicare participation Approved Accrediting Organization may extend Medicare deemed status Will conduct an extension survey within 6 months 53
Accepting Automatic Assignment 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
Accepting Automatic Assignment 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
Accepting Automatic Assignment 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
Accepting Automatic Assignment 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
Accepting Automatic Assignment Cons New owner responsible for: Plans of correction Health and safety standards Ownership and financial disclosure requirements Compliance with Civil Rights requirements 58
Accepting Automatic Assignment 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
July 23, 2014 Change of Ownership: - Rejecting a Seller s Medicare Provider Agreement - CHOW Best Practices Presented by Jessica Grozine, Esq. Sponsored by the Legal Publishing Group of Strafford Publications
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. 61
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. 62
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 63
For more information, please contact: Hedy Rubinger, Esq. 404.873.8724 hedy.rubinger@agg.com Monica Wallace 312.984.7757 MWallace@mwe.com Jessica Grozine, Esq. 404.873.8526 jessica.grozine@agg.com 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. 2014. McDermott Will & Emery