Last week, the Centers for Medicare & Medicaid Services issued a Proposed Rule that, if finalized, would extend the application of the “36-Month Rule” from home health agencies (“HHAs”) to also include hospice agencies as well. 

The 36-Month Rule, found at 42 C.F.R. § 424.550(b), provides that where there is a change in majority ownership (“CIMO”) of an HHA by sale (including asset sales, stock transfers, mergers and consolidations) within 36 months after the effective date of the HHA’s initial enrollment in Medicare or within 36 months after the HHA’s most recent CIMO, the provider agreement and Medicare billing privileges do not convey to the new owner. Rather, the prospective owner of the HHA must enroll in the Medicare program as a new HHA and obtain a state survey or accreditation from an approved accreditation organization. Notably, an indirect change of ownership does not trigger the 36-Month Rule.

CMS has stated in the Proposed Rule that, in order to protect bona fide transactions between legitimate parties, hospice agencies would be able to utilize those exceptions to the 36-Month Rule that are currently appliable to HHAs, as follows:

  1. If the agency has submitted two consecutive years of full cost reports;
  2. If the agency’s parent company is undergoing an internal corporate restructuring (e.g., a merger or consolidation);
  3. The owners of the existing agency are changing the agency’s existing business structure and the owners remain the same; or
  4. The individual owner of an agency dies.

CMS addressed its concerns with the growing program integrity issues within the hospice community, including those associated with the “flipping” of new hospice agencies. Specifically, hospice owners have been selling their businesses soon after securing a license, which enables the purchasers of such agencies to circumvent the survey and accreditation process. CMS noted that this practice was similarly used by HHAs prior to the enactment of the 36-Month Rule. In addition to concerns associated with flipping hospice agencies, CMS stated that it is more generally concerned with the lack of scrutiny on new hospice agency owners. CMS cited the “hundreds of hospice ownership changes” since 2018 “for which CMS may not know whether the facility under its new ownership and leadership is compliant with the hospice [Conditions of Participation],” and that the “comprehensive survey” process is the “most effective means” to ensure compliance with the relevant conditions of participation by hospice agencies. By applying the 36-Month Rule and its associated survey requirements to hospices, CMS hopes to address and course-correct the “improper behavior” that it sees as prevalent within the hospice community, and therefore also improve the overall quality of care furnished by hospice agencies. 

If adopted, the language of 42 C.F.R. 424.550(b) would simply expand every reference of “HHA” to “HHA or hospice.” The Proposed Rule includes no additional language delaying the applicability of the rule; therefore, these changes would go into immediate effect if adopted. CMS will be accepting comments on the Proposed Rule until August 29. For questions about this proposed change, please contact Ragini Acharya.