As we approach the three-year anniversary of the implementation of the “36-Month Rule” for home health transactions, it is a good time to review some of the ongoing and new issues in connection with the acquisition of home health agencies. Notwithstanding some of the regulatory hurdles that have arisen, the market for home health care services continues to be attractive, and consolidation appears to be a continuing trend.
While there are any number of current trends and issues that merit discussion, there are several that deserve special attention at this time.
1. Direct/Indirect transfers under the 36-month rule
Effective Jan. 1, 2011, the 36-month rule was implemented to avoid what the Centers for Medicare and Medicaid Services (CMS) believed was a problem in the home care market where parties were creating home health agencies and then quickly flipping them, resulting in Medicare provider agreements and billing privileges being transferred to buyers that might not meet the appropriate conditions of participation. While well intended, the rule has certainly limited potential sales, although careful planning can help to alleviate this issue.
For example, it is not uncommon in a consolidation transaction for the seller to have one or more HHAs that are either within 36 months of their initial enrollment with Medicare or that the seller has purchased pursuant to a change in majority ownership within the past 36 months. Either of these factors would trigger the application of the 36-month rule.
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