CMS Extends 36-Month Rule to Medicare-Enrolled Hospices

December 1, 2023

On Nov. 13, 2023, the Centers for Medicare & Medicaid Services (CMS) finalized its 2024 home health rule, which includes certain changes applicable to Medicare-enrolled hospices. This rule initially was proposed June 30, 2023, as discussed in a prior McGuireWoods client alert.

In particular, the final rule now extends CMS’ 36-month rule to Medicare-enrolled hospices, thereby prohibiting these hospices from undergoing a change in majority ownership within 36 months of initial enrollment in Medicare or the most recent change in majority ownership.

Hospice 36-Month Rule

The final rule prevents Medicare-enrolled hospices from undergoing a change in majority ownership, meaning a change in more than 50% of the hospice’s direct ownership interests, within 36 months of the hospice’s initial enrollment in Medicare or its most recent change in majority ownership (the “36-month rule”). A change in majority ownership may result from acquisitions involving asset sales, stock transfers, consolidations or mergers that have the cumulative effect of changing more than 50% of the hospice’s direct ownership interests.

If a hospice violates the 36-month rule, its Medicare provider agreement and billing privileges would not convey to the new owner, so the new owner would be required to undergo the initial Medicare enrollment and credentialing process, including obtaining a state survey or accreditation from an approved accreditation organization. Notably, the exceptions to the 36-month rule applicable to home health agencies, including if the change is due to the owner’s death, also would apply to hospices.

Because obtaining a new Medicare enrollment and initial survey would cause a significant delay in operations and billing, the 36-month rule will have a significant impact on hospice transactions if not properly structured to account for the 36-month rule. In connection with a transaction, this can create a gap in reimbursement for the hospice because it cannot bill Medicare for services rendered until it receives new Medicare billing privileges and cannot retroactively bill for services provided prior to receiving Medicare billing privileges. It is important to understand and consider 36-month rule implications in the preliminary stages of structuring a transaction involving a Medicare-enrolled hospice because certain transaction structures can be utilized to navigate this rule.

“High-Risk” Provider Enrollment

Hospices are currently in the moderate-risk screening category. Citing CMS’ increased program integrity concerns related to hospices, the final rule moves initially enrolling hospices, and hospices submitting applications to report a new owner, to the high-risk screening category.  Revalidating hospices will remain subject to moderate risk level screening.

The high-risk designation for initially enrolling hospices and hospices reporting a new owner involves a more rigorous screening process, including the submission of fingerprints for a criminal background check for any individual with a 5% or greater direct or indirect ownership interest.

Deactivation of Medicare Billing Privileges for Six Months of Non-Billing

Lastly, the final rule will shorten the deactivation period related to claims submission from 12 months to six months, such that CMS will be able to deactivate providers and suppliers that have not submitted any Medicare claims for six consecutive months. If CMS deactivates a provider or supplier, the provider or supplier will remain enrolled in Medicare, but its billing privileges are stopped, and such privileges can be reactivated only upon the submission of specified information.

The final rule, including the above changes, will go into effect Jan. 1, 2024.

Please contact the authors of this alert with any questions about hospice transactions or Medicare compliance.