In a policy memo published September 6, 2013, the Centers for Medicare & Medicaid Services (“CMS”) encouraged new owners of Medicare providers and institutional suppliers (“providers”) to accept automatic assignment of the seller’s Medicare Provider Agreement (“Agreement”) and CMS Certification Number (“CCN”).  The overall goal appears to be to encourage automatic assignment in Change of Ownership (“CHOW”) situations and discourage buyers from rejecting automatic assignment of the seller’s Agreement.  Automatic assignment permits the acquired providers uninterrupted participation in the Medicare program with no required survey, but also subjects the buyer to all conditions under which the original Agreement was issued, including successor liability for underpayments, payment adjustments and civil monetary penalties.   By creating incentives to accept automatic assignment (successor liability) of the seller’s Agreement, CMS protects the Medicare Trust Funds.  To encourage automatic assignment, this policy memo strengthens the requirements CMS State Survey Agencies (“SSAs”) must follow in the event a new owner rejects automatic assignment. 

As part of the CHOW process for acquisitions of providers, the buyer may accept the seller’s Agreement and CCN through automatic assignment under 42 C.F.R. § 489.18(c) or the buyer may reject automatic assignment under 42 C.F.R. § 489.52.  If the buyer rejects automatic assignment, the buyer must apply to CMS for a new Agreement and CCN.  The memo reiterates that buyers that reject automatic assignment must be treated like an initial applicant and will experience a period of uncertain duration with no Medicare payments.  CMS issued this memo in response to concerns that SSAs were collaborating with new owners that rejected automatic assignment to truncate/reduce the timeframe between acquisition and initial survey (the period without Medicare payments), thereby diminishing the incentives for automatic assignment. 

The memo sets forth the following requirements:

Initial surveys after rejection must be unannounced

  • Surveys cannot take place until acquisition is completed and provider is fully operational,  providing a full range of services to patients
  • Surveys conducted shortly after the acquisition date (e.g. two weeks) indicate agency collaboration with the new owner, and may raise significant doubts that the survey was unannounced
  • CMS may reject surveys for certification if the timing creates reasonable doubt that the survey was unannounced

Initial surveys receive the lowest workload priority

  • Core work for existing Medicare providers and suppliers is higher priority than initial surveys
  • SSAs are required to demonstrate that initial surveys are done in addition to–not instead of–any higher priority work
  • CMS reviews compliance with workload priority policy and deviation from policy may raise reasonable doubt that the survey was unannounced

The Agreement effective date must be determined in accordance with 42 C.F.R. § 489.13

  • Effective date can be the last day of an initial survey but it is not always the case
  • SSAs must not speculate to providers about the likely effective date

From this memo, it is clear that CMS intends to crack down on new owners working with SSAs to minimize the time period post acquisition in which the owner will not be eligible for Medicare payments.  This strict new policy renders it imperative for buyers of Medicare providers and their attorneys, in conducting due diligence, to weigh the potential implications of successor liability through automatic assignment against the revenue loss incurred by an uncertain amount of time (at least two weeks) without Medicare payments.