A Medicare change of ownership (CHOW) transfers more than a practice's assets. Under 42 CFR 489.18, CMS automatically assigns the seller's Medicare provider agreement to the buyer, and with it, exposure for overpayments the seller never resolved. A pending audit, an extrapolated demand, or an open recoupment can follow the sale into the buyer's first year of ownership. Physicians buying, selling, or restructuring a practice need to know what a CHOW actually transfers, when the CMS-855 enrollment application is due, and how to keep a stale liability from becoming their own.
How a Change of Ownership Affects the Medicare Provider Agreement
42 CFR 489.18 defines a change of ownership by entity type. A partnership undergoes a CHOW when a partner is added, removed, or substituted, the situation many physician group buy-ins and retirements create without anyone flagging the Medicare consequence. A sole proprietorship changes ownership when title and the practice's property transfer to a new party. A corporation changes ownership through a merger or consolidation; a stock transfer alone does not trigger a CHOW. Once a covered transaction closes, the existing Medicare provider agreement is automatically assigned to the new owner, along with the terms, conditions, and liabilities under which CMS originally issued it.
Accepting Assignment or Declining It
The new owner has a choice. Accepting assignment keeps the practice's existing Medicare provider number, billing history, and effective date, but it also means accepting the provider agreement's existing conditions, including any unresolved overpayment. Declining assignment is treated as a voluntary termination of the existing agreement; the buyer must enroll as an initial Medicare applicant under a new provider agreement, with no guarantee of retroactive billing back to the closing date. A related risk during this window is addressed in Medicare Billing Privilege Revocations Under 42 CFR 424.535: a lapse in enrollment status can trigger its own deactivation, independent of the CHOW itself.
Successor Liability for the Seller's Overpayments
Accepting assignment means accepting successor liability for the seller's Medicare debt. If a Recovery Audit Contractor (RAC) identified an overpayment using statistical extrapolation across a sample of claims, that demand, and the recoupment that follows it, transfers to the buyer along with the provider agreement. Courts have repeatedly upheld CMS's right to collect from the new owner even when the purchase agreement assigns pre-closing liability to the seller; Medicare was not a party to that agreement, and a private indemnification clause has no effect on CMS's collection authority. The one narrow exception: overpayments tied to fraud in the prior owner's operations generally stay with the prior owner rather than shifting to a good-faith buyer. A buyer who discovers an inherited audit already underway should see When to Engage a Medicare Audit Attorney for the timeline that now applies. Diligence on the seller's audit history, not just its financial statements, is what actually protects a buyer's balance sheet.
A sale agreement can allocate financial risk between buyer and seller. Medicare enforces successor liability regardless of what that agreement says.
Why Early Legal Counsel Is Critical
It is critical that physicians and practice owners involved in a change of ownership retain experienced healthcare defense counsel before the transaction closes, not after CMS has already assigned the provider agreement by default. Early legal intervention can quantify the seller's outstanding overpayment exposure, structure the CHOW filing to protect the buyer's position, and correct an enrollment gap before it becomes a deactivation. Delaying counsel until after closing can turn a routine ownership change into unplanned liability the buyer never priced into the deal.
How Health Law Alliance Can Help
Health Law Alliance reviews a seller's Medicare enrollment and audit history before a change of ownership closes, structures the CHOW filing to protect the buyer's position, and defends physicians and practices against inherited overpayment demands once a CHOW has already transferred them. This work sits alongside the firm's broader Medicare audit defense practice, which represents providers through RAC, UPIC, and MAC review at every stage. If your practice is buying, selling, or has already inherited an overpayment through a change of ownership, contact us for a free, confidential consultation.
