A hospice that changes hands within 36 months of certain ownership events can lose its Medicare billing privileges outright, with no path back to the old provider number. 42 CFR 424.550 blocks a change in majority ownership, by asset sale, stock transfer, merger, or consolidation, that happens within 36 months of a hospice's initial Medicare enrollment or its most recent change in majority ownership. CMS extended this 36-month rule to hospices effective January 1, 2024, and it reaches any ownership transaction that closes on or after that date, regardless of when the hospice originally enrolled.
What the 36-Month Rule Blocks
Under 42 CFR 424.550(b)(1), a disqualifying change in majority ownership does not transfer the seller's Medicare provider agreement or billing privileges to the buyer. The new owner has to enroll in Medicare as a new, initial hospice, and obtain either a state survey or accreditation from a CMS-approved accreditation organization before it can bill Medicare under its own provider number. The hospice has no Medicare provider agreement in its own name until that process is complete.
What Counts as a Change in Majority Ownership
CMS defines a change in majority ownership as any transaction, by sale, asset purchase, stock transfer, merger, or consolidation, that shifts more than 50% of a hospice's direct ownership interests. Transfers to a single buyer count cumulatively, so a series of smaller transactions that together cross the 50% threshold can trigger the rule even when no single transaction does. The rule tracks the ownership percentage that changes hands, not the deal structure used to move it, so routing a transaction through an asset purchase instead of a stock sale does not avoid it.
The Four Exceptions
42 CFR 424.550(b)(2) exempts four situations from the 36-month bar. The hospice has filed two consecutive years of full Medicare cost reports since its initial enrollment or its most recent change in majority ownership. A parent company undergoes an internal corporate restructuring, such as a merger or consolidation among related entities. The existing owners convert the hospice's business structure, for example from a corporation to a partnership, while ownership itself stays the same. An individual owner dies. Outside these four circumstances, the 36-month clock runs regardless of why the parties want to close early.
Enrollment Consequences When the Rule Applies
A transaction that trips the rule restarts the hospice's Medicare status from zero, rather than merely delaying closing. The buyer files as a new initial applicant, not a successor, which means a new Medicare enrollment application, a new survey or accreditation review, and no Medicare billing in the interim. Deal documents that assume the provider agreement transfers at closing, and purchase-price allocations built on that assumption, no longer hold once the 36-month rule applies. Loss of billing privileges here runs on a separate track from revocation under 42 CFR 424.535, and a hospice facing either should treat them as distinct problems with distinct timelines.
A hospice sale that trips the 36-month rule ends the seller's Medicare billing privileges rather than transferring them, leaving the buyer to start over as a new initial applicant.
Why Early Legal Counsel Is Critical
It is critical that hospice buyers and sellers retain experienced healthcare defense counsel before structuring or closing a transaction that could trigger the 36-month rule. Early legal review can confirm whether a deal qualifies for one of the four exceptions, and shape the purchase agreement and closing timeline around CMS's enrollment requirements. Delaying that review until after closing can convert a completed acquisition into a hospice with no Medicare billing privileges at all.
How Health Law Alliance Can Help
Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience. If your hospice is evaluating a sale, merger, or ownership restructuring, contact us for a free, confidential consultation through our hospice and home health audit defense page.
