CHOW Tips: Efficient, Timely, & Accurate Change of Ownership

Obtain New NPIs for the Buyer in a CHOW

Many “Buyer” organizations believe that utilizing the “Seller” organization’s NPIs after a CHOW has been approved by CMS is easier and less labor intensive. In fact, the opposite is true. In order for payer processing to be completed, the Legal Business Name and EIN on an NPI must match the Buyer’s information. Since payers process CHOW applications and notifications within different timeframes, upon first request by a payer the NPIs would have to be updated.  Such requests result in the holding of claims and potential cash flow issues until all payer enrollments are approved. Obtaining new NPIs for the Buyer allows for a seamless billing transition and tracking of receivables, and it avoids NPI crosswalk issues, too.

Third Party Pharmacy Agreements

While the Medicare provider agreement and other payor contracts deservedly get a lot of attention during a CHOW, don’t forget about pharmacy-related third-party agreements. Ensuring that pharmacy operations can seamlessly continue post-CHOW is crucial to maintaining high levels of patient care. These pharmacy-related agreements (such as switch vendor contracts, 340B TPAs, and equipment leases) can usually be assigned to the buyer, typically carry little risk of historical liability, and can act as a temporary bridge before new agreements are negotiated. Temporary assignment of 340B contracts can also lead to uninterrupted realization of 340B drug cost savings for the new buyer.  However, before accepting assignment of any contracts, the buyer should perform due diligence to confirm that doing so will not violate exclusivity clauses in existing system-level pharmacy agreements.

“Grandfathered” Off-campus Provider-based Sites

“Grandfathered” off-campus provider-based sites are sites established by a hospital prior to 11/2/2015. These sites continue to receive traditional OPPS reimbursement for outpatient services by Congressional statute despite CMS’ continued push for “site neutral” payments.  The buying entity must accept assignment of the selling entity’s Medicare provider agreement in order for this financially beneficial status to transfer with the off-site departments.  If the buying entity rejects such assignment, these sites will be paid at CMS’ “site neutral” rates, e.g., 40% of OPPS.  Furthermore, if the buying entity plans to incorporate the seller’s main provider location as a remote campus, e.g., establishing a multi-campus hospital, only those off-campus provider-based sites within 35 miles of the buyer’s main provider buildings will retain eligibility. Careful review of all practice locations is therefore required when considering a CHOW.

Interim Billing Services Agreement

A significant regulatory advantage of a CHOW transaction (as defined by Medicare), is the ability for the Buyer to continue billing under the Seller’s provider enrollment information post CHOW, and until which time CMS processes and approves the transaction (issuance of tie-in notice).  This ability allows for a seamless continuation of billing privileges and prevents cash flow interruption.  However, many logistical components need to be addressed to ensure this process is carried out smoothly.  Advis has found, negotiation and execution of an Interim Billing Services Agreement in advance of the CHOW is the best way to ensure the realization of seamless continued billing.

Master Plan to Drive Necessary and Timely Filings

From a regulatory perspective, it is critical to allow sufficient time for due diligence to identify and catalog all regulatory licenses, permits, registrations, etc.  Once due diligence is complete, a work plan should be established to identify the timeline for regulatory filings. Pay particular attention to pre-closing filings.  For example, pre-closing authorization must be obtained from the Federal Communications Commission (“FCC”) for the transfer of control or assignment of FCC licenses to the acquiring entity.  Identification of pre-closing activities is an essential step to ensure the targeted closing date is not delayed (and to ensure that the acquiring entity does not subject itself to unnecessary post-closing regulatory risk).

Detailed Communication Plan

Advis finds that creating a simple but effective patient communication plan helps tremendously with the transition to new ownership. Typically our recommendation is to provide notice to patients in the months leading up to (and for up to two months following) the effective date of ownership change. The notice should explain the change and describe any potential impact to the patient, such as from whom they will be receiving a bill, for example. Advis also recommends providing training and scripting to staff and especially front-end staff who will field the majority of patient inquiries. The communication plan and patient notice ultimately allow for a more seamless transition with little to no disruption to patients’ quality of care.

Confirm Protected Grandfathered Practice Locations

When acquiring a hospital with multiple off campus practice locations, review the Medicare certification record and related documentation closely to ensure all practice locations being acquired are reported appropriately to ensure a smooth transition of grandfathered hospital practice locations.

Maintain Open Communication with Sellers

Communicate with non-government payers regarding the CHOW process and timelines. Medicare approvals, accreditation approvals, and other recognitions of the “new owner” will take a period of time to receive after the effective CHOW date. To the extent that nongovernmental payers rely on CMS and/or accreditation documentation, new owners should maintain communication with the payers to limit any interruption of enrollment with those payers.

Supplemental Payments

Supplemental payments are Medicaid payments to providers that are separate from and in addition to the payments for services rendered to Medicaid enrollees.  States make supplemental payments through FFS, managed care, and waivers, but the payment mechanisms and qualifications vary greatly by state and provider type. If a provider is changing the type of ownership (Non-Profit/For-Profit/County), or the enrollment structure of a provider under Medicare/Medicaid, the supplemental payment may increase or decrease.  Ensuring all team members (legal/finance/etc.…) are aware of supplemental payment implications (and in communication with the State agencies) is critical to ensuring that supplemental payments are maximized/protected during the CHOW process.

Transfer Documents are Often Needed Even with Internal Transactions

If a company with multiple EINs wants to consolidate down to 1 EIN, then bills of sale or asset purchase agreements need to be prepared and executed in regard to each EIN change.  Although the company may consider this transaction to be “internal”, Medicare/Medicaid and various other state agencies consider it to be a complete Change of Ownership.  Remember, they will require an executed bill of sale or asset purchase agreement to process the EIN change.  These documents can be signed by the same individual, such as buyer and seller.

Just a Tip

Always be sure to assess the ancillary financial impacts of the ownership change and possible unintended consequences, such as Medicare/Medicaid DSH, Medicaid add-on payments, DPUs, centers of excellence, supplemental state/county/federal funding, etc

One Last Tip

Make sure to perform your due diligence well before the anticipated transition date.  CHOWs include many moving parts. Allowing enough time to work through the process will mitigate a great deal of frustration on both sides of the transaction. Appoint a strong lead to manage the transition, someone who communicates well and can hold parties accountable for staying on task.