CHOW Tips: Facilitating Change of Ownership in a Pandemic Era

The COVID-19 pandemic has disrupted nearly all aspects of the healthcare industry. Real change and adaptation are imminent. According to our recent survey on the future of healthcare, over 70% of industry leaders anticipate hospital and practice consolidation over the next year. Advis has significant experience guiding health systems and other entities through the complexities of consolidation and the change of ownership process.

Over the years we’ve developed inside knowledge and a finely honed skill set regarding how to get through a CHOW efficiently, accurately, and in a timely manner. Our turn-around times are exceptional.

The experts at Advis have gathered some tips to consider during the CHOW process that will help your organization through the transition.

The COVID-19 Impact

CARES Act Considerations: HHS has disbursed billions of dollars to healthcare entities to support providers during this pandemic. It is very likely that the selling entity in a CHOW has received this funding. Therefore, it is extremely important for providers to understand the implications of a CHOW on CARES Act provider relief funding.

The buying entity must confirm that the seller has only accepted and attested to funds where the HHS terms and conditions are appropriately satisfied. The buyer must also confirm that the seller is tracking lost revenues and COVID-related expenses, such that the buyer will be able to satisfy any future HHS reporting and audit requirements. With significant funding also left to be allocated by HHS, careful examination of current HHS guidance will be required as well to ensure the best manner in which the buyer will be permitted to receive and retain future funding on behalf of, or in the “shoes” of, the seller entity.

FEMA Considerations: When completing a CHOW during the current pandemic, the buyer entity should consider ensuring that the seller entity is appropriately tracking eligible FEMA costs during the initial due diligence discussions. FEMA will reimburse non-profit healthcare providers at 75% of costs for eligible emergency protective measures undertaken to save lives and prevent pandemic spread. Establishing dedicated COVID cost centers, assigning responsibility to a core steering committee, and tracking COVID-related activities are essential steps to managing a FEMA claim, all of which could eventually prove financially beneficial to the buyer. Providers must submit a request for public assistance to FEMA within 30 days of the end of the public health emergency, and may need to submit a full application for reimbursement within 60 days of the same depending on the state.

Timing of 340B Operations: When considering a CHOW, providers often plan to merge similar service lines between the selling and buying entities, or to utilize the seller’s campus as a remote location of the main provider. Historically, adding new sites to the buyer’s 340B enrollment record requires careful timing considerations. During the current pandemic, HRSA will allow immediate enrollment and implementation of 340B on a case-by-case basis. Therefore, providers should be ready to begin 340B operations immediately upon completion of a CHOW.

Processing Delays: Be prepared for delays in processing. Several ancillary licenses such as pharmacy, radiation, and accrediting bodies are operating with reduced staff, who are largely working from home. Advis recommends that providers establish early and frequent communication with these agencies to avoid potentially disruptive delays in the approval process.

E-signing: As the world adjusts to life with COVID-19, it is recommended you reach out to state agencies to ensure e-signing is appropriate. Historically, applications and forms must be notarized and typically require originals submitted to the state. Yet, during this pandemic it may be appropriate to electronically sign documents in order to ensure proper social distancing.

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 properly 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 and Power of Attorney

While deservedly the Medicare provider agreement and other payor contracts 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 they 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. It is also recommended that the provider be ready to explore options to establish a power of attorney (“POA”) to allow the buyer to continue to use the seller’s pharmacy license, controlled substance license, and DEA number until the new numbers have been issued. This arrangement is often recommended by state agencies due to unique pharmacy processing timelines.

“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 their 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. A key component to consider is how these sites are enrolled with Medicare on the 855A enrollment record – close review of this documentation is required to ensure appropriate enrollment of each physical space down to the suite level. 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 that 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. The COVID-19 pandemic has made CHOW processing timelines more unpredictable in some respects. Therefore, an interim billing services agreement is even more important to reduce the potential of cash flow interruptions.

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.

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 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. State tax considerations should also be reviewed in detail.

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. Expert assistance with CHOWs is recommended.

For more information, please contact us online or call 708-478-7030

Published: July 15, 2020