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What Does It Mean? Understanding the Practical Implications of the New 36-Month Rule for Hospices



It’s been hard to keep track of all the new changes related to government oversight of hospices. This growing list now includes an expansion of the 36-month rule to hospices, which will limit the frequency that hospices can change ownership. There are important exceptions to the rule that all hospices will need to closely consider when evaluating all types of organizational changes, including traditional acquisitions and other types of consolidations. Listen in as Husch Blackwell’s Meg Pekarske and Ragini Acharya share their insights. 

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00;00;05;01 - 00;00;45;02
Meg Pekarske
Hello and welcome to Hospice Insights, The Law and Beyond, where we connect you to what matters in the ever changing world of hospice and palliative care. What Does It Mean? Understanding the Practical Implications of the New 36-Month Rule for Hospices. So Ragini, I'm so glad that you could join me and talk about this topic because it's just it's been hard to keep track of all of the the new things going on in hospice enforcement. We're talking it in end of July 2023. So there's a bunch of other podcasts we've been doing on other changes. But but thank you for for joining today.

00;00;45;18 - 00;00;47;06
Ragini Acharya
Thanks for having me. I appreciate it.

00;00;47;15 - 00;01;04;14
Meg Pekarske
And I know you have a lot of experience dealing with the 36 month rule for home health, because essentially the rule that we're talking about is just an expansion of the home health rule to hospices. So this is something you've been navigating for a while.

00;01;04;26 - 00;01;31;29
Ragini Acharya
Yeah, it's definitely something that comes up a lot in home health transactions, especially in the context of diligence on behalf of the seller. We're trying to see what I'm sorry, on behalf of the buyers. We're trying to see what sellers have been up to, you know, and make sure that there hasn't been anything untoward occurring in the last several years. And to the extent there is, we want to make sure that's cleaned up before the transactions close.

00;01;32;16 - 00;03;27;25
Meg Pekarske
Yeah, because the worst is to obviously spend a lot of time and energy on something that you know, is going to end up not getting to move forward because of this 36 month rule. So I think to lay the groundwork and and probably many of our listeners are well aware of The New Yorker article that that came out in December of last year that really spawned a lot of scrutiny on the hospice industry. And we have seen very rapid movement by CMS and a lot of different areas about how to deal with some of the issues raised in that article. And obviously it wasn't just that article, but I think that that that there is a lot of things that happened right after that article came and and the industry, I think, understood that perhaps the 36 month rule will get extended to hospices. And because one of the issues in that New Yorker article was concerns about flipping too quickly and that you have people that are in and out of the business and that given the way things work, these these new people are getting less scrutinized and all this stuff. And so that was a concern highlighted in that article. And so here we are that obviously that same concern existed in home health, which is when they created this rule. But that's sort of talk about just nuts and bolts of the rule itself, because most of our listeners may or may not be familiar at all about what we're talking about. So can you talk about the rule and when it came out, because this was in a hospice, you know, proposed rule, this was actually in the home health proposal. So why don't you give a little bit of background on how we we got to where we are.

00;03;28;13 - 00;04;21;22
Ragini Acharya
By way of background? The 36 month rule provides that when there's a change in majority ownership or what they say CMO by sale, which includes asset sales, stock transfers, mergers, consolidations, within 36 months after the effective date of the health agencies, initial enrollment in Medicare or within 36 months after that, home health agencies most recent change in majority ownership. The provider agreement and the Medicare billing privileges will not convey to the new owner, so rather the prospective owner has to enroll in the Medicare program as a new home health health agency and obtain a state survey or accreditation. So from CHOP or, you know, the like, notably like indirect changes of ownership don't trigger this rule. And we'll talk a little bit more about that. I think when we get into the exceptions. But that's that's the the meat of the rule.

00;04;21;29 - 00;06;00;22
Meg Pekarske
And I think that, you know, how this is sort of targeted at some of the concerns that were raised is right. You can't we're not going to just let you skate by on someone else's accreditation and not have to undergo a survey because rarely in transactions do you need to have another survey because you're stepping in their shoes. And that's the real value that people are getting right, is I don't need to go through a whole new enrollment because that's expensive. Takes a lot of time. I mean, if you can assume someone else's provider number, it's sort of a plug and play and that's there's a lot of value in that in terms of, you know, when you think the purchase price and stuff. And so now saying, oh, that's how it's going to be so easy. And there's a lot of concerns coming out of California where, you know, people got provider numbers and then never even really served any patients. And so they've never really been scrutinized. And then essentially someone could buy that number, you know, a year after they got it and then not have to get surveyed, not have to probably have any type of new provider or anything like that. And I think this is changing those rules a bit. So so I guess when as you've worked on this with Home Health, you know, what is your vantage point? I mean, because we're going to maybe we jump there now about this whole indirect ownership, because what and maybe you talk a little bit about these exceptions and how indirect ownership plays into how you don't trigger the 36 month rule.

00;06;01;17 - 00;07;01;05
Ragini Acharya
Sure. So to step back just a second to what you were saying about new owners, I think what CMS is concerned about is not knowing who is going to be providing the services. And to that point, when the business is flipped and the business hasn't even been run for a very long time, you don't have proof that it's been done correctly, an indirect ownership change or a change where there's an internal restructuring is less of a concern because the parties are essentially saying the parties controlling the services and really in charge of the hospice are the same. And obviously with respect to the home health agency, which is where this is being derived from. So in the in the context of of transactions, what we're concerned about is whether or not the seller from which we're buying has been engaging in this kind of gross behavior, for lack of a word. I'm sure you can come up with something better than that. But but yeah, that's that's what we're thinking of, is that we want to know what we're buying as a as a buyer.

00;07;01;17 - 00;07;44;29
Meg Pekarske
As a buyer, you do want to assume the the Medicare provider number in the band does. It's hard to reject a medicare provider number, and most people want it because that means that I can start operating this business right away and I don't need to start from square one. So but indirect ownership just for, you know, are not lawyers. What does that really mean? So the hospice that say I'm ABC Hospice Think or LLC, whatever we want to say and what is indirect ownership mean So when end so obviously direct ownership. If I bought, you know, ABC Ink, that would be a direct change.

00;07;45;14 - 00;08;15;17
Ragini Acharya
Right from the name on the license is the one that would be changing in the context of a direct ownership change when the name on the license itself is not changing. That is an indirect change. So for example, at the grand, I call it at the grandparent level or so, when the parent company of the licensed company is the one changing and that's at the that's where the change in stock or assets is occurring that won't trigger the 36 month rule. So that's that's an indirect change.

00;08;15;29 - 00;11;02;26
Meg Pekarske
And that's a very specific way, I think, of putting it and practical way of thinking about it. Because I think in light of this, there are you know, hospices that operate in and I think obviously many different states they might want to think about how they have their business structured to the extent that who is holding the license. Just if you do eventually sell your business or something and again, you're not a bad actor or anything, but you don't want to get caught up in in a 36 month rule, because we all know when the government does create new regulations that's intended to, you know, prevent something that that is usually cast a little bit wider than maybe just that target population can impact others who weren't really the target of the behavior. But you start to get caught up. And so I think sort of word to the wise of who's listening as you might want to think about. And I think more and more we've been doing restructuring to work with our clients. And some of this is because we're dealing with a lot of consolidate action, especially among nonprofits coming together under new eyebrow. Ella And, you know, thinking through how you're structuring your business because you know, I think people need to be more mindful from a corporate standpoint about how their business is really held because working with a lot of nonprofits, a lot of people have everything in one legal entity as opposed to splitting their business lines perhaps into different legal entities and having a parent on the top. And, you know, there's other reasons to consider doing that, not just the 36 month rule, but but someone who may eventually want to sell their business. So you're not a nonprofit, but you want to sell your business, You know, thinking about how your corporate structure isn't just for risk management, but also to make it easier if you want to sell it sort of down the road. But but so so if the name on the license isn't changing, that wouldn't necessarily impact the 36 month rule. There are some other exceptions there. And because when you talked about who it applies to, we talked it can be consolidated bands and mergers and other things. But but when you start reading some of the exceptions, I think that provides some color to while we're not really that concerned about certain things. And so I know one of them is internal restructuring and you referenced that and, and a lot of our clients have done some of that right now. So why don't you explain how that's accepted and why that's accepted.

00;11;02;26 - 00;12;41;16
Ragini Acharya
As we discussed previously? So if the agents parent company is undergoing some sort of internal corporate restructuring, which includes a merger or consolidation, the people that are in charge and the people directing the services or directing the company are therefore also probably not going to change. And therefore that's why it provides or poses less of a risk in CMS's eyes, because they're not seeing the flipping of new people that they don't know anything about. And that's again, where their concern is, right? They want to know who's in charge of these businesses, who's in charge of the services that are going to be provided. And they're really concerned at the end of the day about quality of care. That's one of the four exceptions. Another one of the exceptions that is similar is that where the owners of the existing agency are changing. I'm sorry, the the agency's existing business structure is changing, but the owners are remaining the same. And so, again, like I said previously, CMS doesn't already knows this person. If they've undergone a survey, they've been subject to the survey process. If that's not being changed, seems doesn't have the concern of what we don't know what's going on or who's running this company. Similarly, one of the other exceptions is actually about submission of full cost reports for the previous two consecutive years, and I think that again shows proof of, oh, we have evidence of how this is being this business is being run, we have evidence of what's going on. So that's another one of the exceptions as well. The fourth exception is a little bit off off the page from the rest of these, which is where the individual owner of an agency dies. But really you're seeing CMS purpose with respect to the first three that we discussed.

00;12;41;19 - 00;13;07;21
Meg Pekarske
Yeah, Yeah. No, that's really helpful. And I should have plugged right away that you did a great blog alert on this that we'll link in the podcast so people can have access to that. I think that blog alert also links to the the and this is a proposed rule, right? It's not final yet. I think everyone expects that this will you know even after comment go go final.

00;13;08;07 - 00;13;44;13
Ragini Acharya
Yes And so in the proposed rule, they're accepting CMS is accepting comments on this proposed rule until August 29th. And there's no language in the proposed rule about the effective date, which states that it will immediately go into effect. So there's not going to be some sort of gap period before they will start, you know, enforcing this new role. It all just the new language will apply, as simple as it is really just replacing the language that says, you know, applies to HHS. Now, it will say HHS or hospice. And so really something to be on alert for considering there's no gap to get ready for it.

00;13;44;22 - 00;16;56;16
Meg Pekarske
Yeah, it's a great point because we have a number of transactions in the works right now and, you know, bringing out how to deal with that. Some of them are, you know, there is and this is a legacy hospice that's, you know, we're not going to have a 36 month real problem. But you know, there are others where. Yeah, we're having to to think this through. But and I just don't see any reason why CMS will pull back away from this. So despite whatever comments come in, I doubt there's going to be, you know, any modification to that. But and I think that maybe one last thought before we part here and we're going to do another podcast on some of the enrollment changes they're making for hospices about being at a higher risk category. So requiring fingerprinting and other things, you know, there was also and I can't remember how many years ago now when the affiliations rule came out because concerns about who's in hospice and being able to connect the dots. If you're a bad actor and then you're moving around and, you know, operating out of their businesses, like that rule hasn't even fully been able to be implemented because you know how the 855 or your reporting changes is and, you know, gathering as much information, I think to to fully implement that affiliations rule. I think when you look at everything and where everything is going is there what they want, much more transparency and ownership and tracking that back and you know they don't want shell companies that we don't know who's behind all of this and and other things. And so and I know you know, for I think it's both home health and hospice, they are now going to be publishing that for consumers to see of who owns, you know, what businesses and stuff. And so, you know, I think the government wants to know they also want to make this available to, you know, the public at large. And so anyway, it's very interesting times because who knows what else could be coming out because I think Congress is also closely watching to say is the things that CMS doing to respond to these concerns in the industry, are they really doing the right thing? So I think the spotlight is going to be on both the industry and seems to say, you know, is this fixing the problems and concerns we've had because there's just been exponential growth in hospice? Which part of that is expected to a certain extent because we have an aging population and there's more need out there. But also, you know, there's also many stories, especially coming out of those four states of California, Nevada, Arizona and Texas, where, you know, it doesn't seem like it's necessarily fitting demand to, you know, meeting. Right. Demand.

00;16;57;05 - 00;17;53;12
Ragini Acharya
And to that point, I think CMS, at least in its proposed role, it views this survey process as the best way to fight the program. Integrity issues that it views as prominent. Right now, to be fair, CMS is also asked, you know, while we believe that this will go into effect without really any fight as part of their, you know, acceptance of comments, they did ask that people that are commenting provide information about the cost that this will be to hospice agencies in terms of, you know, how much will this cost them extra in terms of the survey process, You know, what are their current costs with survey and getting started. So that is something they will allegedly take into consideration. But based on the language of the proposed rule, it seems like CMS is pretty set on using this survey process as a means to deal with these behavior issues.

00;17;53;28 - 00;19;14;16
Meg Pekarske
Yeah, well, and I would say like hospice enforcement's like ten years behind, you know, nursing home or home health, because that whole hospice survey process has gotten revamped and looks very much like how nursing home surveys operate and home, how for now we're going to have, you know, civil monetary penalties available and all this other stuff. So it's like not surprising that the government isn't reinventing the wheel for hospice. They're just expand in the existing enforcement remedies that apply to other provider types now to us. So it's like we're grown ups now. We're in the big sea of health care because I think, you know, for a long time we were seen as, you know, niche and small providers, but it is a very large industry now. And so I think that, you know, this is why the home health and, you know, nursing homes and other post-acute care providers have been dealing with for for some time. But while you're as I said, your your blog post was great and you got that out right away. And so I so appreciate you taking the time to share your insights on the podcast, too, because we have a lot of listeners and I know they really appreciate sort of cutting edge news. So so thanks for, for sharing.

00;19;15;03 - 00;19;21;05
Ragini Acharya
Yeah, of course I'm happy to. And thanks for having me on here. It's been a pleasure to discuss this with you.

00;19;22;29 - 00;19;40;20
Meg Pekarske
Well, that's it for today's episode of Hospice Insights, The Law and Beyond. Thank you for joining the conversation. To subscribe to our podcast, visit our website at or sign up wherever you get your podcasts. Till next time. May the wind be at your back.