Three Ways to Buy a Medicare Facility
Prior to buying an agency, one of the most important decisions to make is how the Medicare Provider number will be transferred or even if it will be transferred. There are three ways of transferring Medicare facilities that CMS recognizes and each of them has advantages and disadvantages to the buyer. No final decision should be made until you have sought counsel from an attorney experienced in Medicare Change of Ownership work.
The first way is the simplest. It involves a ‘stock’ transfer. Organizations that are comprised of ‘units’ are also considered in this group. Basically, a corporation or an LLC merely changes out the principals in the legal documents. For instance, I am the sole member of Haydel Consulting Services, LLC. If I sell my membership to you, you are the sole member. You not only get my name and provider number but any debt or IRS liability associated with my Tax ID Number. In fact, Medicare does not consider this sort of transaction to be a change of ownership. All that is required is that appropriate authorities are notified of changes in the Directors, officers and managing individuals. The advantages of this transaction are obvious. There is no delay in billing or waiting on Medicare to recognize your Change of Ownership. But, the risk of such a transaction is hardly insignificant. We do not recommend this change of ownership often unless a client is buying a brand new entity with a clean, transparent history. Due Diligence must be thorough and ruthless.
The second type of transaction that we deal with regularly is when a buyer assumes the provider number of the agency or facility it wishes to buy. A new entity is formed and this entity will be one to be licensed and to assume the seller’s provider number. In this case, all that is at risk is Medicare debt. However, due diligence is still critical because Medicare is often slow to react to billing issues and potential fraud and abuse issues. Billing may or may not be interrupted in this type of transaction. Upon recognition of the change of ownership by Medicare, the new owner will be able to bill effective the date listed on the bill of sale. However, a good attorney can prepare a remittance agreement that allows for billing to continue using the seller’s information until CMS recognizes the change in ownership. This can be messy from an accounting standpoint but is preferable to operating without cash. From start to finish, this kind of change of ownership may take six to nine months.
The final type of transaction is when the seller assumes neither the provider number nor the entity. In this case, the buyer is purchasing assets only. Without the assumption of the Medicare Provider Number, the buyer is unable to bill until after the new provider has been certified. In order to accomplish this, the buyer should be able to float the new facility for six months or more after the date of sale. In addition, since new providers are not being surveyed, and Medicare will look upon the buyer as a new provider in these transactions, the new facility must undergo accreditation from an accrediting body.
A good lawyer should always be consulted to assist with legal work and there are many good consultants who can assist in the navigation of regulatory paperwork. However, there are some decisions only the buyer can make. And how much liability a seller is comfortable with is a personal decision nobody else should make for the buyer.
For questions or comments about this, please feel free to contact us at haydelconsulting@bellsouth.net or leave a comment below. Should you be interested in buying or selling a facility, please feel free to contact us to meet your regulatory needs.
Thanks for sharing the information and discussing about various ways to buy the medicare facility.
am trying to buy a medicare provider number-I have a license.
Is there any way to tell if transaction 2 or 3 occurred? “Victory also acquired the fully staffed and fully operational Southwest Surgical Hospital Hurst, to be called Victory Medical Center Mid-Cities, for $30 million.”
Angela, I do not know anything about Victory or Southwest but my experience tells me that it was a change of ownership where the buyer assumed the provider number. During the negotiations for the sale, a remittance agreement was signed so that the new buyer could continue to bill using the old owners information.
In hospitals, there is also real estate and ‘movables’ involved. Real estate is self explanatory and moveables are literally anything you can move such as a bed or a blood pressure cuff. In many states, the real estate – i.e. the building – holds the certificate of need if there is one. The real estate company then leases the hospital to the operating company. (Note the word, ‘operational’ in the press release). Because there are scores of people working at Medicare who do nothing but try to figure out ways to confuse me, they have determined that the provider number goes to the operations company.
Even when there is common ownership, you will find buildings owned by one company and leased by the operations company. I doing this, each arm of the business can sell independent of the other. For instance, a hospital could theoretically sell the real estate and the same operators would be in place.
If it was a stock transfer, Victory is the dumbest company on the planet because they would have also assumed all debt and tax liability. If they did not assume the provider agreement but remained licensed, they would be unable to operate. Even though hospitals bill Medicare for a much smaller portion of their total revenue, other payor sources predicate their agreements on Medicare certification.
So, I am confident that Victory purchased the operating company that has the provider number, will assume their provider agreement and in the interim, continue to bill as Southwest. When the Change of Ownership is recognized by Medicare, some accountants will have to go back and do clean up stuff to get cost report data correct. Having said all of that, the assumption of the provider number means they assume any and all Medicare Provider liabilities – not just the ones they incur post acquisition but those that may have occurred in the past. To get around that, most purchase agreements include a indemnification clause – one of the most argued part of any transaction.
In case you find this unsettling – billing with someone else’s provider number, please be assured that I felt that way at one time. As such, I called several people in several different departments at Medicare and other contractors and asked. The lawyers had drawn up a remittance agreement for a deal many years ago and I didn’t want them to know I was second guessing them:) It all checked out pending the content of the agreement, blah, blah, blah.