36-Month Rule
The 36-month rule is a Medicare enrollment regulation (42 CFR 424.550(b)) that applies when majority ownership of a home health agency changes within 36 months of its initial enrollment or its most recent change in majority ownership. When triggered, the Medicare provider agreement and billing privileges do not transfer to the buyer, who must instead enroll as a brand-new provider and complete a new state survey or accreditation.
What triggers the rule
The rule is triggered by a change in majority ownership, meaning more than 50 percent of direct or indirect ownership interest, occurring within 36 months of either the agency's initial Medicare enrollment or its last change in majority ownership. The clock resets with each qualifying event, so an agency that changed hands two years ago carries a fresh 36-month tail into the next deal. Because indirect ownership counts, equity transactions several layers up a corporate structure can trigger the rule even when the licensed operating entity never changes.
What happens when it applies
If the rule applies, there is no ordinary change of ownership (CHOW) with automatic assignment of the provider agreement. The buyer must file an initial enrollment application, undergo a new state survey or deemed-status accreditation survey, and receive a new provider agreement and CMS Certification Number. During that process the agency cannot bill Medicare under the seller's number on the buyer's behalf, which can mean months without Medicare revenue. That gap, not the paperwork itself, is what makes the rule a dealbreaker or a price factor in many transactions.
Exceptions
The regulation contains limited exceptions, commonly summarized as:
- The agency has submitted two consecutive years of full Medicare cost reports since initial enrollment or the last change in majority ownership
- An internal corporate restructuring, such as a transfer between a parent and its subsidiary
- A change resulting from the death of an owner
- Certain transactions involving publicly traded companies
Whether a specific deal fits an exception is a legal judgment; buyers and sellers should have healthcare regulatory counsel analyze the structure before signing.
Why the rule exists and what it means for deals
CMS adopted the rule to stop the practice of flipping newly certified home health agencies, where entities obtained certification and quickly sold the billing number at a premium, a pattern associated with fraud hot spots. For anyone buying or selling an agency today, the diligence checklist is clear: confirm the initial enrollment date, identify every prior change in majority ownership, and model the timeline and cash impact if the provider agreement will not convey. The rule also extends to hospices under a parallel regulation adopted effective 2022.
Frequently asked questions
Does the 36-month rule apply to stock purchases?
It can. The rule looks at changes in majority ownership, direct or indirect, so equity transactions can trigger it even though a stock sale is often not a CHOW under the separate provider agreement rules. Deal structure and timing should be reviewed by healthcare counsel.
What does the buyer have to do if the rule applies?
Enroll as a new Medicare provider: file a new CMS-855A, pass a new initial survey or accreditation, and receive a new provider agreement and CCN. The buyer cannot simply continue billing under the seller's Medicare enrollment.
Does a similar rule apply to hospices?
Yes. CMS extended a parallel 36-month rule to hospices, effective in 2022, in response to similar license-flipping concerns. Multi-service providers should assume both lines of business face the same transfer restrictions.