This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Picture a Florida health care deal that looks finished. A buyer acquires a home health agency or a skilled nursing operator, the AHCA change-of-ownership application clears, the license issues in the buyer’s name, and everyone treats the state approval as the finish line. Six months later a Medicare contractor sends a demand letter for an overpayment attributable to claims the seller billed in 2023. The buyer’s counsel points to the purchase agreement, which plainly says the buyer assumed no pre-closing liabilities. The contractor is unmoved, and it is right to be.
The state license and the federal provider agreement are two different assets, they move on two different legal theories, and only one of them carries the seller’s debts along with it.
The Medicare provider agreement transfers automatically, and it transfers with the balance owed
Under 42 C.F.R. § 489.18, when a provider undergoes a change of ownership, the existing Medicare provider agreement is automatically assigned to the new owner unless the new owner affirmatively rejects it. That automatic assignment is a feature, not an accident — its purpose is uninterrupted participation, so that beneficiaries keep receiving covered services through the transition and the buyer keeps billing on day one.
The catch is in the second half of the rule. The assigned agreement is subject to all applicable statutes and regulations and to the terms and conditions under which it was originally issued. That includes any existing plan of correction, any survey deficiencies, any civil money penalties, and — the item that generates the litigation — outstanding overpayment liability. The provider number comes across, and the ledger comes with it. If a Recovery Audit Contractor or the Unified Program Integrity Contractor identified an overpayment against the seller’s billing history, the buyer that accepts assignment inherits that receivable regardless of what the indemnification section says.
The purchase agreement is not irrelevant. It allocates the loss between the parties, and a well-drafted specific indemnity backed by a real escrow is the buyer’s recovery mechanism. What the purchase agreement cannot do is bind CMS. The government collects from the enrolled provider holding the number. Whether the buyer then collects from the seller depends entirely on whether the seller is solvent, findable, and still holding escrow — which is why on any Medicare-dependent target the overpayment escrow should be sized off the audit exposure and held for the full lookback period, not released at the standard twelve or eighteen months.
Rejecting the assignment solves one problem and creates a worse one
The regulation gives the buyer a choice, and buyers who understand the successor liability exposure often reach for it. The buyer can decline the automatic assignment. On the CMS-855A, that is a single answer in the change-of-ownership section: the form asks whether the new owner will accept assignment of the current provider agreement.
Answering “no” has consequences that are easy to underestimate. CMS treats the rejection as a voluntary termination of the existing provider agreement effective at the acquisition. The buyer must then enroll as an initial applicant, which means a new provider agreement, a new survey or accreditation posture depending on provider type, and — critically — no assurance of retroactive billing back to the closing date. Services furnished to beneficiaries under the terminated agreement on or after the acquisition date are not payable.
For a target whose revenue is sixty or eighty percent Medicare, a payment gap of even sixty days is not a working capital inconvenience. It is a covenant breach on the acquisition facility. The clean-balance-sheet instinct that makes rejection attractive is the same instinct that can strand the buyer without cash flow through the first quarter of ownership.
There is also a timing rule with teeth on the accept-assignment path. If the new owner fails to submit the CMS-855A within the later of the acquisition date or thirty days after the contractor requests it, the contractor stops payments. Processing timelines vary by MAC and provider type, but a buyer should plan for at least thirty to sixty days from a complete filing to the tie-in notice, and should assume longer on a first-time enrollment.
The honest framing for a buyer is that neither option is clean. Accepting assignment buys continuity and inherits history. Rejecting it sheds history and risks a revenue interruption. The right answer depends on the size of the audit exposure relative to the size of the cash flow gap, and that comparison should be run with numbers during diligence, not argued in the abstract the week of closing. The text of 42 C.F.R. § 489.18 is short enough that both sides’ principals should read it before the LOI is signed.
The 36-month rule can take the choice away entirely
Home health buyers face an additional constraint that removes the accept-or-reject decision from the table. Under 42 C.F.R. § 424.550(b), if a home health agency has undergone a change of majority ownership within the thirty-six months preceding the proposed transaction — or within thirty-six months of its initial enrollment — the provider agreement and billing privileges do not transfer. The buyer must enroll as an initial applicant and obtain state survey or accreditation and a new certification.
This is the rule that converts an attractive home health target into an unbuyable one. An agency that changed hands two years ago and is now being flipped is, for Medicare purposes, not transferable. A buyer who signs an LOI without pulling the ownership history is buying a licensed Florida entity that cannot bill the federal government for months.
The diligence step is mechanical and takes an afternoon: pull the full ownership change history from the PECOS record and the seller’s prior CMS-855A filings, and confirm the date of the last change of majority ownership. Do it before the exclusivity period runs, not during confirmatory diligence. The same discipline that the AHCA home health change-of-ownership process demands on the state side applies with more force here, because the federal rule has no cure.
The Florida state track runs on its own clock, and the two must be sequenced
Florida’s health care licensing regime under Chapter 408, Part II operates independently of the federal enrollment track. Section 408.807 requires the transferor to notify the Agency in writing at least sixty days before the anticipated change of ownership, and the transferee must apply for licensure within the timeframes set by § 408.806. Until AHCA licenses the transferee, the transferor remains responsible and liable for lawful operation of the provider and for the welfare of the clients served. Any existing restriction on licensure — a conditional license, for instance — survives the change of ownership until AHCA determines the underlying grounds are corrected.
That sixty-day statutory notice period is the real constraint on the closing calendar for AHCA-regulated facility deals. It is not waivable by agreement between buyer and seller, and it does not begin when the LOI is signed. It begins when written notice reaches the Agency.
The sequencing problem is that the two tracks are interdependent. CMS generally will not complete the CHOW without evidence of the state licensure action, and AHCA requires a signed bill of sale or closing document showing the effective transfer date before it approves. The practical resolution is a two-stage close: sign, file the state notice and application, close into an interim arrangement where the seller remains the licensed operator under a management or transition services agreement, then complete the federal filing off the executed closing documents. That structure needs to be drafted deliberately, with the operational control and revenue allocation spelled out, because a poorly papered interim period creates its own regulatory exposure on the corporate practice and fee-splitting side that Florida’s clinic licensure rules police closely.
What belongs in the agreement
Three provisions carry most of the weight. First, a specific indemnity for pre-closing overpayments, government audit findings, and civil money penalties, separated from the general indemnity cap and basket and escrowed for a term matched to the applicable lookback rather than to the standard survival period. Second, a representation as to the target’s complete change-of-ownership history, with the thirty-six-month question asked directly rather than inferred from the corporate records. Third, a closing condition tied to the buyer’s satisfaction with the enrollment path — accept or reject — after the audit exposure has actually been quantified.
None of that guarantees a smooth transition, and government contractors reach their own conclusions on their own timelines. But a buyer who has priced the overpayment exposure, confirmed the transfer is legally available, and started the sixty-day state clock on time is negotiating from a different position than one discovering any of it after signing.
If you are buying or selling a Medicare-enrolled provider in Florida and working through the CHOW and enrollment sequence, feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
