On July 10, 2023, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule (Proposed Rule) that would (i) include hospices in the 36-month rule ownership transfer restrictions that currently exist for home health agencies (HHAs); (ii) subject initially enrolling hospices and those submitting applications to report any new owner (as described in 42 CFR §424.518) to the "high" level of screening; (iii) create an informal dispute resolution (IDR) process for certain regulatory citations; and (iv) and implement a hospice special focus program (SFP).
36-Month Rule Transfer Restriction
In the Proposed Rule, CMS is looking to expand the scope of 42 CFR §424.550(b)(1), from applying solely to home health agencies to add hospice changes in majority ownership (CIMO) within its coverage.
CMS explained that it has had
. . . growing concerns about improper behavior within the hospice community. Yet, we are equally concerned about the quality of care furnished in some of these facilities. Indeed, we have seen an increase in the number of hospice changes of ownership (including the types of CIMOs described in 42 CFR §424.550(b)(1)) in recent years, and a number of these ownership changes have occurred within the would-be applicable 36-month time frame. In fact, some such changes have taken place within only a few months after enrollment or the previous CIMO, akin to what we saw with the "flipping" practice outlined in the Calendar Year 2010 Home Health Prospective Payment System proposed and final rules; specifically, we have received reports that hospices are being sold quickly after enrollment or purchase, so that the new owner can avoid any survey. This is because, as had been our concern with HHAs, hospice ownership changes generally do not result in a state survey or accreditation review… Consequently, we are proposing to expand the scope of §424.550(b)(1) to include hospice CIMOs within its purview. (The  definition of "change in majority ownership" in §424.502 would also be expanded to incorporate hospices therein.) We believe that our previously detailed concerns about hospices, such as fraud schemes, patient abuse, and improper billing, require the level of scrutiny that a survey can furnish. Although surveys cannot by themselves entirely halt all of these issues, we are confident that a survey's thoroughness can greatly assist the vetting of the new owner to help ensure the latter's commitment to quality care.
Currently, if an HHA undergoes a CIMO within 36 months after the effective date of the HHA's initial enrollment in Medicare or within 36 months after the HHA's most recent CIMO, the provider agreement and Medicare billing privileges do not transfer to the HHA's new owner, unless an exception applies. The prospective provider/owner of the HHA must therefore (i) enroll as a new HHA; and (ii) obtain a new state survey or accreditation from an approved accreditation organization. A CIMO occurs when an individual or organization acquires more than a 50 percent direct ownership interest in an HHA during the 36 months following the HHA's initial enrollment or most recent CIMO. This standard also includes an acquisition of majority ownership through the cumulative effect of asset sales, stock transfers, consolidations, or mergers. Neither a 100 percent ownership transfer nor a change that qualifies as a CHOW under 42 C.F.R.§489.18 is necessary to trigger this "36-month rule." Any transaction within the 36-month window that individually, or when considered with other incremental transactions during that period, resulted in crossing the 50 percent ownership threshold will be subject to the "36-month rule."
If finalized, this new restriction on hospice CIMOs will affect many transactions, and potential sellers and buyers should do a thorough review of the application of the rule, prior to going too far down the path with a transaction.
"High" Category Risk Screening
42 CFR §424.518 outlines levels of screening by which CMS and its Medicare Administrative Contractors (MACs) review initial applications, revalidation applications, applications to add a practice location, and applications to report any new owner. These screening categories and requirements are based on a CMS assessment of the level of risk of fraud, waste, and abuse posed by a particular type of provider or supplier.
There are three levels of screening in 42 CFR §424.518: high, moderate, and limited. Irrespective of the level a provider or supplier type falls within, the MAC performs the screening functions upon receipt of an application. For providers at the "high" screening level, the MAC performs two additional functions pursuant to 42 CFR §424.518(c)(2):
- the MAC requires the submission of a set of fingerprints for a national background check from all individuals who have a 5 percent or greater direct or indirect ownership interest in the provider or supplier; and
- the MAC conducts a fingerprint-based criminal history record check of the Federal Bureau of Investigation's Integrated Automated Fingerprint Identification System on these 5 percent or greater owners.
"Hospices are currently in the moderate-risk screening category under 42 CFR §424.518. However, CMS in recent years has become increasingly concerned about program integrity issues within the hospice community, particularly (though not exclusively) potential and actual criminal behavior, fraud schemes, and improper billing."
To this end, [CMS] propose[s] to revise 42 CFR §424.518 to move initially enrolling hospices and those submitting applications to report any new owner (as described in 42 CFR §424.518's opening paragraph) into the 'high' level of categorical screening; revalidating hospices would be subject to moderate risk-level screening. Requiring all hospice owners with 5 percent or greater direct or indirect ownership to submit fingerprints for a criminal background check would help us detect parties potentially posing a risk of fraud, waste, or abuse before it begins. Indeed, we have found our fingerprint-based criminal background checks to be of great assistance in detecting felonious behavior by the owners of high-risk providers and suppliers. We note that there is precedent for performing criminal background reviews on hospice personnel. Under the hospice conditions of participation at 42 CFR §418.114(d): (1) the hospice must obtain a criminal background check on all hospice employees who have direct patient contact or access to patient records; and (2) hospice contracts must require that all contracted entities obtain criminal background checks on contracted employees who have direct patient contact or access to patient records.
When finalized, individuals interested in ownership of hospices will be subject to this new level of enrollment scrutiny and need to be certain that they and their investment partners can successfully pass the "fingerprint" test.
Proposed IDR Program
CMS proposes to add a new regulatory provision at 42 CFR §488.1130 to create the hospice IDR addressing disputes related to condition-level survey findings. The opportunity to request IDR would follow receipt of the official survey Statement of Deficiencies and Plan of Correction, Form CMS-2567. Standard-level findings alone do not trigger enforcement action and are not accompanied by appeal and hearing rights. The proposed process would be similar to the process already in place for HHAs.
IDR would be initiated for hospices under State Service Agency (SA) monitoring (through either a complaint investigation or a validation survey) and those in the proposed SFP. For hospices with a CMS-approved accreditation, the accrediting organization would receive the IDR request from the provider, following the same process and coordinating with CMS regarding any enforcement actions.
If an accredited hospice fails to meet the Medicare requirements or shows continued condition-level noncompliance, deemed status is generally removed and oversight is placed under the SA. The proposed IDR process may not be used to refute an enforcement action or selection into the SFP.
If IDR results in citations being revised or removed, the CMS-2567 would be revised. If the revisions result in revisions to enforcement remedies, CMS will adjust any enforcement actions imposed.
Proposed Special Focus Program
Section §1822(b) of the Consolidated Appropriations Act of 2021 provided CMS with the authority to create and implement a SFP for poorly performing hospices. The Proposed Rule adds 42 CFR §488.1135 and creates the SFP for hospices. Selected poorly performing hospices either successfully complete the SFP or are terminated from the Medicare program.
CMS expects the SFP begin to begin on the effective date of the final rule, and it would envision selecting hospices for the SFP starting in 2024.
In making SFP selections, CMS is proposing to identify a subset of 10 percent of hospice providers based on the highest aggregate scores determined by an algorithm. CMS is building several indicators into the algorithm, which include, for example, survey performance, substantiated complaints, and quality indicators.
CMS is proposing that accredited hospices that are placed in the SFP would not retain their deemed status. They would be subject to CMS and SA oversight until completion of the SFP or termination.
In order to be released from the SFP, CMS proposes that a hospice will have, in an 18-month time frame, no Condition-Level Deficiencies (CLDs) cited or immediate jeopardies for any two (2) six (6)-month SFP surveys and has no pending complaint survey triaged at an immediate jeopardy or condition level or has returned to substantial compliance with all requirements. A hospice that fails any two SFP surveys, by having any CLDs on the surveys, in an 18-month period, or pending complaint investigations triaged at Immediate Jeopardy or condition level, would be considered for termination as proposed at new 42 CFR § 488.1135(e).
CMS also added a public reporting structure to the proposed SFP. According to CMS it would publicly report, at least on an annual basis, the hospices selected for the SFP.
Comments on the Proposed Rule
These changes to enforcement with respect to Medicare-enrolled hospice providers are significant. Providers should follow the evolution of the proposed rule closely. For those individuals or entities interested in commenting on the rule, comments are due by 11:59 p.m. ET on August 29, 2023. All comments should be identified by "CMS–1780-P" and submitted according to the requirements set out in the Proposed Rule.
If you have further questions about the material transaction notice process or need assistance interpreting state regulations, please feel free to contact the authors of this alert or your Venable relationship attorney.
 See Medicare Program; Calendar Year (CY) 2024 Home Health (HH) Prospective Payment System Rate Update; HH Quality Reporting Program Requirements; HH Value-Based Purchasing Expanded Model Requirements; Home Intravenous Immune Globulin Items and Services; Hospice Informal Dispute Resolution and Special Focus Program Requirements, Certain Requirements for Durable Medical Equipment Prosthetics and Orthotics Supplies; and Provider and Supplier Enrollment Requirements, 88 Fed. Reg. 43654, at 43786, July 10, 2023.
 Ibid. at 43784.
 Ibid. at 43785.