For health care leaders and compliance officers, understanding the regulatory and contractual implications of a “Change of Ownership” (CHOW) is critical to maintaining operational continuity and regulatory compliance. The definition of a CHOW varies depending on the applicable license, permit, registration (generically "license" in this article), or contract terms. Commonly, a CHOW is triggered by a change of more than 50 percent of ownership in a health care entity or a change in the legal entity’s tax identification number. In contrast, a “Change of Control” typically refers to a significant change in officers, directors, or management company and may carry distinct notification or approval requirements. The thresholds for seeking approvals and reporting will vary by license and contract.
Most health care licenses require the license holder to notify the governing regulatory agency of a CHOW, and in certain cases, obtain prior approval from that agency before the transaction is finalized. Similar notification and approval requirements often apply under third-party payor contracts. For Medicaid programs, CHOW notification and approval requirements are generally applicable but vary significantly by state. For Medicare, the enrolled entity is typically required to submit appropriate notice of the ownership change through the designated portal.
Compliance with these notification and approval requirements is essential. Failure to adhere to licensing requirements may result in the regulatory agency taking the position that the license is void, suspended, or otherwise inoperative. In such circumstances, any services rendered post-transaction may be deemed to have been provided without a valid license, potentially rendering claims unpayable, converting prior collections into overpayments subject to recoupment, and exposing individuals and entities to allegations of practicing without proper licensure.
Similarly, failure to comply with third-party payor contractual requirements or government payor regulations may jeopardize the payability of claims submitted following the change and expose the organization to potential repayment obligations or enforcement actions.
During mergers, acquisitions, and corporate restructurings, it is imperative that leadership teams proactively identify and address all applicable CHOW requirements. The state- and license-specific nuances of each transaction require the specialized knowledge of an experienced health care transactional lawyer. Compliance officers should incorporate CHOW requirements into their compliance programs, conduct periodic audits to ensure adherence to legal and contractual obligations, and establish protocols for timely notification and approval processes in connection with ownership changes.
Finally, changing leadership or owners may trigger additional compliance requirements such as background screening. Such requirements highlight the need to plan in advance for such changes. These processes often require involvement of agencies or third-party payors, and the timing of such processes is often not within the control of the health care entity.
For more information, please contact Grant Dearborn, Mara Rendina, Daphne Kackloudis, or Christina Nethero.