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Medicare Provider Agreements – Assume or Reject?

A buyer of a SNF can either accept or reject an assignment of the seller’s Medicare provider agreement. Rejecting the existing Provider Agreement requires the new operator to apply for a new agreement from CMS, which is an onerous process requiring, among other things, a new state survey. Accepting the assignment of the existing agreement requires a paper submission without a new survey, but brings with it the baggage of successor liabilities from overpayments or even post-closing audits of the old operator’s billings. During the past several years, savvy buyers have been able to use connections to obtain new provider agreements in as short as a week, allowing them to avoid successor liability. To curb these abuses, CMS passed Policy Memo 13-60 on September 6, 2013 incentivizing new operators to assume the existing Provider Agreement and pre-closing liabilities associated with the provider agreement by: (1) highly scrutinizing any state survey that takes place within 14 days of the acquisition; (2) directing state survey agencies to make these surveys their lowest priority and not allowing the survey until, at the earliest, the acquisition occurs and a Medicare Administrative Contractor has issued a recommendation for approval; and (3) not allowing the new Provider Agreement to be dated back to the acquisition date, but instead making it effective when all federal requirements are met.

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