Home Health Change of Ownership (CHOW) Audits: Overpayment Liability and Due Diligence Steps

Introduction

Buying a home health agency (HHA) can be a fast way to enter a market or expand services. It can also mean inheriting someone else's Medicare problems. Under Medicare's change of ownership (CHOW) rules, a buyer that accepts assignment of the seller's provider agreement generally takes on the agreement's history, including liability for overpayments the seller received. An audit that begins after closing, covering claims from before closing, can become the buyer's problem.

The stakes are higher in 2026. CMS imposed a six-month nationwide moratorium on new Medicare enrollment of HHAs effective May 13, 2026, scheduled to run through November 13, 2026 unless CMS extends it. CMS stated that the moratorium covers initial enrollment applications and certain changes in majority ownership. Combined with the home health 36-month rule, this means some transactions cannot be completed through a standard CHOW and may leave the buyer unable to bill Medicare while the moratorium is in effect.

This article explains how CHOW rules work for HHAs, how successor liability for overpayments arises, how the 36-month rule and the 2026 moratorium affect transactions, and the audit and due diligence steps buyers and sellers should take. It is educational and does not replace legal or professional advice. Every transaction should involve experienced healthcare transactional and regulatory counsel.

What Counts as a Change of Ownership

Under 42 CFR 489.18(a), a change of ownership generally includes:

• For a partnership, the removal, addition, or substitution of a partner, unless the partners expressly agree otherwise as permitted by applicable state law.

• For an unincorporated sole proprietorship, the transfer of title and property to another party.

• For a corporation, the merger of the provider corporation into another corporation, or the consolidation of two or more corporations, resulting in the creation of a new corporation.

• Leasing of all or part of a provider facility, in some circumstances.

Importantly, the regulation provides that the transfer of corporate stock or the merger of another corporation into the provider corporation does not, by itself, constitute a change of ownership under this section. Stock sales and similar transactions must still be reported to CMS as changes in ownership information, and they may trigger the 36-month rule.

Assignment of the Provider Agreement

Automatic Assignment

Under 42 CFR 489.18(c), when there is a change of ownership, the existing provider agreement is automatically assigned to the new owner. Under 42 CFR 489.18(d), an assigned agreement is subject to all applicable statutes and regulations and to the terms and conditions under which it was originally issued.

What Assignment Means for Liability

When a buyer accepts assignment, it steps into the seller's shoes for Medicare purposes. CMS and state survey agencies have explained that new owners who accept assignment may be responsible for the seller's Medicare overpayments, and that CMS may recover from the buyer even when the purchase agreement says the buyer does not assume the seller's liabilities. Contract terms between buyer and seller allocate risk between them, but they do not bind CMS.

Rejecting Assignment

A buyer may refuse assignment of the provider agreement in writing. Rejecting assignment generally avoids successor liability under the old agreement, but the buyer must then enroll as a new provider, obtain an initial survey or accreditation, meet initial capitalization requirements, and will face a gap in Medicare billing. During the 2026 moratorium, a buyer rejecting assignment may not be able to enroll at all until the moratorium ends.

The Home Health 36-Month Rule

The Rule

Under 42 CFR 424.550(b)(1), if an HHA undergoes a change in majority ownership by sale, including asset sales, stock transfers, mergers, and consolidations, within 36 months after its initial enrollment in Medicare or within 36 months after its most recent change in majority ownership, the provider agreement and Medicare billing privileges do not convey to the new owner. The new owner must instead enroll as a new HHA and obtain a state survey or accreditation. CMS extended this rule to hospices beginning in 2024.

What Is a Change in Majority Ownership

Under 42 CFR 424.502, a change in majority ownership occurs when an individual or organization acquires more than a 50 percent direct ownership interest in an HHA during the 36 months after the HHA's initial enrollment or most recent change in majority ownership, including through the cumulative effect of asset sales, stock transfers, consolidations, or mergers.

Exceptions

The regulation includes limited exceptions, such as when:

• The HHA has submitted two consecutive years of full cost reports since initial enrollment or the last change in majority ownership.

• The HHA's parent company is undergoing an internal corporate restructuring, such as a merger or reorganization.

• The owners are changing the existing business structure, such as from a corporation to a limited liability company, and the owners remain the same.

• An individual owner dies.

Counsel should analyze each exception carefully, because the details matter.

Interaction With the 2026 Moratorium

Because a non-exempt change in majority ownership within the 36-month window requires a new enrollment, and the 2026 moratorium blocks new HHA enrollments, such transactions may be unable to obtain Medicare billing privileges until the moratorium ends. Buyers and sellers should confirm the moratorium's status, including any extension published in the Federal Register, before signing or closing.

Reporting Ownership Changes

• Changes of ownership and changes in ownership information must be reported to CMS through the Medicare enrollment process, generally using PECOS or Form CMS-855A, within the timeframes required by 42 CFR 424.516.

• State licensure agencies and accrediting organizations may have separate notice requirements.

• Medicaid programs have their own enrollment and CHOW requirements, which vary by state.

• Failure to report changes timely can lead to enrollment sanctions, including deactivation or revocation.

CMS screens newly enrolling HHAs at a high level of risk under 42 CFR 424.518, which includes fingerprint-based background checks for certain owners and site visits. CMS has also announced enhanced screening of high-risk HHAs as part of its 2026 fraud prevention efforts.

How Successor Overpayment Liability Arises

A buyer that accepts assignment may face:

• Overpayment demands from audits that begin after closing but cover claims from before closing, such as RAC, UPIC, SMRC, CERT, or OIG reviews.

• Extrapolated overpayments based on pre-closing claims.

• Recoupment from the buyer's current Medicare payments to recover the seller's overpayments.

• Payment suspensions based on pre-closing conduct.

• Obligations under the 60-day overpayment rule at 42 CFR 401.305 if the buyer identifies overpayments in pre-closing claims after closing.

• Unresolved cost report issues.

• Survey deficiencies and plans of correction.

• Review Choice Demonstration status, in RCD states, including affirmation rates and cycle status that affect the agency's review burden.

False Claims Act exposure for the seller's knowing conduct generally attaches to the persons and entities involved, but buyers may still be drawn into investigations, and successor liability theories can apply in some circumstances under general corporate law. A January 2026 Department of Justice settlement with a home health company illustrates how transaction parties may address legacy liability: the settlement agreement provides that the company's former owner pays the settlement amount on the company's behalf.

Due Diligence Steps for Buyers

1. Enrollment and Regulatory Status

• Confirm the HHA's initial Medicare enrollment date and every prior change in majority ownership to apply the 36-month rule.

• Review the CMS-855A and PECOS records for accuracy.

• Confirm state licensure, accreditation, and survey history.

• Review plans of correction and any condition-level deficiencies.

• Confirm Medicaid enrollment status in each state.

• Check whether the HHA is in an RCD state and review its review choice, affirmation rates, and cycle history.

2. Exclusion and Sanction Screening

• Screen the entity, owners, managing employees, and staff against the OIG List of Excluded Individuals and Entities, the System for Award Management, and state Medicaid exclusion lists.

• Ask about any past or pending payment suspensions, revocations, corporate integrity agreements, or settlements.

3. Audit and Investigation History

• Request all ADRs, TPE results, RAC, SMRC, CERT, UPIC, and OIG correspondence for at least the past six years.

• Request all overpayment demand letters, appeal files, and extended repayment schedules.

• Ask about subpoenas, civil investigative demands, search warrants, or law enforcement contacts.

• Ask about whistleblower complaints, hotline reports, and internal investigations.

4. Claims and Data Analysis

• Analyze claims data for outlier patterns, such as functional impairment levels, comorbidity adjustments, clinical group distribution, LUPA rates, length of stay, and recertification rates.

• Review PEPPER and any Comparative Billing Reports.

• Compare referral patterns, including concentration among a small number of physicians.

5. Pre-Closing Clinical Documentation Audit

Conduct a statistically designed audit of a sample of recent periods, ideally directed by counsel to help preserve privilege. Review:

• Homebound status.

• Skilled need.

• Face-to-face encounter documentation.

• Certification, recertification, and plan of care signatures.

• OASIS accuracy, especially the PDGM functional items.

• Diagnosis coding.

• Visit documentation and LUPA thresholds.

The results help estimate potential overpayment exposure, set escrow or holdback amounts, and plan post-closing corrective actions.

6. Referral Relationships and Compensation

• Review all physician arrangements, including medical director agreements, for compliance with the Anti-Kickback Statute and the physician self-referral law.

• Confirm written agreements, fair market value, documented services, and time records.

• Review marketer and liaison compensation structures.

• Review arrangements with assisted living facilities, hospitals, skilled nursing facilities, and other referral sources.

• Confirm that certifying physicians do not have prohibited financial relationships with the HHA under 42 CFR 424.22(d).

7. Compliance Program

• Review the compliance program against OIG's General Compliance Program Guidance.

• Review audit plans, results, corrective action plans, training records, and hotline logs.

• Review overpayment refunds and self-disclosures.

8. Financial and Cost Report Review

• Review cost reports and any open audits.

• Review accounts receivable, including Medicare and Medicaid balances subject to offset.

• Confirm capitalization requirements if a new enrollment will be required.

9. Operations and Workforce

• Review staff licensure and competency documentation.

• Review employee versus contractor classification.

• Review electronic visit verification compliance for Medicaid services where required.

• Review EHR systems and the ability to produce complete records for future audits.

Protecting the Buyer in the Transaction Documents

Contract protections cannot bind CMS, but they can allocate risk between the parties:

• Representations and warranties about compliance, audits, investigations, and overpayments.

• Indemnification for pre-closing liabilities, including Medicare and Medicaid overpayments.

• Escrow or holdback of part of the purchase price for a defined period.

• Special indemnities for known issues identified in due diligence.

• Survival periods long enough to cover Medicare reopening and lookback periods.

• Cooperation clauses requiring the seller to help respond to post-closing audits of pre-closing claims, including access to records and staff.

• Covenants requiring the seller to maintain records and respond to requests.

• Conditions to closing tied to regulatory approvals or the moratorium's status.

• Representations and warranties insurance, which may exclude known issues.

Seller Considerations

Sellers also benefit from preparing for due diligence:

• Conduct a pre-sale compliance audit to identify and fix issues early.

• Address potential overpayments under the 60-day rule before the sale.

• Organize audit and appeal files.

• Review physician arrangements and fix noncompliant agreements with counsel's guidance.

• Understand that indemnification obligations may survive the sale.

• Plan for record retention after closing.

Post-Closing Steps for Buyers

First 30 Days

• File required enrollment updates and notices.

• Confirm correspondence addresses so ADRs and demand letters reach the new owner.

• Communicate with staff about compliance expectations.

• Begin integrating the agency into the buyer's compliance program.

First 90 Days

• Conduct a post-closing baseline audit if one was not completed before closing.

• Address any findings, including 60-day rule obligations for identified overpayments.

• Review and, where needed, restructure referral source arrangements.

• Train staff on documentation, OASIS, and coding requirements.

Ongoing

• Monitor ADRs, audit activity, and data patterns.

• Track any audits of pre-closing claims and enforce seller cooperation and indemnification provisions.

• Maintain records from both the pre-closing and post-closing periods.

Medicaid Considerations

Medicaid CHOW rules vary by state. Some states require new enrollment applications, prior approval, or new provider agreements for ownership changes. States may also impose their own enrollment moratoria. For example, the Ohio Department of Medicaid implemented a moratorium on new home health and hospice Medicaid enrollments from May 14 through November 14, 2026. Buyers should confirm Medicaid requirements and any state moratoria early.

Questions to Ask the Seller

• When was the agency initially enrolled in Medicare, and what ownership changes have occurred since?

• Has the agency received any ADRs, TPE, RAC, SMRC, CERT, UPIC, or OIG requests in the past six years? What were the results?

• Are any appeals pending, and what amounts are at stake?

• Has the agency ever had payments suspended, enrollment revoked or deactivated, or been placed on prepayment review?

• Has the agency made any voluntary refunds or self-disclosures?

• What are the agency's RCD review choice and affirmation history, if applicable?

• Who are the top referral sources, and what financial relationships exist with them?

• How are marketers and liaisons compensated?

• Are there any known compliance concerns, hotline reports, or employee complaints?

• Are there any pending or threatened lawsuits, including whistleblower actions?

Valuation Considerations

Compliance findings affect value. Buyers often adjust the purchase price, escrow, or deal structure based on:

• Estimated overpayment exposure from the documentation audit.

• The likelihood of post-closing audits of pre-closing claims.

• Revenue tied to referral relationships that must be restructured or terminated.

• The cost of corrective actions, training, and system changes.

• RCD status and its effect on cash flow.

Common Mistakes

• Assuming a stock purchase avoids all Medicare issues.

• Failing to calculate the 36-month window accurately.

• Relying on contract language to avoid CMS recoupment.

• Skipping a clinical documentation audit.

• Ignoring referral relationships until after closing.

• Allowing indemnification survival periods to expire before Medicare lookback periods.

• Missing enrollment reporting deadlines.

• Assuming the moratorium will end on schedule.

A Hypothetical Example

A regional home health company plans to buy a smaller agency through an asset purchase, accepting assignment of the provider agreement. Due diligence shows the agency was enrolled more than 36 months earlier and has had no prior change in majority ownership, so the 36-month rule does not apply. A counsel-directed audit of 60 periods finds weak homebound documentation in about 15 percent of periods and two medical director agreements that lack documented services.

The buyer negotiates a larger escrow, a special indemnity for pre-closing overpayments, and a requirement that the seller terminate the medical director agreements before closing. After closing, a UPIC requests records for pre-closing claims and later issues an extrapolated overpayment. The buyer appeals, uses the seller cooperation clause to obtain records and staff support, and draws on the escrow to cover the remaining exposure. The buyer also implements homebound documentation training across the acquired agency.

Timing the Transaction

• Confirm the 36-month calculation and any exception before signing.

• Build in time for CMS and state processing of enrollment updates.

• Consider whether closing should wait until the moratorium ends or its status is clear.

• Align the closing date with billing periods to simplify claim submission and cut-off.

Key Takeaways

• Accepting assignment of the provider agreement generally means accepting the agency's Medicare history, including overpayment liability.

• Contract terms allocate risk between the parties but do not prevent CMS recoupment.

• Calculate the 36-month window carefully and test every exception.

• Confirm the status of the 2026 Medicare moratorium and any state Medicaid moratoria before signing.

• Conduct a counsel-directed clinical documentation audit before closing.

• Review referral arrangements as carefully as billing.

Frequently Asked Questions

Does a buyer inherit the seller's Medicare overpayments?

A buyer that accepts automatic assignment of the provider agreement may be liable for the seller's overpayments, and CMS may recover from the buyer regardless of the purchase agreement.

Can a buyer avoid successor liability?

A buyer may reject assignment in writing, but must then enroll as a new provider, obtain a survey or accreditation, and accept a gap in billing.

What is the 36-month rule?

If an HHA undergoes a change in majority ownership within 36 months of initial enrollment or its last change in majority ownership, the provider agreement and billing privileges do not convey, unless an exception applies.

How does the 2026 moratorium affect home health deals?

CMS's moratorium blocks new HHA enrollments and certain changes in majority ownership. Transactions that require a new enrollment may not be able to obtain billing privileges until the moratorium ends.

What should a pre-closing audit cover?

Homebound status, skilled need, face-to-face documentation, certifications and plans of care, OASIS accuracy, coding, visit documentation, and referral arrangements.

Conclusion

Home health transactions carry significant Medicare risk because buyers that accept assignment generally inherit the agency's history, including overpayment liability that contract terms cannot shift away from CMS. The 36-month rule and the 2026 nationwide enrollment moratorium add further complexity. Careful due diligence, including enrollment history, audit and investigation history, claims data analysis, a counsel-directed clinical documentation audit, and a review of referral relationships, combined with strong contract protections and a disciplined post-closing integration plan, can help buyers and sellers manage these risks.

How HealthBridge Can Help

HealthBridge is a healthcare management consulting firm that supports buyers, sellers, and their counsel in home health transactions through pre-closing documentation audits, claims data analysis, compliance program reviews, referral arrangement inventories, and post-closing integration and baseline audits. If you are planning a home health acquisition or sale, please get in touch with us. We will be happy to help you with this topic.

References

• Electronic Code of Federal Regulations. 42 CFR 489.18, Change of Ownership or Leasing: Effect on Provider Agreement. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-G/part-489/subpart-A/section-489.18

• Electronic Code of Federal Regulations. 42 CFR 424.550, Prohibitions on the Sale or Transfer of Billing Privileges. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.550

• Electronic Code of Federal Regulations. 42 CFR 424.502, Definitions. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.502

• Electronic Code of Federal Regulations. 42 CFR 424.516, Additional Provider and Supplier Requirements for Enrolling and Maintaining Active Enrollment Status. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.516

• Electronic Code of Federal Regulations. 42 CFR 424.518, Screening Levels for Medicare Providers and Suppliers. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.518

• Electronic Code of Federal Regulations. 42 CFR 424.570, Moratoria on Newly Enrolling Medicare Providers and Suppliers. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-P/section-424.570

• Electronic Code of Federal Regulations. 42 CFR 401.305, Requirements for Reporting and Returning of Overpayments. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-A/part-401/subpart-D/section-401.305

• Centers for Medicare & Medicaid Services. CMS Announces Aggressive Nationwide Crackdown on Fraud with Six-Month Hospice and Home Health Agency Enrollment Moratoria (May 13, 2026). https://www.cms.gov/newsroom/press-releases/cms-announces-aggressive-nationwide-crackdown-fraud-six-month-hospice-home-health-agency-enrollment

• Federal Register. Announcement of Nationwide Temporary Moratoria on Enrollment of Home Health Agencies (Document 2026-09717). https://www.federalregister.gov/d/2026-09717

• Centers for Medicare & Medicaid Services. Survey and Certification Letter 12-14, Home Health Agency Change of Ownership. https://www.cms.gov/medicare/provider-enrollment-and-certification/surveycertificationgeninfo/downloads/scletter12_14.pdf

• U.S. Department of Justice. Traditions Health Agrees to Pay $34M to Resolve False Claims Act Liability Relating to Home Health Services Following Self Disclosure (January 22, 2026). https://www.justice.gov/opa/pr/traditions-health-agrees-pay-34m-resolve-false-claims-act-liability-relating-home-health

• U.S. Department of Health and Human Services, Office of Inspector General. Exclusions Program. https://oig.hhs.gov/exclusions/

• U.S. Department of Health and Human Services, Office of Inspector General. General Compliance Program Guidance. https://oig.hhs.gov/compliance/general-compliance-program-guidance/