New License vs. CHOW: What Home Care Agency Buyers Need to Know

If you are planning to enter the home care industry, you may be deciding between starting a new agency and purchasing an existing one. Buying an agency may appear to be a shortcut around the licensing process, but the regulatory path is not always that simple.

One of the first distinctions to understand is the difference between applying for a new license and completing a Change of Ownership, commonly called a CHOW.

What is a new license?

A new license is generally required when an owner is establishing a new agency and applying for authorization to operate for the first time.

Depending on the state, agency type, and services the agency plans to provide, the process may include an application, supporting documentation, policies and procedures, required personnel, office requirements, background checks, inspections or surveys, and other items.

The exact process varies significantly by state and provider type.

What is a Change of Ownership?

A Change of Ownership, or CHOW, occurs when ownership of an existing provider changes in a way that triggers the requirements of an applicable licensing, enrollment, accreditation, or payer authority.

Purchasing an existing home care, home health, or hospice agency does not automatically mean the buyer can simply take over the existing license and begin operating.

Depending on the transaction and the authorities involved, the buyer may need to submit a CHOW application, provide new ownership information, obtain approval before closing, complete a new enrollment, or satisfy additional licensing requirements. In some circumstances, a license or approval may not transfer at all.

“CHOW” does not mean the same thing everywhere

A transaction can be reviewed differently by the state licensing agency, Medicare, Medicaid, an accrediting organization, and private payers. A change treated as a CHOW by one authority may require a different filing...or an entirely new application...by another.

That is why the analysis should not stop with the state license. Buyers should identify every approval, enrollment, certification, accreditation, and contract the agency relies on and determine what each authority requires.

The structure of the purchase matters

How a transaction is structured can affect the regulatory result. An asset purchase may be treated differently from the purchase of the legal entity itself. A stock or membership-interest transfer may also be treated differently depending on the provider type and governing program.

Before signing or closing, the parties should determine:

• Whether the buyer is purchasing assets or ownership of the existing entity
• Whether the state license can continue, must be transferred, or requires a new application
• Whether the tax identification number will change
• Whether Medicare, Medicaid, accreditation, and payer enrollments require separate notices or applications
• Whether approvals must be obtained before the transaction closes
• Whether the agency may legally continue operating during the transition

Why research must come before the purchase agreement

Before committing to buy an agency, a prospective owner should understand exactly what is being purchased and what will happen to the agency's authority to operate when ownership changes.

Important questions include:

• Does the state allow the existing license to continue after this type of ownership change?
• Is a CHOW filing or a new license application required?
• Must anything be submitted, reviewed, or approved before closing?
• Will the new owner need to satisfy additional licensing requirements?
• Do Medicare, Medicaid, accreditation, or payer contracts follow separate rules?
• Are there unresolved surveys, deficiencies, plans of correction, sanctions, or overpayments that must be evaluated?
• Are there filing deadlines, waiting periods, or restrictions on operating during the transition?

The answers can vary based on the state, provider type, ownership structure, services, payer participation, and transaction documents.

A special Medicare issue for home health and hospice

Medicare applies additional ownership-change rules to enrolled Home Health Agencies and hospices. Under federal regulations, a change in majority ownership during the 36 months after initial Medicare enrollment or the agency's most recent change in majority ownership may prevent the Medicare provider agreement and billing privileges from transferring unless an exception applies.

When that rule applies, the prospective provider generally must enroll as a new provider and complete the applicable survey or accreditation process. That makes the timing and ownership history of an agency especially important when evaluating a purchase.

New license or CHOW?

Neither path is automatically easier. Starting a new agency means completing the initial licensing process. Purchasing an existing agency can introduce a different set of regulatory, enrollment, contractual, and due-diligence requirements.

The important step is to identify the licensing implications before making the investment...not after the purchase agreement has been signed or the transaction has closed.

Planning to start or purchase an agency?

Before moving forward, determine whether your specific transaction requires a new license, a Change of Ownership filing, a new enrollment, or another approval process.

NorthEnd Consulting helps prospective and current owners navigate state licensing requirements for home care, home health, and hospice agencies. Through SouthStart | NorthEnd, clients can also coordinate licensing support with the policies and compliance materials needed for their selected pathway.