Change of Ownership and Assignment Clauses
On the day a practice changes hands its agreements do not all behave the same way, and two of them behave in opposite ways. A Medicare provider agreement is assigned to the new owner automatically, carrying the terms and conditions it was originally issued under. A commercial participation agreement frequently does the reverse — it does not travel without consent, and may end on a change of control. The same transaction can therefore hand the buyer a liability it never priced while removing a revenue stream it assumed it kept.
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Key takeaways
- Under 42 CFR 489.18(c), a change of ownership automatically assigns the existing Medicare provider agreement to the new owner.
- The assigned agreement carries the terms it was originally issued under, expressly including any existing plan of correction. There is no fresh start.
- A corporate merger or a consolidation creating a new corporation is a change of ownership; a transfer of corporate stock, or another corporation merging into the provider corporation, is not.
- Leasing all or part of a provider facility is a change of ownership of the leased portion, and the agreement is assigned only to that extent.
- A provider contemplating or negotiating a change of ownership must notify CMS — the obligation begins before closing, not after.
- Commercial agreements often run the other way: anti-assignment and change-of-control clauses can mean participation does not survive the transaction at all.
- So the question is never 'do our contracts transfer?' but 'which of them transfer, and what do the transferring ones bring with them?'
- Whether to accept an automatic assignment or seek a new agreement is a real decision, and it has to be made before closing rather than discovered after.
Two opposite defaults on the same day
The reason this catches practices is that both behaviors are defaults. Neither requires anybody to have decided anything, and each is invisible until the transaction is already structured.
| Medicare provider agreement | Commercial participation agreement | |
|---|---|---|
| Does it transfer? | Automatically, on a change of ownership as the regulation defines it. | Depends entirely on the assignment clause. Frequently not without written consent. |
| What comes with it | The terms and conditions it was originally issued under — including any existing plan of correction. | Whatever the agreement says, which is why the clause has to be read rather than assumed. |
| What a transaction risks | Inheriting an obligation or history that was never priced into the deal. | Losing participation, and with it a book of business, on the closing date. |
| Who must be told, and when | CMS, by a provider contemplating or negotiating the change — before it happens. | Whoever the notice provision names, in the form and to the address it specifies. |
The asymmetry is the point. A due-diligence process that asks only whether the contracts transfer will get a useful answer for one column and a misleading one for the other.
What actually counts as a change of ownership
This is where the intuition fails most often, because the regulation draws a line through the middle of what most people would call a sale. Under 42 CFR 489.18(a) (opens in a new tab):
- Partnership
- The removal, addition or substitution of a partner constitutes a change of ownership, unless the partners expressly agree otherwise as permitted by applicable state law.
- Unincorporated sole proprietorship
- Transfer of title and property to another party constitutes a change of ownership.
- Corporation — and here is the distinction
- Merger of the provider corporation into another corporation, or a consolidation of two or more corporations creating a new corporation, is a change of ownership. But transfer of corporate stock, or the merger of another corporation into the provider corporation, is not.
- Leasing
- The lease of all or part of a provider facility constitutes a change of ownership of the leased portion — and under (e) the agreement is assigned to the lessee only to that extent.
Which entity survives is doing the work
The notice obligation starts early
What an assigned agreement brings with it
Automatic assignment sounds like continuity, and operationally it often is. The part worth pricing is what continuity includes.
Paragraph (d) provides that an assigned agreement is subject to all applicable statutes and regulations and to the terms and conditions under which it was originally issued — listing, among others, any existing plan of correction, compliance with applicable health and safety standards, the ownership and financial-interest disclosure requirements of part 420 subpart C, and civil rights requirements. The list is expressly not exhaustive.
- There is no fresh start. The agreement arrives in the condition it was in, which means diligence has to look at the agreement's history and not only at its existence.
- An existing plan of correction transfers. A buyer accepting assignment accepts an open remediation commitment, and it is named in the regulation rather than left to be argued about.
- Accepting assignment is a choice. Where the inherited condition is worse than a clean start, that is a decision to take deliberately and before closing — with counsel, since the alternative route has its own consequences for billing continuity.
- Enrollment is a separate track. The agreement's assignment and the provider enrollment record are not the same thing; the CMS 855 application family covers what has to be reported and on which form.
The commercial side, where the default runs the other way
A commercial participation agreement is an ordinary contract, so whether it survives a transaction is whatever its own terms say. Three limbs matter and they are frequently in three different places in the document.
The assignment clause
Whether the practice may assign at all, and on what terms. A flat prohibition, a consent requirement, and a consent-not-to-be-unreasonably-withheld formulation are three genuinely different positions.The change-of-control provision
Often separate from assignment, and often broader — it can be triggered by a transaction that involves no assignment at all, including the stock transfer that Medicare treats as no change of ownership. This is exactly where the two regimes can diverge on the same deal.How the counterparty is defined
The same definitional question that decides which products a signature reaches and which third parties can reach the panel — see the all-products clause and silent PPOs and network leasing.The notice provision
What has to be sent, in what form, to which address, and by when. A consent sought informally is not consent, and a notice delivered to the wrong address was not given.
Silence in the contract is not permission
What to establish before the transaction closes
- Classify the transaction first. Which entity survives decides whether this is a change of ownership for the Medicare agreement at all, and it is a question about the documents rather than about the commercial description.
- Inventory the agreements by how they behave, not by payer. Automatic-assignment, consent-required, terminates-on-change-of-control. Three groups, three workstreams, three different deadlines.
- Price what transfers. An inherited plan of correction is a real obligation with a real cost, and it is knowable in advance.
- Start the consents early. Consent-required agreements are the ones that can fail, and they fail late. The notice windows are in the contracts and are the reason a register that tracks them is worth having before it is needed.
- Do not let billing continuity be an assumption. The claims that span the closing date are where an unresolved assignment question becomes a receivable problem, and the A/R consequences of a participation ending are the A/R cluster's ground.
The question worth asking in the first diligence meeting
Common questions
If we sell the practice, do we lose our Medicare agreement?
Where the transaction is a change of ownership as 42 CFR 489.18(a) defines it, the existing provider agreement is automatically assigned to the new owner under (c) — so it is not lost, it moves. What matters more is what moves with it. Paragraph (d) makes the assigned agreement subject to all applicable statutes and regulations and to the terms and conditions under which it was originally issued, expressly including any existing plan of correction. Continuity therefore includes inherited obligations, which is why accepting the assignment is a decision to take deliberately with counsel rather than a formality to process after closing.
Is a stock sale a change of ownership?
Not for this purpose. Under 489.18(a)(3), transfer of corporate stock does not constitute a change of ownership, and neither does the merger of another corporation into the provider corporation — in both cases the provider entity survives and remains the party to the agreement. What does constitute one is the merger of the provider corporation into another corporation, or a consolidation of two or more corporations creating a new corporation. The distinction turns on which entity survives, which is settled by the transaction documents rather than by how the deal is described. Note that a commercial agreement's change-of-control clause may be triggered by exactly the stock transfer Medicare treats as no change at all.
Does leasing our facility to another operator count?
Yes, and only to the extent of what is leased. Paragraph (a)(4) provides that the lease of all or part of a provider facility constitutes a change of ownership of the leased portion, and (e) provides that the agreement is assigned to the lessee only to the extent of that portion. A partial lease therefore produces a partial assignment, which is a genuinely unusual outcome and worth mapping explicitly against the services being delivered from each part of the site.
When do we have to tell anyone?
For Medicare, earlier than most closing timetables assume: 489.18(b) requires a provider contemplating or negotiating a change of ownership to notify CMS, so the obligation attaches while the transaction is in prospect rather than once it is done. For commercial agreements there is no general answer, because the requirement is whatever each notice provision says — what has to be sent, in what form, to which address and by when. Those are terms to find in the agreements themselves, ideally before a transaction is contemplated rather than during one.
What if a commercial contract says nothing about assignment?
Silence is not permission. Where an agreement does not address assignment, the answer comes from the law governing that contract, and it differs. This is one of the questions where a general summary would be worse than none, so the useful approach is to have counsel answer it once for the agreements that carry real revenue, and to record the answer beside the contract — so that a closing timetable is working from a known position rather than re-deriving one under pressure.
Key terms in this article
Defined once, on their own pages.
Continue learning
The other exit, and where the answers get recorded.
Terminating a Payer Contract
The voluntary exit — a different event, with obligations that outlive the end date.
The Payer Contract Inventory
Where the assignment, change-of-control and notice terms are recorded before they are needed.
Reading a Payer Contract
How to find the assignment clause, and who the agreement says the counterparty is.
The CMS 855 Application Family
The enrollment side — what has to be reported, and on which form.
Credentialing Planner
Plan the enrollment work a transaction creates, from your own dates.
Authoritative sources
- 42 CFR § 489.18 — Change of ownership (opens in a new tab)
Defines what constitutes a change of ownership for a provider agreement and what follows from it. For a partnership, the removal, addition, or substitution of a partner constitutes a change of ownership unless the partners expressly agree otherwise as permitted by applicable state law. For an unincorporated sole proprietorship, transfer of title and property to another party constitutes a change of ownership. 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, constitutes a change of ownership, while transfer of corporate stock or the merger of another corporation into the provider corporation does not. The lease of all or part of a provider facility constitutes a change of ownership of the leased portion. A provider who is contemplating or negotiating a change of ownership must notify CMS. When there is a change of ownership, the existing provider agreement is automatically assigned to the new owner, and an assigned agreement is subject to all applicable statutes and regulations and to the terms and conditions under which it was originally issued, including but not limited to any existing plan of correction. The agreement is assigned to a lessee only to the extent of the leased portion.