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Effective January 1, 2026, all Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers will be subject to the Centers for Medicare & Medicaid Services (CMS) 36-month rule pertaining to changes in majority ownership that currently applies to home health agencies and hospices. This new requirement was included in the CY 2026 Home Health Agency Prospective Payment System (HHPPS) final rule and has largely flown under the radar. The final rule also increases the frequency of surveys conducted by accrediting organizations, as well as a host of other policy changes related to provider enrollment, DMEPOS competitive bidding, and compliance by accrediting organizations. The text of the entire final rule can be accessed at this link.
Below we discuss the 36-month rule and annual surveys applicable to all DMEPOS suppliers, including physician practices, pharmacies and other suppliers that are not just free-standing DME locations.
36-Month Rule for Changes in Majority Ownership
In response to its long-standing concern about program integrity risks in the DME industry, CMS expanded the scope of its 36-month rule for changes in majority ownership of DMEPOS suppliers. CMS first created the 36-month rule for home health agencies in 2010 and subsequently expanded it to include hospices in 2024. CMS acknowledged in its commentary that this policy shift will create significant additional work and cost for both suppliers and accrediting organizations, but it believes the potential harm to beneficiaries and the Medicare Trust Fund warrants additional oversight through this rule.
Under the final rule, CMS mirrors the approach taken with respect to home health agencies and hospices. If a DMEPOS supplier has a change in majority ownership within 36 months after the effective date of its initial enrollment in Medicare or within 36 months after its most recent change in majority ownership, then Medicare billing privileges will not be conveyed to the new owner unless an exception applies. Instead, a prospective owner-buyer would have to enroll in Medicare as a new supplier, and undergo a survey and obtain accreditation from an approved accrediting organization.
A "change in majority ownership" occurs when an individual or organization acquires more than a 50% direct ownership interest in the supplier, which can be effectuated through asset sales, stock transfers, mergers, or consolidations and includes acquisitions through the cumulative effect of asset sales, stock transfers, consolidations, or mergers. In many instances, transactions occur further up the ownership chain, so direct ownership of a Medicare enrolled DMEPOS supplier does not change and the 36-month rule does not apply. However, this is not always the case. It will now be incumbent upon sellers and buyers to be thoughtful about how they structure their organizations and their transactions to comply with the 36-month rule.
The exceptions under the new 36-month rule applicable to DMEPOS suppliers are the same as those that apply to home health agencies and hospices, other than the exception for the submission of cost reports, because DMEPOS suppliers do not submit cost reports. The exceptions include: the supplier's parent company undergoes an internal corporate restructuring (although CMS did not provide additional guidance at this time as to whether this applies to wholly-owned indirect owners), changes in corporate form (e.g., conversion of a corporation to a partnership), or an individual owner dies. Accordingly, we recommend that all DMEPOS suppliers consider whether any steps should be taken now to avoid triggering the new rule in advance of a potential transaction.
When the 36-month rule was expanded to hospices, CMS refused to grandfather entities that had enrolled in Medicare during the 36-months prior to the effective date of the change. Similarly, CMS has not indicated any grandfathering protection for existing DMEPOS suppliers, whether as part of a pending transaction or generally. In other words, if a DMEPOS supplier was first enrolled in Medicare on January 1, 2025, before the expansion of the 36-month rule to DMEPOS suppliers was even proposed and tried to convey its Medicare billing privileges to a buyer after January 1, 2026, it would be blocked by the 36-month rule.
In considering the implications of the expansion of the 36-month rule to DMEPOS suppliers, it is important to recognize that the rule applies not just to freestanding DME supplier locations, but to any DMEPOS supplier enrollments in Medicare, including pharmacies, physician practices, and other providers. Potential sellers need to track the timing of Medicare enrollments and analyze the effects of pre-sale restructuring activities in light of the 36-month rule well in advance of a transaction. Potential buyers, on the other hand, need to conduct thorough due diligence and analyze whether a transaction can be structured at a grandparent level to avoid a direct change of ownership or structured in compliance with the 36-month rule or whether other steps can be taken to mitigate its effects.
The bottom line is that the expansion of the 36-month rule to DEMPOS suppliers adds another layer of regulatory analysis whenever a healthcare transaction includes Medicare enrollment of a DMEPOS supplier.
Frequency of Surveys by Accrediting Organizations
CMS is changing the frequency of surveys for DMEPOS suppliers due to what it describes as a "very serious vulnerability" in its oversight over DMEPOS supplier compliance. Currently, suppliers are resurveyed every three years pursuant to the agency's sub-regulatory guidance. Effective January 1, 2026, suppliers must be resurveyed and reaccredited at least once every 12 months; CMS emphasizes this point to ensure suppliers are aware that they may be resurveyed multiple times in a 12-month period.
CMS clarified in a guidance document outside of the final rule that a DMEPOS supplier's annual resurvey and reaccreditation cycle will not begin until the expiration of its current accreditation (provided that the accreditation cycle began prior to January 1, 2026). CMS has said it anticipates issuing more information on the implementation of this new process in the coming weeks.
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