SECTION 554.2308. Change of Ownership

(a) Definition. An ownership change is defined in §19.210(c) of this title (relating to Temporary Change of Ownership). For purposes of this section, prior owner is defined as the legal entity with a Medicaid contract for the facility before the change of ownership. The new owner is the legal entity to which DADS has assigned the contract (in accordance with 42 CFR §442.14 and subsection (d) of this section). The effective date of the ownership change is the effective date of the new owner's license for the facility.

(b) Notice of ownership change. The prior owner must give DADS written notice of a change of ownership at least 30 days before the effective date of the change. If written notice of the change is not received 30 days before the agreed change date, DADS is not responsible for payments made to the prior owner or new owner that do not reflect the established change date. DADS will not make a duplicate payment. It is the responsibility of the prior and new owner to make arrangements between themselves for such contingencies.

(c) Vendor holds based on a change of ownership.

(1) Holds on payments due to a prior owner.

(A) When DADS receives information about a proposed or actual change of ownership, DADS may place vendor payments to the prior owner on hold. Vendor payments will not be released until the Texas Health and Human Services Commission notifies DADS that the prior owner meets the final reporting requirements as specified in 1 TAC §355.306 (relating to Cost Finding Methodology) and 1 TAC §355.308(f)(1)(A) (relating to Direct Care Staff Rate Component).

(B) Once the final reporting requirements in subparagraph (A) of this paragraph are met, vendor payments may still be held so that money owed to DADS can be recouped from the funds placed on hold. Vendor payments will be released after:

(i) completion of a billing and claims reconciliation, or the passing of a time period of 12 months after the effective date of the change of ownership, whichever is sooner; or

(ii) the prior owner provides, at DADS' option, either of the following documents in a format acceptable to DADS to cover possible liabilities of the prior owner:

(I) a surety bond or an irrevocable letter of credit as described in §19.2312 of this title (relating to Surety Bonds or Letters of Credit); or

(II) written authority by the prior owner to withhold and retain funds normally due the prior owner from other Medicaid contracts the prior owner may have with DADS.

(2) Waiving holds on payments due to a prior owner.

(A) DADS may waive placing vendor payments to the prior owner on hold, if, at least 60 days before the effective date of the change of ownership:

(i) the prior owner notifies DADS of the change of ownership;

(ii) the new owner provides DADS with a signed and notarized contract application;

(iii) DADS receives information sufficient to verify that the ownership change is a reorganization of the prior owner's ownership structure and that the new owner's ownership structure:

(I) consists of individuals who owned at least 51% of the ownership in the prior owner and own at least 51% of the ownership in the new owner;

(II) does not consist of a change in a general partner, if the prior owner's ownership structure was a limited partnership; and

(III) retains control of the prior owner's financial records; and

(iv) the prior owner returns to DADS the nontransferable DADS Successor Liability Agreement (provided by DADS) signed by the prior and new owners indicating that the new owner has agreed to pay DADS for any liabilities that exist or may be found to exist during the period of the prior owner's contract with DADS.

(B) Meeting the conditions in subparagraph (A) of this paragraph but not meeting the 60-day time frame may result in DADS placing vendor payments to the prior owner on hold; however, once all of the conditions listed in subparagraph (A) of this paragraph are met, the hold will be released.

(3) Holds on payment due to the new owner.

(A) During the period between the issuance of the temporary change of ownership license and the inspection or survey of the nursing facility, DADS may not place a hold on vendor payments to the temporary license holder.

(B) If the nursing facility fails to pass the inspection or survey or fails to meet the requirements in §19.201 of this title (relating to Criteria for Licensing), DADS may place a hold on vendor payments to the new owner.

(d) Contract assignment. When a change in ownership occurs, DADS automatically assigns the agreement to the new owner by issuing a new contract. By signing the contract, the new owner is representing to DADS that the new owner meets the requirements of the contract and the requirements for participation in the Medicaid program. The new owner's contract is subject to the prior owner's contract terms and conditions that were in effect at the time of transfer of ownership, including the following:

(1) any plan of correction;

(2) compliance with health and safety standards;

(3) compliance with the ownership and financial interest disclosure requirements of 42 CFR §§455.104, 455.105, and 1002.3;

(4) compliance with civil rights requirements in 45 CFR Parts 80, 84, and 90;

(5) compliance with additional requirements imposed by DADS; and

(6) any sanctions as specified in this chapter relating to remedies for violations of Title XIX nursing facility provider agreements, including deficiencies, vendor holds, compliance periods, accountability periods, monetary penalties, notification for correction of contract violations, probationary contracts, and history of deficiencies.

(e) Medical assistance payments nontransferable. Neither medical assistance nor amounts payable to vendors out of public assistance funds are transferable or assignable at law or in equity. DADS will not allow non-split agreements in the case of ownership changes. Non-split agreements are arrangements where DADS does not interrupt payments to prior and new owners but continues reimbursements as though no ownership change has occurred. A split in pay agreement ensures that payments to the prior owner stop on a certain date and payments for services thereafter go to the new owner.

(f) Owner agreements. The new owner and the prior owner of a nursing facility may reach any agreement they wish, but DADS will not participate in a non-split procedure which would allow the new owner to receive the prior owner's accrued vendor payments.

(g) Financial records. The prior owner of the facility may remove the financial records pertaining to his period of ownership from the facility, but must maintain them for the time period prescribed by law or until such time as all audit exceptions are reconciled, whichever period is the longer. The original copies of the trust fund records, including ledger cards, may be removed by the prior owner if an exact duplicate of the trust fund records, including ledger cards, remains with the new owner.

Source Note: The provisions of this §554.2308 adopted to be effective May 1, 1995, 20 TexReg 2393; amended to be effective April 1, 1996, 21 TexReg 1432; amended to be effective March 1, 1998, 23 TexReg 1314; amended to be effective April 1, 2002, 27 TexReg 2060; amended to be effective February 1, 2003, 27 TexReg 12009; amended to be effective April 2, 2007, 32 TexReg 1916; transferred effective January 15, 2021, as published in the Texas Register December 11, 2020, 45 TexReg 8871