AMARILLO, TX – If you are considering selling your DME business or transitioning ownership in the coming years, you have likely heard about CMS’s new 36-month rule. Many providers are initially concerned, questioning whether the rule prevents business sales or complicates ownership changes. Fortunately, it does not.
The key point is that the 36-month rule does not prohibit transactions, but it does reward advance planning. Owners who consider transaction structure early have more flexibility than those addressing these issues after a buyer appears.
I have seen this firsthand in practice. Recently, I assisted a DME supplier that was initiating succession planning while also considering a potential sale. The owners aimed to position the company for the future and needed to evaluate how ownership changes could impact Medicare enrollment under the new rule.
If these discussions had taken place after negotiating a purchase agreement, the available options would have been far more limited. This is why the 36-month rule should be included in every owner’s strategic planning, not just as part of due diligence.
What Is the 36-Month Rule?
Effective January 1, 2026, CMS expanded the 36-month rule to Medicare-enrolled DMEPOS suppliers. Historically the 36-month rule applied to home health and hospice providers. In general terms, the rule restricts the transfer of Medicare billing privileges following certain changes in majority ownership that occur within 36 months of either the supplier’s initial Medicare enrollment or a previous qualifying change in majority ownership.
The penalty for violating this statute is revocation of enrollment. Like many Medicare regulations, the rule includes several important exceptions, but determining whether an exception applies requires a careful review of the specific facts.
The policy reflects CMS’s ongoing emphasis on program integrity and discouraging the purchase and sale of Medicare billing privileges independent of legitimate business operations. For transaction participants, however, the practical impact is simple: Ownership history now matters more than ever.
The First Question Buyers Should Ask
Historically, buyers spent the early stages of diligence reviewing financial statements, referral relationships, accreditation status, payer contracts, and compliance history. These factors remain critical. However, today one of the first questions should be: “Walk me through every ownership change during the last three years.”
The answer may reveal prior sales, recapitalizations, estate-planning transfers, family succession efforts, or internal reorganizations that warrant closer analysis. If faced with an existing 36-month rule hurdle where no exception applies, a transaction will not move forward due to the risk of enrollment revocation. However, the earlier these issues are identified, the more flexibility all parties have to evaluate potential solutions.
Transaction Readiness Starts Before There’s a Buyer
In my experience representing buyers and sellers, the most successful transactions begin well before a letter of intent is signed. The most effective sellers maintain clean financial statements and organized records and also think strategically about business ownership.
More owners are evaluating whether their organizational structure supports future growth, investment, succession planning, or a potential sale. In some cases, this involves establishing a holding company above the operating company well before any transaction is considered. Depending on the circumstances, advance planning may allow future ownership changes to qualify for regulatory exceptions, such as the indirect ownership exception, while also offering business, tax, and estate-planning advantages.
These decisions are most effective when made proactively, rather than after a buyer has been identified. This is the essence of being transaction ready. Transaction readiness is not about preparing for an immediate sale. It is about building a business that can respond efficiently whenever an opportunity arises.
Structure Matters
A common misconception about the new rule is that there is a single correct way to structure every acquisition. This is not the case. Asset purchases, equity purchases, mergers, internal reorganizations, and recapitalizations each present distinct legal and regulatory considerations.
The appropriate structure depends on the parties’ objectives, tax implications, financing needs, licensing, commercial contracts, and Medicare enrollment history. The addition of the 36-month rule simply means that enrollment considerations should be part of that analysis from the very beginning. Waiting until after the purchase agreement is negotiated is too late.
Misconceptions
As providers become more familiar with the rule, several misconceptions continue to arise. One misconception is that every ownership change automatically creates a problem. This is not accurate. The regulation includes several exceptions, and each transaction should be evaluated individually. Another misconception is that only newly enrolled suppliers are affected. Even established businesses must assess whether a qualifying majority ownership change occurred within the relevant 36-month period. Some owners also assume they can address these issues after identifying a buyer. In reality, earlier discussions typically provide more options.
Five Steps Owners Can Take Today
Whether a sale is two years away or ten, owners can begin preparing now.
- Keep accurate corporate records documenting ownership changes.
- Keep accurate ownership records with CMS.
- Keep a concise timeline of any prior sales, recapitalizations, or restructuring.
- Review whether your current ownership structure supports your long-term business goals.
- Consider Medicare enrollment implications before implementing succession planning or ownership transfers.
- Engage legal and regulatory advisors early when significant ownership changes are contemplated.
These relatively simple steps can save significant time, expense, and frustration in the future.
Peering Ahead
Consolidation in the DME industry continues, and many providers will eventually face decisions about succession planning, outside investment, or selling their business. The 36-month rule has undoubtedly changed the conversation, but it hasn’t changed the underlying objective. Today, transaction readiness goes beyond economic results and compliance. It also includes thoughtful ownership planning. Owners who recognize this distinction and begin planning well before a transaction will be best positioned when opportunities arise.
Tom A. Knapp, Esq. is a shareholder in the corporate and transactions group at Brown & Fortunato. Knapp represents buyers, sellers, private equity groups, and healthcare providers in transactions involving durable medical equipment companies, pharmacies, home health agencies, hospice companies, behavioral health providers, and other healthcare businesses. He can be reached at 806-345-6344 or [email protected].