Transfer of Entire Contract Fact Sheet

A competitive bidding contract cannot be sold. However, in accordance with 42 CFR §414.422(d)(2), a contract supplier1 negotiating a change of ownership (CHOW) may request to transfer its entire contract to a successor entity. The Centers for Medicare & Medicaid Services (CMS) reviews the documents submitted with the request to transfer the entire contract to be assured that the successor entity is eligible to perform as a contract supplier in accordance with 42 CFR §414.414(b) through (d). If CMS determines that a transfer of the entire contract is appropriate and will not result in disruption of services or harm to beneficiaries, it will enter into an agreement with the contract supplier and the successor entity as described in more detail below.

How to Request a Transfer of an Entire Contract

A contract supplier negotiating a CHOW and seeking a transfer of its entire contract must request the transfer in Connexion, the DMEPOS Competitive Bidding Program’s secure portal. The contract supplier must also upload the required documents in Connexion prior to the effective date of the CHOW. Please follow the steps in the Uploading Documents in Connexion Quick Reference guide.

To access Connexion and submit a request to transfer a contract, a non-contract supplier must first be an authorized official (AO) on the CMS-855S enrollment form and reflected in the Provider Enrollment, Chain, and Ownership System (PECOS). The AO should log in to the CMS Enterprise Portal and follow the instructions in the Registration Reference Guide for DBidS and Connexion.

In addition to the request to transfer the contract, the following documents must be uploaded in Connexion prior to the effective date of the CHOW, as specified in 42 CFR §414.422(d)(ii):

  • Cover letter with a description of the proposed CHOW, or a draft copy of the instrument effectuating the CHOW (e.g., draft bill of sale);
  • Successor entity’s tax return extract for the most recent year filed; and
  • Successor entity’s financial statements listed below that correspond with its tax return extract for the most recent year filed:
    • Income Statement;
    • Balance Sheet;
    • Statement of Cash Flows; and
    • Successor entity’s credit report with numerical credit score or rating.

Immediately following the effective date of the CHOW, the successor entity or contract supplier must upload in Connexion an authenticated copy of the instrument effectuating the CHOW (e.g., notarized bill of sale). CMS will review these documents and make a determination as to whether transferring the contract is appropriate and will not result in disruption of services or harm to beneficiaries.
 
Novation Agreement 

A contract supplier negotiating a CHOW and seeking to transfer its contract should upload a novation agreement2 in Connexion no later than 10 days after the effective date of the CHOW. A novation agreement is the legal instrument by which CMS fully transfers a competitive bidding contract from one supplier to another following a CHOW. A novation can only be executed after a CHOW has occurred. While a purchasing agreement (e.g., bill of sale) that supports the novation agreement may contain contingencies, CMS will not execute (sign) a novation agreement that contains a contingency.

CMS will review the novation agreement to ensure the successor will assume all applicable contract supplier obligations. Additionally, the novation agreement should include the following statements:

  1. The transferor and the transferee agree that CMS is not obligated to pay or reimburse either of them for, or otherwise give effect to, any costs, taxes, or other expenses, or any related increases, directly or indirectly arising out of or resulting from the transfer or this Agreement, other than those that CMS in the absence of this transfer or Agreement would have been obligated to pay or reimburse under the terms of the contracts. The transferor waives any claims and rights against CMS that it now has or may have in the future in connection with the DMEPOS Competitive Bidding Program contract.
  2. The transferee can immediately perform all obligations under the DMEPOS Competitive Bidding Program contract.
  3. The transferee agrees to be bound by and to perform the DMEPOS Competitive Bidding Program contract in accordance with all of the conditions contained in the contract.
  4. The transferee assumes all obligations and liabilities of, and all claims against, the transferor under the DMEPOS Competitive Bidding Program contract as if the transferee were the original party to the contract.
  5. The transferee ratifies all previous actions taken by the transferor with respect to the DMEPOS Competitive Bidding Program contract with the same force and effect as if the action had been taken by the transferee.
  6. The transferor guarantees the performance of all obligations that the transferee (i) assumes under the novation agreement, or (ii) may undertake in the future should the DMEPOS Competitive Bidding Program contract be modified under its terms and conditions. The transferor waives notice of, and consents to, any such future modifications.
  7. CMS recognizes the transferee as the transferor’s successor in interest in and to the DMEPOS Competitive Bidding Program contract. The transferee, by the novation agreement, becomes entitled to all rights, titles, and interests of the transferor in and to the DMEPOS Competitive Bidding Program contract as if the transferee were the original party to the DMEPOS Competitive Bidding Program contract. Following the effective date of the novation agreement, the term “Contract Supplier” as used in the DMEPOS Competitive Bidding contract, refers to the transferee.
  8. Nothing in the novation agreement shall be construed as a waiver of any rights of CMS or the federal government against the transferor.
  9. The transferor and transferee will ensure the efficient provision of items and services to Medicare beneficiaries required under the DMEPOS Competitive Bidding Program contract, such that Medicare beneficiaries continue to receive competitively bid DMEPOS items and services without interruption. 
  10. All payments and reimbursements previously made by CMS to the transferor, and all other previous actions taken by CMS under the DMEPOS Competitive Bidding Program contract, shall be considered to have discharged those parts of CMS’ obligations under the DMEPOS Competitive Bidding Program contract. All payments and reimbursements made by CMS after the date of the novation agreement in the name of or to the transferor shall have the same force and effect as if made to the transferee, and shall constitute a complete discharge of CMS’ obligations under the DMEPOS Competitive Bidding Program contract, to the extent of the amounts paid or reimbursed.
  11. The DMEPOS Competitive Bidding Program contract shall remain in full force and effect, except as modified by the novation agreement.
  12. Nothing in the novation agreement relieves the transferor or transferee from compliance with any federal law.

The novation agreement must clearly delineate the transferee and the transferor and must be signed by representatives of the transferee and transferor. For networks, an AO from each member included in the network must sign the novation agreement, unless they submit a document delegating this authority to a single representative. If the contract transfer request meets all the applicable requirements and the submitted documentation is acceptable, CMS may execute the novation agreement recognizing the transfer of the entire contract. 

The successor entity cannot furnish items under the DMEPOS Competitive Bidding Program contract prior to the effective date of the novation agreement. Any claims for competitively bid items furnished to beneficiaries in the applicable competitive bidding area submitted by the successor entity before the effective date of the contract transfer will be denied.
     
Contract suppliers are also reminded of the mandatory disclosure of subcontracting arrangements set forth in 42 CFR §414.422(f). The disclosure form must be completed and uploaded in Connexion. For more information about subcontracting, refer to the Subcontracting of DMEPOS Services fact sheet.
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1 A contract supplier is an entity awarded a contract by CMS to furnish items included in a competitive bidding program and furnished in a competitive bidding area under section 1847 of the Social Security Act. 

2 A sample novation agreement can be found at Federal Acquisition Regulation (FAR) 42.1204 (available at https://acquisition.gov/far/part-42#FAR_42_1204 or 48 CFR 42.1204).

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Updated: 10/27/2020