LHCSA Change of Ownership in New York

Acquiring an existing Licensed Home Care Services Agency in New York is one of the most complex healthcare transactions you can undertake. Unlike most business acquisitions where ownership transfers upon the signing of a purchase agreement and the exchange of consideration, the transfer of an LHCSA license requires the formal approval of the New York State Department of Health and the Public Health and Health Planning Council before the ownership change can take effect. The process involves a detailed application, character and competence review, financial feasibility analysis, and in some cases a public need assessment, all of which can take six months or longer to complete.

For entrepreneurs and healthcare operators looking to enter or expand in New York's home care market, understanding the LHCSA change of ownership process from start to finish is essential to structuring a successful acquisition. This guide covers every step, from initial due diligence through regulatory approval and closing, along with the common pitfalls that derail transactions.

Why Buy an Existing LHCSA Instead of Applying for a New License?

Since the enactment of the LHCSA moratorium provisions in the 2018-2019 New York State Budget and the subsequent implementation of the public need methodology by the Department of Health, obtaining a brand-new LHCSA license in New York has become significantly more difficult (see our home health agency licensing guide). New applicants must demonstrate that there is an unmet public need for additional home care services in the specific counties where they seek to operate. In most counties across the state, the Department of Health has established a presumption that the existing supply of licensed agencies is sufficient to meet demand, meaning the applicant must present compelling data-driven evidence to overcome this presumption, a threshold that few new applicants have been able to meet.

Purchasing an existing LHCSA that is already licensed and actively providing services offers several compelling advantages over applying for a new license. The agency already holds an active license with approved service counties, eliminating the public need hurdle entirely. There is an established patient census, referral network, and revenue stream that provides immediate cash flow. The agency has existing contracts with Medicaid managed long-term care organizations and other payers that can take months or years to obtain from scratch. Staff, operational infrastructure, compliance systems, and administrative processes are already in place. And critically, the change of ownership application for an LHCSA that is actively serving at least twenty-five patients is exempt from the public need review, which significantly streamlines the regulatory approval process and makes acquisition far more predictable than a new license application.

What Triggers a Change of Ownership Application?

An LHCSA license in New York is not a freely transferable asset. Any change in the controlling ownership interest of the entity that holds the LHCSA license triggers the change of ownership application requirement under New York Public Health Law and the implementing regulations at 10 NYCRR Part 765. This requirement applies regardless of how the transaction is structured, including an asset purchase where the buyer forms a new entity and acquires the agency's assets and operations, a stock or membership interest purchase where the buyer acquires the ownership interests in the existing licensed entity, a merger or consolidation involving the licensed entity, or any other transaction that results in a change in the individuals or entities that exercise control over the LHCSA.

The LHCSA being acquired must meet specific eligibility criteria for the change of ownership process. The agency must have been in continuous operation and actively providing home care services for a minimum of five years. The agency must be currently serving patients at the time the application is submitted. The application must request approval to acquire all operating sites of the existing agency, not just selected locations or counties. And if the purchaser is itself an existing LHCSA, the buyer agency must also be currently and actively providing home care services.

Application Components

Character and Competence Review

All proposed principals of the acquiring entity must undergo a thorough character and competence review conducted by the DOH. This includes every member, manager, officer, director, and any individual or entity with a ten percent or greater ownership interest in the acquiring entity. If any principal is itself an entity rather than an individual, the review extends through the ownership chain to the ultimate individual beneficial owners.

The review requires submission of detailed personal and professional background information including complete employment history, education, and healthcare industry experience. Each principal must disclose any prior involvement with healthcare facilities in New York or any other state, including current and former ownership, management, or board positions. Principals must provide compliance reports known as Schedule 2Ds for any out-of-state affiliated healthcare facilities. Full disclosure of any regulatory actions, disciplinary proceedings, Medicare or Medicaid sanctions, exclusions from federal healthcare programs, and criminal convictions is mandatory. Personal financial statements for all individual principals are also required.

The DOH and PHHPC take the character and competence review extremely seriously. Any history of healthcare regulatory violations, survey deficiencies, patient harm findings, Medicare or Medicaid sanctions, program exclusions, or criminal convictions involving fraud, financial crimes, or patient abuse can be grounds for denial. Identifying and proactively addressing any potential character and competence issues with experienced healthcare counsel before submitting the application is critical to avoiding costly delays or outright denial.

Financial Feasibility

The financial feasibility component has become increasingly rigorous in recent years. The DOH now applies analytical standards similar to those used in the certificate of need process for hospitals and other institutional healthcare providers. The application must include documentation of available working capital equal to at least two months of estimated first-year operating expenses. Detailed projected operating costs and revenue must be provided for the first three years of operation under new ownership, broken down by payer source and service type. Audited or CPA-reviewed financial statements of the acquiring entity and its principals are required. The financial projections must include a CPA attestation confirming the reasonableness of the assumptions. Complete documentation of the purchase price, all sources of acquisition funding including equity contributions, commercial loans, and any seller financing, and evidence that the acquiring entity or its principals actually possess the stated financial resources must be provided.

The DOH evaluates whether projected revenues will be sufficient to cover projected expenses within a reasonable timeframe and whether the overall financial plan demonstrates long-term sustainability. Overly optimistic revenue projections or undocumented funding sources are common reasons for applications being returned for revision.

Seller Documentation

The current owner of the LHCSA must provide a signed and notarized attestation containing the number of patients served in each approved county for the current year and each of the previous five years, the number and types of staff employed during the same periods, a commitment to promptly surrender the LHCSA license to the DOH upon completion of the ownership transfer, and an acknowledgment that the transfer of ownership may not be consummated until all necessary DOH and PHHPC approvals have been obtained.

The Approval Process Timeline

The LHCSA change of ownership process typically takes six to twelve months from application preparation through PHHPC approval and closing. The timeline generally follows this sequence: application preparation takes four to eight weeks depending on the complexity of the transaction and the number of principals. DOH completeness review takes two to four weeks after submission. Substantive DOH review, including background investigation, financial analysis, and staff review, takes two to four months. PHHPC consideration and vote occurs at a regularly scheduled meeting after the DOH has completed its review and prepared a recommendation. Post-approval compliance steps and closing take an additional two to four weeks after PHHPC approval is granted.

The PHHPC meets approximately ten times per year on a published schedule. Applications must be fully reviewed and affirmatively recommended by the DOH before they can be placed on the PHHPC meeting agenda. Understanding the PHHPC calendar and working backward from your target closing date is essential for setting realistic expectations with all parties to the transaction.

Structuring the Purchase Agreement

The purchase agreement for an LHCSA acquisition requires careful drafting to address the unique regulatory dimensions of the transaction. Every LHCSA purchase agreement should include a regulatory approval contingency making closing expressly conditioned on obtaining DOH and PHHPC approval within a defined timeframe, with a walk-away right for both parties if approval is not obtained. Interim operating covenants must require the seller to continue operating the agency in the ordinary course, maintain patient census and staffing levels, comply with all regulatory requirements, and refrain from making material changes to operations during the gap between signing and regulatory approval.

Comprehensive representations and warranties regarding the agency's complete regulatory history, including any deficiencies, citations, investigations, complaints, or corrective action plans, are essential. Risk allocation provisions must clearly address responsibility for regulatory issues that surface during the approval period. Detailed transition planning provisions should cover patient notification requirements, staff retention strategies, managed care contract assignments or new contract applications, and operational continuity. And robust indemnification provisions should protect the buyer against undisclosed liabilities arising from the seller's period of ownership and operation.

Common Pitfalls in LHCSA Acquisitions

The most common issues that delay or derail LHCSA transactions include conducting inadequate due diligence on the target agency's regulatory compliance history, which can surface as undisclosed deficiencies during the DOH review. Many buyers significantly underestimate the approval timeline, creating financial strain and operational uncertainty during the extended gap between signing and closing. Character and competence problems with proposed principals that were not identified and addressed before submission can cause months of delay or result in denial. Financial projections that fail the DOH's reasonableness analysis require revision and resubmission, resetting the review clock.

Operational deterioration at the target agency during the approval period is another serious risk. If the seller allows the patient census to decline, loses key staff, or fails to maintain regulatory compliance while the application is pending, the buyer may find that the agency they are acquiring is worth significantly less than the agency they agreed to purchase. This risk underscores the importance of strong interim operating covenants in the purchase agreement.

The Public Need Exemption

One of the most important regulatory advantages of acquiring an existing LHCSA through a change of ownership rather than applying for a new license is the public need exemption. Applications for change of ownership of LHCSAs that are actively serving at least twenty-five patients at the time of application are not subject to the public need methodology review. This means the DOH and PHHPC evaluate the application based on the character and competence of the proposed new owners and the financial feasibility of the acquisition, without requiring the applicant to demonstrate unmet public need in the service area. This exemption dramatically simplifies the approval process and is the primary reason that acquiring an existing agency is the preferred path to entering the New York home care market.

Frequently Asked Questions

How Agarunov Law Firm Can Help

Agarunov Law Firm has deep experience in healthcare licensing and LHCSA transactions throughout New York and New Jersey. Our healthcare attorneys guide buyers and sellers through every phase of the change of ownership process, from initial due diligence and deal structuring through application preparation, DOH and PHHPC review, and closing. We understand the regulatory landscape, anticipate common obstacles, and implement practical strategies to move transactions through the approval process as efficiently as possible. Contact us for a free consultation to discuss your LHCSA acquisition or sale.