(a) Change of ownership. The following constitute a change of ownership:

(1) Partnership. The removal, addition, or substitution of a partner, unless the partners expressly agree otherwise as permitted by applicable State law, constitutes a change of ownership.

(2) Asset transfer. Transfer of substantially all the assets of the sponsor to another party constitutes a change of ownership.

(3) Corporation. The merger of the PDP sponsor's corporation into another corporation or the consolidation of the PDP sponsor's organization with one or more other corporations, resulting in a new corporate body.

(b) Change of ownership, exception. Transfer of corporate stock or the merger of another corporation into the PDP sponsor's corporation, with the PDP sponsor surviving, does not ordinarily constitute change of ownership.

(c) Advance notice requirement.

(1) A PDP sponsor that has a Medicare contract in effect under §423.502 and is considering or is negotiating a change in ownership must notify CMS at least 60 days before the anticipated effective date of the change. The PDP sponsor must also provide updated financial information and a discussion of the financial and solvency impact of the change of ownership on the surviving organization.

(2) If the PDP sponsor fails to give CMS the required notice in a timely manner, it continues to be liable for payments that CMS makes to it on behalf of Medicare enrollees after the date of change of ownership.

(d) Novation agreement defined. A novation agreement is an agreement among the current owner of the PDP sponsor, the prospective new owner, and CMS that—

(1) Is embodied in a document executed and signed by all 3 parties;

(2) Meets the requirements of §423.552; and

(3) Recognizes the new owner as the successor in interest to the current owner's Medicare contract.

(e) Effect of change of ownership without novation agreement. Except to the extent provided in paragraph (c)(2) of this section, the effect of a change of ownership without a novation agreement is that—

(1) The existing contract becomes invalid; and

(2) If the new owner wishes to participate in the Medicare program, it must apply for, and enter into, a contract in accordance with subpart K of this part.

(f) Effect of change of ownership with novation agreement. If the PDP sponsor submits a novation agreement that meets the requirements of §423.552 and CMS signs it, the new owner becomes the successor in interest to the current owner's Medicare contract under §423.502.

(g) Sale of beneficiaries not permitted.

(1) CMS will only recognize the sale or transfer of an organization's entire PDP line of business, consisting of all PDP contracts held by the PDP sponsor with the exception of the sale or transfer of a full contract between wholly owned subsidiaries of the same parent organization which will be recognized and allowed by CMS.

(2) CMS will not recognize or allow a sale or transfer that consists solely of the sale or transfer of individual beneficiaries, groups of beneficiaries enrolled in a pharmacy benefit package, or one contract if the sponsor holds more than one PDP contract.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1546, Jan. 12, 2009; 75 FR 19822, Apr. 15, 2010; 75 FR 32860, June 10, 2010]