(a) Conditions for CMS approval of a novation agreement. CMS approves a novation agreement if the following conditions are met:

(1) Advance notification. The PDP sponsor notifies CMS at least 60 days before the date of the proposed change of ownership. The PDP sponsor also provides CMS with updated financial information and a discussion of the financial and solvency impact of the change of ownership on the surviving organization.

(2) Advance submittal of agreement. The PDP sponsor submits to CMS, at least 30 days before the proposed change of ownership date, three signed copies of the novation agreement containing the provisions specified in paragraph (b) of this section, and one copy of other relevant documents required by CMS.

(3) CMS's determination. When reviewing a novation agreement, CMS makes a determination concerning the following:

(i) The proposed new owner is in fact a successor in interest to the contract.

(ii) Recognition of the new owner as a successor in interest to the contract is in the best interest of the Medicare program.

(iii) The successor organization meets the requirements to qualify as a PDP sponsor under subpart K of this part.

(b) Provisions of a novation agreement. A valid novation agreement requires the following:

(1) Assumption of contract obligations. The new owner must assume all obligations under the contract.

(2) Waiver of right to reimbursement. The previous owner must waive its rights to reimbursement for covered services furnished during the rest of the current contract period.

(3) Guarantee of performance. The previous owner must—

(i) Guarantee performance of the contract by the new owner during the contract period; or

(ii) Post a performance bond that is satisfactory to CMS.

(4) Records access. The previous owner must agree to make its books and records and other necessary information available to the new owner and to CMS to permit an accurate determination of costs for the final settlement of the contract period.