- The American Hospital Association (AHA) recently called on leaders from the Department of Treasury and IRS to issue formal guidance that would permit non-profit hospitals to participate in commercial accountable care organizations (ACOs) without risking their tax-exempt status.
Currently, IRS guidelines pertaining to hospital tax-exemption designations only address ACO participation under the Medicare Shared Savings Program (MSSP). Non-profit hospitals will not lose their tax exemptions by integrating with other non-profit and for-profit providers under the Medicare ACO program.
However, the federal agency has not issued guidance on whether private payer ACO participation would fall under the same hospital tax-exempt regulations.
Consequently, non-profit hospitals expressed concerns about joining the value-based reimbursement structures, especially after the IRS denied tax-exemption status for a commercial ACO in April 2016. The federal agency determined that the non-MSSP ACO primarily formed to negotiate favorable deals with commercial payers rather than to further the public good through value-based care.
“The promotion of health has long been recognized as a charitable purpose,” the federal agency said in its decision. “However, not every activity that promotes health supports tax exemption.”
In response to the IRS ruling, the AHA challenged the decision in a June 2016 letter to IRS Commissioner John Koskinen. The letter explained that stripping commercial ACOs of their charitable tax exemption status would hinder value-based care and care coordination.
“We are seriously concerned that the IRS has adopted a ruling position that means nonprofit hospitals risk losing their tax exemption if they pursue a modern approach to clinically integrated healthcare that holds the greatest promise for improving outcomes and reducing costs,” wrote Melinda Reid Hatton, the AHA’s Senior Vice President and General Counsel.
The industry group reiterated Hatton’s position in the most recent letter to federal leaders. The group stated that formal guidance is needed to allow non-profit hospitals to engage in a range of value-based care initiatives, not just those offered through CMS.
“Regardless of how MSSPs may evolve, the clinical integration model is firmly in place and increasingly relied on by private payers,” it argued. “The IRS should recognize this welcome paradigm shift with clear and effective guidance permitting tax-exempt hospitals to participate in all ACOs that serve their community.”
Additionally, the AHA urged Department of Treasury and IRS officials to develop “clear authoritative guidance” that defines social determinants as a community benefit.
To earn tax-exemption status, non-profit hospitals must annually pass an IRS community benefit test that measures how the organization supports and improves its community. Community benefits include patient financial assistance, subsidized healthcare services to the entire community, community health improvement activities, and Medicaid shortfalls.
Non-profit hospitals must also report community building expenditures. Any activities that promote the health of the entire community beyond clinical care or patient supports qualify, such as physical space improvement, housing assistance, economic development, and community support.
Community building activities may cross over as community benefits, but the IRS has not provided guidance on when hospitals can report community building expenditures as part of their community benefit test.
The AHA argued that hospital activities that address social determinants of health should qualify as community benefits and be applied to a hospital’s tax-exemption test.
“Guidance should clarify that hospitals are promoting health for the benefit of the community as a whole when they address housing, nutrition, transportation, and other social determinants of health,” the group stated. “A substantial body of research demonstrates that providing a clean, safe place to live, regular nutritious meals or more job opportunities has a profound and positive effect on health.”
To resolve community benefit challenges, the IRS should eliminate the community building section of the tax-exemption form, the AHA recommended. Non-profit hospitals should report community building expenditures as part of their community benefit spending.