IRS: Commercial ACO Can’t Claim Charitable Tax Exemptions
- An unnamed accountable care organization (ACO) will not be able to claim charitable tax exempt status since its role centered on facilitation instead of the provision of care, the IRS said in a determination letter this month.
The ACO, which did not participate in the Medicare Shared Savings Program (MSSP), was mainly formed to execute contracts and negotiate deals with commercial payers instead of furthering the public good by providing patient care services. As a result, the organization’s efforts were not considered charitable enough to achieve tax exempt non-profit status.
“The promotion of health has long been recognized as a charitable purpose,” the IRS said. “However, not every activity that promotes health supports tax exemption.”
According to the IRS, the ACO was incorporated as a nonprofit corporation for charitable, scientific or educational purposes. It was supposed to promote the interest of a not-for-profit healthcare system. However, the organization did not engage in the direct delivery of medical care or provide health services to the general public. Although the ACO was classified as a public charity, its efforts appeared to be motivated by commercial factors. The organization served its own private interest, the IRS said.
The organization still functioned as an ACO in many ways, the IRS acknowledged. “You have established data infrastructure for collecting, aggregating and analyzing data, including an electronically integrated clinical information data warehouse and analysis, a patient satisfaction survey tool, and clinical network infrastructure necessary for tracking provider performance and sharing clinical data,” the letter said. The ACO also linked rewards and penalties when providers met quality goals and performance measures.
The IRS also stated that the ACO claimed to make efforts toward furthering Triple Aim healthcare reform goals that were established by the Patient Protection and Affordable Care Act (PPACA).
According to the IRS, an organization may be exempt from tax if it is organized and operated exclusively for “religious, charitable, scientific, testing for public safety, literary or educational purposes.” No part of earnings should benefit an individual or private shareholder, the IRS explained.
The ACO was made up of physicians employed by the healthcare system and its affiliates as well as unaffiliated, independent, community-based providers. The unaffiliated providers made up about half of the organization.
“An individual practice association (IPA) that provides health services through written agreements with health maintenance organizations (HMO) does not qualify for exemption from federal income tax as a social welfare organization,” the IRS said as it cited a rule.
The IRS’ adverse determination could potentially impact other ACOs.
“This adverse determination could lead some providers to choose so-called ‘dual purpose’ ACOs, formed to participate in both the MSSP and commercial ACO arrangements, which could raise potential Antitrust and MSSP regulatory concerns.” said law firm Drinker Biddle & Reath in a blog.
The number of MSSP ACOs has increased steadily over the first few years of the value-based reimbursement program. Hopefully, ACOs that join MSSP arraignments will keep their focus on serving the needs of patients rather than their own private interests.
