ACO denied exemption over commercially-insured patients

A recent Internal Revenue Service ruling threatens to hamstring the Obama administration's high hopes for the accountable care organization (ACO) model, according to The New York Times.

In the ruling, the IRS denied a tax exemption for an ACO that coordinates commercially-insured patients' care. The unnamed ACO, formed by a nonprofit healthcare system, did not qualify, according to the IRS, as its operations are not exclusively charitable and it provides its doctors with private benefits. While the ruling will not affect ACOs serving exclusively Medicare patients, it could have major ramifications for those with privately insured beneficiaries or those that serve a mix of private and Medicare beneficiaries, according to the article.

While the ACO was working to achieve the triple aim of lower costs, quality care and improved health, the IRS said, its negotiations with insurers disqualified it.

The move has raised eyebrows among major industry groups such as the American Hospital Association, which has already submitted a letter asking the IRS to reconsider. The ruling "appears to be a serious obstacle for nonprofit hospitals striving to coordinate care for their communities," AHA Senior Vice President and General Counsel Melinda R. Hatton told the publication.

Catherine E. Livingston of the firm Jones Day, a former IRS healthcare counsel, said the ruling indicates that trends that are broadly accepted within the healthcare industry already may be a harder sell for the IRS. "In the past," she told the NYT, "insurers paid for every service and procedure one patient at a time. But now the fundamental thrust of all American health policy, led by the Department of Health and Human Services, is to think about healthcare on a population-wide, communitywide basis. The IRS has not yet accepted this new paradigm."

This development may prove a setback for private payer-led ACOs, which have been on the rise recently, with private plans maintaining ACO contracts in 43 states. Medicare ACOs, meanwhile, have problems of their own, with few earning bonuses in 2014, FierceHealthcare previously reported.

To learn more:
- read the article

Suggested Articles

NextGen Healthcare's Rusty Frantz sounded off about hospitals opposing proposed federal data-sharing rules while also sharing data with tech giants.

Welcome to this week's Chutes & Ladders, our roundup of hirings, firings and retirings throughout the industry.

It’s an idea that could save Medicare billions of dollars a year, but it would have a major impact on physicians’ revenue.