Internal Revenue Service Denies Tax-Exempt Status for a Commercial ACO

In April 2016, the Internal Revenue Service (the “Service”) issued a final determination denying a nonprofit corporation (the “Network”) tax exempt status under Section 501(c)(3) of the Internal Revenue Code (the “Code”).  The private letter ruling involved a tax-exempt health system (the “System”) that formed the Network to operate an accountable care organization (“ACO”) that did not participate in the Medicare Shared Savings Program (“MSSP”).  Rather, the Network was formed and operated as a non-MSSP clinically integrated network.  The Network was intended to develop and implement financial incentives to participating providers by tying payments to the providers’ collective success at (i) reducing the cost of healthcare for individuals; (ii) improving patient access and quality of care; and (iii) improving population health and patient experience.  These goals were measured by the Network’s analysis of clinical information and a patient satisfaction tool. Participation in the Network was open to providers employed by the tax-exempt System, providers in private practice that held medical staff privileges with the System, and providers in private practice that were not affiliated with the System.  The Network also represented all of those participating providers (including those in private practice) … Continue reading

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