On October 20, 2011, the federal government released final rules for the formation and operation of accountable care organizations (ACOs) under the Medicare Shared Savings Program (MSSP). ACOs represent a key component of the Patient Protection and Affordable Care Act, the healthcare reform legislation enacted in 2010. In connection with the release of the final rules by the Centers for Medicare and Medicaid Services (CMS), the Internal Revenue Service (IRS) issued a new Fact Sheet (FS-2011-11), “Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care Organizations,” that provides additional information for IRC Section 501(c)(3) organizations, such as tax-exempt hospitals, that will be participating in the MSSP through an ACO.
The IRS confirmed in the Fact Sheet that its prior statements on ACOs in Notice 2011-20 (Notice) released in March, and based on CMS’ proposed regulations, continued to reflect the IRS’s expectations regarding the MSSP and ACOs. Although CMS’ final regulations differ from the proposed regulations in some respects (providing more flexibility to increase participation), the IRS has not changed its stance on the application of existing IRS guidance to tax-exempt hospitals participating in an ACO. In its earlier Notice, IRS stated that it will review ACO arrangements on a case-by-case basis, based on all the facts and circumstances. However, because of CMS regulation and oversight of the MSSP, IRS generally “expects” that it will not consider a tax-exempt hospital’s participation in an ACO to result in inurement or private benefit if certain factors are met.
The Fact Sheet is organized in a question and answer format. Key items addressed in the Fact Sheet are the following:
- Type of ACO Entity
- Private Inurement and Private Benefit
- Charitable Purposes – MSSP Sole Activities
- Charitable Purposes – Non-MSSP Activities
- Tax-Exempt Status – Non-MSSP Activities
- ACO Tax Partnerships – Non MSSP Activities
- Unrelated Business Income
- ACO – Separate IRC Section 501 (c)(3) Status
- Five (5) facts and circumstances considered in the Notice that would not result in private inurement or private benefit for a hospital participating in an ACO
- Medical Staff Physicians
Tax-exempt hospitals will likely continue to take a very conservative stance as they address many tax and non-tax factors when considering participation in an