ACO Update: Shared Savings among ACO Participants Protected Under IRS


This is part of Ober|Kaler's comprehensive overview of federal agencies' implementation of the Accountable Care Act's ACO and Shared Savings Program provisions: CMS Proposed ACO Implementing Regulations; Antitrust; Fraud and Abuse; Privacy; Tax-Exempt Organizations.

Shared Savings among ACO Participants Protected Under IRS


Recently issued regulations and other notices for comments have given health care providers guidance on how to organize and operate accountable care organizations (ACOs) in order to be eligible to receive payments under Medicare’s Shared Savings Program. The Affordable Care Act (ACA), signed into law in March 2010, included incentives for the creation of ACOs. Congress established the ACO Shared Savings Program in the ACA to promote accountability of providers to patient populations and to coordinate services under Medicare as well as to encourage providers to make investments in infrastructure and to design care processes for highquality,efficient service delivery. Almost a year later on March 31, 2011, several federal agencies (CMS, OIG, DOJ, FTC and IRS) jointly announced the release of proposed rule making and guidance regarding the ACO program. The proposed rule and related guidance is expected to remove the existing legal impediments in the areas of fraud and abuse, antitrust, tax and privacy to allow for the development of ACOs, and provide guidance on such issues as eligibility to participate, governance, legal structure, quality and privacy.

The IRS issued Notice 2011-20 concerning the application of Internal Revenue Code (IRC) provisions concerning private inurement and unrelated business income to the shared savings received by tax-exempt hospitals and other tax-exempt health care organizations participating in the Shared Savings Program. The IRS notice also solicits comments as to whether existing IRS guidance governing tax-exempt organizations is sufficient for those tax-exempt organizations planning to participate in the Shared Savings Program and, if not, what additional guidance is needed.

Although the guidance provided in the IRS notice appears preliminary in nature, nonprofit hospitals will take comfort that the IRS is employing a similar and familiar analysis to ACO participation as that applied to existing joint ventures between tax-exempt organizations and private parties. The IRS recognizes, however, that ACO participation creates a variety of novel and fact-specific issues, and that new guidance (and potentially new IRS regulations) specific to the activities of tax-exempt organizations through ACOs (and particularly non- Shared Savings Program activities) may need to be developed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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