Tax-Exempt Hospitals and Accountable Care Organizations

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IRS clears path for tax-exempt organizations to participate in Medicare and Medicaid accountable care organizations (ACOs), but raises potential red flags as to tax-exempt organizations' participation in commercial ACOs.

In Notice 2011-20, 2011-16 I.R.B. 652, the Internal Revenue Service (IRS) indicated that it is considering how existing tax exemption and unrelated business income principles will apply to tax-exempt hospitals described in section 501(c)(3) of the Internal Revenue Code (the Code) that will be participating in the Medicare Shared Savings Program (MSSP) through accountable care organizations (ACOs). The Notice invites comments as to where (if anywhere) additional guidance is needed from the IRS with respect to ACOs and tax-exempt hospitals that participate in them. Perhaps more important, the IRS is also inviting comments concerning tax-exempt hospitals’ participation in ACOs outside of the MSSP context and, in the course of requesting such comments, sends clear signals as to its initial thoughts in this area.

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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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