In a letter dated November 15, 2012, the American Hospital Association (AHA) requested that the IRS update IRS Revenue Procedure 97-13 (Rev. Proc. 97-13) as part of its implementation of the Patient Protection Affordable Care Act (PPACA) and in recognition of other recent changes affecting hospitals.  Under Rev. Proc. 97-13, tax-exempt hospitals and medical foundations whose facilities are financed by tax-exempt bonds are subject to restrictions on the amount of “private business use” that can occur within such facilities.  While safe harbors under Rev. Proc. 97-13 allow non-profit hospitals to enter into certain contracts with private service providers, the safe harbors are not broad enough to cover various arrangements required or encouraged by PPACA, such as accountable care organizations (ACOs), bundled payments, and other shared programs.  Hospitals are also subject under PPACA to readmission reduction and value-based purchasing requirements.  According to the AHA’s letter, Rev. Proc. 97-13 “prevents the types of arrangements that can effectively align incentives among physicians, hospitals and other health care service providers to meet the goals of these two policies.”  The ACA therefore recommended that the IRS issue guidance clarifying that the various ACA programs, and similar programs, “do not involve incentives designed to maximize net profits, but rather involve incentives designed to improve the quality and efficiency of care and, consequently, address its costs.” 

The AHA’s brief letter, which is available here, was submitted in follow-up to a recent meeting held between the IRS and AHA and to prior, more detailed letters to the IRS from the AMA, the American Bar Association (ABA), and the National Association of Bond Lawyers (NABL), respectively.  The AMA’s, ABA, and NABL’s earlier letters are available here, here, and, here respectively. 

Reporter, Adam Robison, Houston, +1 713 276 7306, arobison@kslaw.com.