The Law of Tax-Exempt Healthcare Organizations. Bruce R. Hopkins

CHAPTER THIRTEEN Other Provider and Supplier Organizations

§ 13.3 QUALIFIED NONPROFIT HEALTH INSURANCE ISSUERS

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Subsequently, the IRS issued final regulations regarding applying for recognition as a tax‐exempt qualified nonprofit health insurance issuer (QNHII)^79.1 These regulations became effective on January 29, 2015. The final regulations provide that the Commissioner of the IRS has authority to prescribe application procedures that must be followed by QNHIIs seeking recognition of tax‐exempt status. The regulations underscore the statutory application of notice rules to QNHIIs, requiring them to apply for recognition of exempt status and confirming that this is the only path for treating such organizations as described as tax‐exempt under this section of the Code.^79.2 Accordingly, QNHIIs cannot rely on self‐declaring their exempt status.

The final regulations authorize the Commissioner to recognize QNHIIs as tax‐exempt effective at a date prior to the date of its application if the application is properly and timely submitted and the QNHII's prior purposes and activities are consistent with the requirements for exemption for such organizations. However, if the IRS requires a QNHII to alter its activities or make substantive amendments to its enabling instrument, the IRS will recognize exemption effective only as of the date specified in the determination letter or ruling. In any event, an organization may not be recognized as tax‐exempt as a QNHII before the later of its formation or March 23, 2010.^79.3

A QNHII that has commenced operations and that intends to file an application with the IRS for recognition of exemption should begin filing Form 990 and indicate on its return that it has not yet received a determination letter. In addition to the general information required on Form 990, QNHIIs must report requested information regarding their required reserves.

The IRS published a revenue procedure containing more detailed provisions for requesting recognition of exemption shortly after the final regulations were issued.^79.4 Under this procedure, a QNHII seeking recognition of exemption must submit a letter application, rather than a form, along with the appropriate user fee. Requirements for a substantially completed letter application are set forth in the revenue procedure.

§ 13.5 ACCOUNTABLE CARE ORGANIZATIONS

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      ¹¹³For a discussion of ACO tax exemption that includes activities outside of the Medicare Shared Savings Program, see Griffith and Livingston, “Bringing Hospital Tax Exemption into the Modern Era: Why ACO Activities Should Be Tax‐Exempt,” AHLA Connections 36 (July 2015).

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In 2016, the Internal Revenue Service released a ruling¹¹⁴ in connection with a final adverse determination as to an application for recognition of tax‐exempt status by a nonprofit corporation operating as an accountable care organization. The organization sought IRS recognition of its tax‐exempt status as a charitable organization and as a supporting organization public charity.

      The organization was created as a nonprofit corporation for charitable, scientific, or educational purposes, and specifically to promote and support the interests and purposes of a healthcare system parent corporation. The system parent was itself a charitable organization and a publicly supported public charity.

      The organization was formed as an ACO to achieve clinical care integration, coordination, and accountability among physicians practicing throughout the healthcare system. The ACO does not participate in the Medicare Shared Savings Program (“MSSP”).

      The ACO does not engage in the direct delivery of medical care or provide health services. All of its time and resources are dedicated to the furtherance of the “Triple Aim” reform goals of the Affordable Care Act (i.e., reducing individual healthcare costs, improving patient access and quality of care, and improving population health and patient experience).

The ACO formed a clinically integrated network of healthcare providers through participation agreements that meet the ACO's eligibility and performance standards. Network participants include system physicians in independent practice groups who are members of the medical staff at system facilities, as well as physicians practicing at nonaffiliated hospitals and other healthcare systems. Approximately half of the participating physicians are in independent practices or affiliated with other hospitals and health systems.

      The ACO is developing and implementing performance measures to assess the care delivery of its participating providers. It has established a data infrastructure for collecting, aggregating, and analyzing data. This includes an electronically integrated clinical information data warehouse and analysis, a patient satisfaction survey tool, and a clinical network infrastructure needed for tracking performance and sharing clinical data. It has implemented financial incentives to motivate network providers to improve their performance by tying their compensation to their collective success at achieving the Triple Aim goals using performance measures.

      Under the ACO's participation agreements, it represents all participating providers, including the independent and nonaffiliated physicians, in an execution of agreements with third‐party payers. These agreements link rewards and penalties for participants to their achievement of performance measures in furtherance of