On April 8, the Internal Revenue Service threw a curveball to accountable care organizations sponsored by nonprofit hospitals and health systems. The tax agency affirmed that for purposes of coordinating care for Medicare enrollees, they do not threaten an institution’s tax-exempt status, but if serving commercially insured populations, they may cross a line.
Let’s be honest: the private letter ruling was an unexpected stance by the IRS. In 2011, in Notice 2011-20, the IRS advised that ACOs serving Medicare enrollees were protected and even noted that if structured appropriately, they’d be able to manage Medicaid populations without risk of tax-exemption forfeiture since both serve a “charitable purpose” while saving federal government money. Per Leavitt Partners, arguably the most credible consultancy in tracking ACO activity, more than 800 ACOs are in operation, most serving Medicare through the Medicare Shared Savings Program, and in some instances serving commercial populations through contracts with insurers or employers.
This ruling is likely to confuse matters for doctors and hospitals about ACOs at a time when the federal government is pushing providers to assume more risk via alternative payment programs including ACOs. The reality is ACOs, along with bundled payments and primary care enhancements, are the backbone of the health industry’s shift from volume to value. This trifecta forces care coordination for populations in every stage of healthiness — from the sickest needing acute and post-acute care to the well needing routine primary and preventive health services.
Here’s my take: ACOs are here to stay.
Clinically integrated networks of providers that assume risks for quality and costs are the future, whether serving Medicare, Medicaid or commercial populations. Twenty-eight million patients are served through an accountable care model; their numbers will swell as insurers and employers drive attention to the model.
No doubt, CMS will continue to alter its measures of quality; the 34 measures in use this year include four that are new.
It will continue to tweak its models even as it rolls out new models like the Next Generation ACO this year. It is doubling down on ACOs as its centerpiece for care coordination just as it is expanding its bundled payment program via the new mandated program for joint replacements that is being rolled out in 67 markets this year. And private insurers and large employers are following CMS in these efforts.
The irony of the IRS letter’s position is this: CMS is leading in these efforts, and it’s in tune with a commercial market that sees value in the direction it is taking. The disconnect between the market and Medicare does not apply to ACOs and bundled payments; they’re singing from the same hymnal.
While this private letter ruling is likely to cause some to push the pause button on their ACO activities, it will not be a permanent slowdown. In fact, a number of hanging chads about ACOs need to be addressed — how enrollee attribution is calculated and risks scored, how savings can be shared including the possibility an enrollee might share along with providers and business partners, how quality is measured and so on.
For tax-exempt hospitals, proceed with caution: A focus on Medicare and Medicaid ACO enrollment seems safe, while parallel efforts targeting employers and insurers should be carefully monitored but not suspended.
In the end, the reality is that the IRS curveball will not lead to a strikeout for ACOs. Like so much of what’s done in the name of innovation in health care, the rules are constantly changing, or even unknown, but the goal of winning the game is clear.
Paul H. Keckley, Ph.D., email@example.com, does independent health research and policy analysis and is managing editor of The Keckley Report. He is a member of Health Forum’s Speakers Express; for speaking opportunities, please contact Laura Woodburn. Marina Karp can be reached at firstname.lastname@example.org.