Republicans often accuse the IRS of being subservient to President Obama’s political goals, but last week the agency made a move that could amount to a serious blow to the administration’s health care policies.

The IRS denied a bid for tax-exempt status from an accountable care organization (ACO), an independent network of doctors that coordinated with private insurers or Medicare to provide care for beneficiaries.

ACOs have been promoted by the Obama administration as a way to improve quality and reduce costs by incentivizing doctors to take a more holistic approach of care to their patients. The doctors who form the networks have financial incentives to keep costs down by favoring preventative care over expensive tests and treatments.

But the IRS ruled that one such network (whose name is not disclosed) was not eligible for tax-exempt status because its operations were not exclusively charitable. In particular, it negotiates deals on behalf of its physicians with insurance companies, which the tax agency considers a business activity.

“The presence of a single substantial nonexempt purpose destroys the exemption, regardless of the number or importance of the exempt purposes,” explains the IRS.

There are roughly 400 ACOs recognized by the federal government to coordinate care for Medicare beneficiaries, but the IRS appears to be challenging those that are not operating in that framework.

That could mean big trouble for the estimated 28 million people whose care is coordinated at least partly through such networks.

Providers and health care observers say the agency is contradicting previous directives from the Obama administration.

“In the past, insurers paid for every service and procedure one patient at a time. But now the fundamental thrust of all American health policy, led by the Department of Health and Human Services, is to think about health care on a population-wide, communitywide basis,” Catherine E. Livingston, a tax attorney and former health care counsel at the IRS, told the New York Times. “The IRS has not yet accepted this new paradigm.”

Insurers are not quite as distraught by the decision. Clare Krusing, a spokeswoman for America’s Health Insurance Plans, told the Times that while some view ACOs as the “wave of the future,” insurers worry that they might lead to providers monopolizing the health care industry and extracting higher prices.

Instant Insights /

IRS ruling a blow to accountable care organizations

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