The Law of Tax-Exempt Healthcare Organizations 2017 Cumulative Supplement, Fourth Edition + website

CHAPTER NINEManaged Care Organizations

1. § 9.5 Recent Developments

§ 9.5 RECENT DEVELOPMENTS

p. 292. Insert following the final paragraph:

This case would become central to a 2015 reexamination of the IRS's ruling position as to tax exemption for HMOs. In a ruling dated February 19, 2015, the IRS issued an adverse determination to McLaren Health Plan, a nonprofit health maintenance organization, revoking its favorable determination letter recognizing its status as a tax‐exempt charitable organization and recognizing it going forward as an exempt social welfare organization.¹⁴⁹ In so doing, it declined to adopt the conclusions of a lengthy report of examination of the HMO that advocated denial of recognition of exemption under either section of the Internal Revenue Code.

The recipient of this ruling is a state‐licensed nonprofit health maintenance organization that arranges for the provision of medical services to its enrollees who receive Medicaid health benefits. It is not a direct provider of medical services. It was previously recognized by the IRS as a tax‐exempt social welfare organization. It subsequently merged into an organization that was recognized as a tax‐exempt charitable organization. It also began to arrange for the provision of commercial healthcare services to individuals and group subscribers. It does so through contracts with various physician groups, hospitals, and other healthcare providers.

The report of examination found that the organization had significantly ...