Intermountain Health Care's HMO began fighting for its revoked tax exemption in U.S. Tax Court in Washington earlier this month, arguing that it plays an integral part in Intermountain's charitable mission.
At issue in the 2-year-old dispute between the company's HMO, IHC Health Plans, and the Internal Revenue Service is whether the HMO qualified for a tax exemption under the IRS' community benefit standard. That standard, in place since 1989, requires tax-exempt healthcare organizations to provide certain benefits to their communities, such as charity care or research.
Two years ago, the IRS ruled that IHC Health Plans, which reported $95 million in operating income in 1998, is a for-profit business similar to a commercial health insurer and as such did not qualify for a federal tax exemption. Since the HMO itself did not provide emergency care or treat nonenrollees, it provided no community benefit, the IRS said (Dec. 21-28, 1998, p. 4).
Lawyers for Salt Lake City-based IHC dispute the IRS' conclusions in an 88-page brief filed with the court Oct. 2.
IHC Health Plans "has demonstrated conclusively that the very nature of its operations promotes health, and that its community control and wide-scale availability of health plans . . . demonstrate that (its) activities are beneficial to the community as a whole," according to the brief.
IHC contends that since it contracts almost exclusively with the 22 hospitals operated by its not-for-profit parent, the HMO is an integral part of Intermountain's charitable mission and therefore deserves an exemption.
The IRS disagrees.
The health plan "is not an integral part of (Intermountain) because its activities are not essential to accomplishing (Intermountain's) exempt purposes," the IRS said in its brief. "It is irrelevant that (IHC) may be closely integrated for business and marketing purposes with a comprehensive healthcare delivery system."
Last summer, the IRS officially revoked the 15-year-old tax exemption after settlement negotiations with IHC collapsed.
"We came very close to settling," said Douglas Mancino, a tax lawyer representing IHC.
The biggest bone of contention between the IRS and the HMO, Mancino said, is how the HMO pays physicians who provide care to its 475,000 members. IHC offers a point-of-service option, which allows HMO members to receive services outside the plan's provider network. The IRS considers POS options to be commercial-type insurance.
Both the HMO and the IRS will file replies to each other's briefs with the tax court by Nov. 16. The case will not go to trial. Instead, a judge is expected to review all briefs and render a decision as early as May 2001.