A health plan owned by not-for-profit Intermountain Health Care, Salt Lake City, is not tax-exempt, ruled a three-judge panel from the 10th U.S. Circuit Court of Appeals, Denver, upholding a U.S. Tax Court decision. IHC Health Plans, a wholly owned subsidiary of 21-hospital Intermountain, is Utah's largest health plan company, covering about 20% of the state's population. Its tax-exempt status was revoked in 1999 by the Internal Revenue Service, which said the company's plans did not operate exclusively for charitable purposes. The Tax Court ruled in favor of the IRS decision in 2001. In its opinion, the 10th Circuit panel said Intermountain's health plans "primarily perform a risk-bearing function" and that "a commercial activity of this nature inspired doubt as to the entity's charitable purpose." The plans "did not operate for the purpose of promoting health for the benefit of the community," the panel said.
Former IRS official T.J. Sullivan, now in private practice in Washington, said the opinion "applies a slightly tougher community benefit test than we have seen in other appellate decisions and, if followed by other courts or the IRS, could tighten the standards for exemption for healthcare organizations other than hospitals, such as medical clinics and especially arranger-type HMOs." Intermountain officials knew the chance of victory was slight, said the hospital system's attorney, Doug Mancino, of the Los Angeles office of McDermott, Will & Emery. Mancino said IHC Health Plans probably would apply for a 501(c)(4) tax exemption, a less-stringent category than the 501(c)(3) it was denied; he did not, however, rule out the possibility of a petition to the full 10th Circuit. The company has paid taxes to the IRS since its exemption was revoked. -- by Mark Taylor