In a chief counsel advice (CCA) memorandum (CCA 201607026
), the IRS determined that income received from Medicare, in accordance with the Medicare Shared Savings Program (Shared Savings Program) regulations, isn’t fixed at the end of the taxable year in which patient services are provided, because of the programmatic factors.
The Shared Savings Program regulations list the rules for calculating the earned shared savings payments and set forth the following programmatic factors for accountable care organizations (ACOs):
- The secretary of the Department of Health and Human Services must establish an expenditure benchmark.
- The secretary must compare the benchmark to the assigned beneficiary per capita Medicare expenditures in each performance year during the term of the agreement to determine the amount of savings.
- The secretary must establish the appropriate minimum savings rate (MSR).
- The secretary must determine the required sharing cap on the total amount of shared saving that may be paid to an ACO.
The taxpayer in the CCA operated various ACOs. An ACO is an organization of health care providers that agrees to be accountable for the quality, costs and overall care of Medicare beneficiaries enrolled in a traditional fee-for-service (FFS) program and who are assigned to the ACO. The taxpayer’s ACOs participated in the Shared Savings Program, a voluntary program in which ACOs accept responsibility for a defined group of Medicare FFS beneficiaries for at least a three-year agreement period.
Medicare service providers participating in an ACO continue to receive FFS payments in the same way in which FFS payments would otherwise be made. An ACO that meets certain quality performance standards and demonstrates that it has generated savings against an appropriate benchmark of expected average per-capita FFS expenditures will be eligible to share in savings earned, if the generated savings meet or exceed certain minimum savings thresholds.
The IRS determined that because of the first two programmatic factors, the taxpayer couldn’t be assured that at the end of the taxable year it would achieve the necessary savings to participate in the Shared Savings Program. Thus, the IRS concluded that the amount wasn’t fixed because it wasn’t unconditionally due. The IRS supported its conclusion with many specifics related to the first two factors.
For example, the beneficiaries used to determine an ACO’s performance are assigned retroactively, after a three-month claims run-out. The MSR depends on the number of assigned beneficiaries and during the tax years at issue, and is knowable only after the final number of assigned beneficiaries are determined. Also, the benchmark of expected average per-capita FSS expenditures is determined approximately six months after the performance year ends. The beneficiary per-capita costs for the performance year are also determined retrospectively, after the three month claims run-out, and can include FFS claims billed by other practitioners if the FFS beneficiaries received care by practitioners other than those by the ACO practitioners. At the end of their tax year, the ACO practitioners may not know about all of the other FFS claims.
After again noting several of the above-mentioned specifics related to the programmatic factors, the IRS also determined that the facts that would support a calculation were not knowable at the end of the tax year. Accordingly, the IRS concluded that the amount of income, if any, the taxpayer would receive from the Shared Savings Program couldn’t be determined with reasonable accuracy.
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