Two statutes that have endured their share of political flak unite in Memorial Hermann Accountable Care Organization, T.C. Memo. 2023-62, filed 5/16/23. MHAC claims they’re exempt, as they provide healthcare for Medicare patients and other insureds, and participate in the Medicare Shared Savings Program (MSSP). This split-up of guided largesse rewards healthcare providers who keep costs down and performance up.

As some of my nearest and dearest have been, and may again be, involved in the Memorial Herrman hospital complex, high performance thereof is top priority.

501(c)(4) exemption requires a civic organization, not for profit, and operated exclusively for social welfare. You’ll remember some political groups had a dust-up with IRS some years back over their 501(c)(4) status, with political hoot-‘n’-hollerin’. MSSP is a subset of the much-contemned ACA. So Ch J Kathleen (“T.B.S. = The Big Shillelagh”) Kerrigan, a follower of President Theodore Roosevelt, speaks softly but carries a big stick.

It’s the split with the insurers that sinks MHAC, which exhausted its administrative remedies, so Section 7428(a)(1)(E) ropes in Tax Court.

“Petitioner fails to qualify as an organization described by section 501(c)(4) because its non-MSSP activities primarily benefit its commercial payor and healthcare provider participants, rather than the public, and therefore constitute a substantial nonexempt purpose. While petitioner’s stated goal of providing affordable healthcare to patients is an admirable one, the provision of healthcare alone is insufficient to qualify for recognition of exemption under section 501(c)(4). Petitioner’s non-MSSP activities benefit primarily the commercial payors and healthcare providers with which it contracts. To that end, petitioner contravenes the requirements of section 501 by conducting business with the public in a manner similar to a for-profit business. See Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii).

“Furthermore, petitioner has failed to demonstrate that its non-MSSP activities benefit the public. There is no evidence that petitioner has coordinated with the State of Texas to administer healthcare to the Greater Houston community, and petitioner has not otherwise shown that its non-MSSP activities promote the common good and general welfare of the community.” T. C. Memo. 2023-62, at p. 8. (Citation omitted).