AHLA Seeks Clarification on Physician Malpractice Insurance

Limitations of Existing Regulatory Guidance

Anti-kickback Statute

The Medicare and Medicaid Anti-kickback Statute, which falls under the regulatory jurisdiction of OIG, prohibits the knowing and willful payment of any remuneration, directly or indirectly, to induce a person to refer patients or to order, arrange for, or recommend ordering any goods, facility, service, or item for which payment may be made in whole or in part under a federal health care program (including Medicare and Medicaid). Social Security Act, ' 1128(b), 42 U.S.C. ' 1320a-7b(b) (Anti-kickback Statute). The language of the Anti-kickback Statute is very broad and it is potentially applicable to any arrangement under which remuneration passes between providers that are in a position to make referrals to each other.

For a violation to be found, two elements must be present: 1) There must be a direct or indirect offer or payment of “renumeration,” and 2) At least one purpose of the transaction must be “to induce” the referral of patients or other business. The term “renumeration” as used in the Anti-kickback Statute has been very broadly defined as being anything of value. The intent to induce referrals need not be the primary or a major purpose of an activity in order to find a violation, but that purpose must be more than “incidental,” and the intent to induce must be “an intent to influence judgment by economic motives” and more than “mere encouragement.” See, eg, United States v. Jain, 93 F.3d 436 (8th Cir. 1996), cert. den., 520 U.S. 1273 (1997); United States v. Greber, 760 F.2d 68 (3rd Cir.), cert. den., 474 U.S. 988 (1985); Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995); United States v. Bay State Ambulance & Hosp. Rental Serv. Inc., 874 F.2d 20 (1st Cir. 1989); United States v. Kats, 871 F.2d 105 (9th Cir. 1989).

The level of knowledge required to find a violation of the Anti-kickback Statute (ie, specific or general intent) is not clear. Some courts feel the individual must know he or she is specifically violating the Anti-kickback Statute (Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995)), while others have held that knowledge of wrongful conduct in general will suffice. See, eg, United States v. Jain, 93 F.3d 436 (8th Cir. 1996), cert. den., 520 U.S. 1273 (1997); United States v. Neufeld, 908 F. Supp. 491 (S.D. Ohio 1995).

OIG has also promulgated certain safe harbors that will protect arrangements from challenge under the Anti-kickback Statute if they meet all of the elements of a safe harbor; however, because this is an intent-based statute, arrangements that fall outside of a safe harbor do not violate the statute unless the requisite intent is present. The only safe harbor directly related to physician insurance programs is one that protects certain malpractice insurance subsidies offered by hospitals or others to physicians or certified nurse midwives who routinely engage in an obstetrical practice within a primary care health professional shortage area (HPSA). 42 C.F.R. ' 1001 952(o). Although this safe harbor arguably is informative in providing general insights regarding OIG's concerns in this area, the safe harbor itself is of limited applicability and the regulations do not outline a process for how OIG will analyze insurance programs for physicians in other specialties or practicing outside of a HPSA.

OIG has provided some additional guidance under the Anti-kickback Statute pertaining to insurance programs; however, that guidance has been limited and is not generally applicable to many programs. For example, on Jan. 15, 2003, OIG released a letter regarding a proposed arrangement in which a health system would provide temporary financial assistance in obtaining professional liability insurance to physicians on its hospitals' medical staffs in West Virginia, Nevada, Florida and Texas. (The OIG letter is available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/MalpracticeProgram.pdf.) Although the terms of the proposed arrangement are not described in detail in the OIG letter, it involved the direct payment of a portion of the premiums on an interim basis for members of the hospitals' medical staffs.

The OIG letter specifically noted the presence of a variety of safeguards as represented by the system: 1) The arrangement would be limited to an interim period in states experiencing severe access or affordability problems for malpractice insurance, with any extension tied to a continuing disruption in the state's malpractice insurance market; 2) Assistance would be offered only to current active medical staff or to physicians joining the medical staff who are new to the community or in practice less than 1 year; 3) The criteria for receiving financial assistance would not be related to the volume or value of referrals or other business generated by a physician; 4) Each physician receiving assistance would pay at least as much as he or she currently pays for professional liability insurance; 5) Physicians receiving financial assistance would be required to perform services for the hospital and give up certain unspecified litigation rights (and the value of such services and relinquished rights would be equal to the fair market value of the assistance provided); and 6) Assistance would be available regardless of the location at which the physicians provided services, including, but not limited to, other hospitals.

The OIG letter indicated that OIG was aware of the malpractice insurance crisis in some states and its effects on access to care, and that OIG would take those factors into account in exercising its discretion in enforcing the Anti-kickback Statute. The letter, however, stopped short of approving any particular arrangement without an evaluation of all the surrounding facts and circumstances in detail. OIG also did not specifically endorse or require the same safeguards for other programs, nor preclude other elements. The OIG letter does not, for example, address programs where there may be actuarial support for lower than historical premiums; programs where a true subsidy is provided to assist with rising malpractice premiums because the increases are so severe that any additional services that the physician is able to provide are not of equivalent value in a tangible sense (though they may have value to the community in maintaining access to care); hospitals with physicians already in the community joining the staff and facing the same insurance crisis; or programs that may have other (or different) risk management and quality related restrictions on the scope of coverage or eligibility for the assistance.

The Stark Law

The Stark Law, which falls under the regulatory jurisdiction of CMS, generally prohibits a physician from making referrals for the furnishing of designated health services, for which payment may be made under the Medicare or Medicaid programs, to any entity with which the physician or immediate family member has a financial relationship. The Ethics in Patient Referral Act, Social Security Act, ' 1877 & 1903, 42 U.S.C. '' 1395nn & 1396b (Stark Law). The term “designated health services” is broadly defined to include inpatient and outpatient hospital services, clinical laboratory services and a variety of other ancillary services. Financial relationships in this context include any direct or indirect compensation arrangement with an entity for payment of any remuneration, and any direct or indirect ownership or investment interest in the entity (through debt, equity or otherwise). If a financial relationship exists, regardless of the parties' intent, the physician is precluded from referring patients to the entity for designated health services, and the entity is precluded from accepting the referral and from billing Medicare and Medicaid for any such referred services unless the arrangement meets a statutory or regulatory exception.

Outside of a recruitment scenario where assistance with malpractice insurance may be part of a permissible recruitment package for residents and other new physicians in practice for one year or less (42 C.F.R. ' 411 357(e)), the Stark Law exceptions provide little clarity for structuring physician insurance programs. In regulations published March 26, 2004, CMS did adopt the OB malpractice insurance safe harbor from the Anti-kickback Statute described previously (42 C.F.R. ' 411 357(r)). As with the Anti-kickback safe harbor, however, this exception is of limited applicability.

Accordingly, because the Stark Law is a strict liability statute requiring that covered financial relationships fit an exception, hospitals and physicians must structure any malpractice insurance program in a manner that fits another existing exception. Although other exceptions may be applicable — such as the exceptions for certain fair market value arrangements for the provision or purchase of services — CMS has not issued any guidance clarifying how it would apply those exceptions to typical features of a physician insurance program. Those exceptions also do not clearly address consideration of non-economic factors such as the value of assuring continued access to care in the community.

Tax Exemption Issues: Inurement, Private Benefit and Excess Benefit

In addition to the regulatory restrictions facing for-profit hospitals, a non-governmental tax-exempt hospital that wants to maintain its exemption must avoid providing more than incidental private benefit to physicians or allowing its earnings or assets to inure to the benefit of insiders (which often includes influential physicians). See 26 U.S.C. ' 501(c)(3); 26 C.F.R. '' 1.501(a)-1(c) & 1.501(c)(3)-1. See also Harding Hosp. v. U.S., 505 F.2d 1068 (6th Cir. 1974); GCM 37789 (Dec. 18, 1978).

Non-fair market value transactions between a tax-exempt hospital and members of its medical staff may violate one or both of these provisions. An exempt organization, however, may pay (or charge) reasonable compensation for services and fair market value for goods and services without violating these prohibitions. See, eg, Lorain Avenue Clinic v. Commissioner, 31 T.C. 141 (1958); Sonora Community Hosp. v. Commissioner, 46 T.C. 519, 525-26 (1966), aff'd per curiam, 397 F.2d 814 (9th Cir. 1968); Rev. Rul. 56-185, 1956-1 C.B. 202; Rev. Rul. 76-91, 1976-1 C.B. 150.

From the physician's perspective, transactions that violate these prohibitions also may result in personal liability for excise taxes under the rules applicable to “excess benefit transactions” under Section 4958 of the Tax Code. Section 4958 taxes the benefit received in excess of fair market value at rates up to 225% of that excess, with a separate 10%/$10,000 tax on management approving such transactions.

Indirect transactions also may implicate these provisions. For example, 26 U.S.C. ' 4958(c)(1)(A) applies the same standards to both direct and indirect provision of an excess benefit, and the IRS has interpreted the “directly or indirectly” standard in this context as including anything of value provided by a taxable subsidiary of an exempt organization. Internal Revenue Manual — Exempt Organizations Examination Guidelines Handbook, Irm 7.8.1, ' 28.2(2) Example. Likewise, the IRS has taken the position that the inurement prohibition applies to indirect transactions. See, eg, GCM 39646 (undated, released June 30, 1987).

The IRS has provided guidance to clarify how these rules apply to a number of hospital-physician relationships, but only rarely has the guidance addressed physician insurance programs. One area in which the IRS has addressed assistance with physician malpractice insurance is in the context of physician recruitment. In Revenue Ruling 97-21 (addressing five recruitment situations), the IRS approved hospital payment of a physician's insurance premium for a limited time as part of a recruitment package in a HPSA (Situation 1) and as compensation for agreeing to treat Medicaid and charity-care patients in an economically depressed urban area (Situation 3). 1997-1 C.B. 121.

The IRS has provided some additional guidance applicable to insurance programs; however, that guidance has been limited and is not generally applicable to many programs. For example, on Nov. 11, 2003, the IRS released a private letter ruling (PLR 200347017) addressing the effect on tax-exempt status of a private foundation establishing a for-profit reinsurance subsidiary. The reinsurer's purpose was to share in the risks of writing medical malpractice coverage for physicians in the state. It would be funded by the foundation, with strict repayment obligations if the funds are used for any other purpose. The ruling recites some indicia of the medical malpractice crisis in that particular state, including particular concerns in certain specialties and in one specific geographic region. The ruling concludes that the program will not jeopardize the foundation's Section 501(c)(3) tax-exempt status and that any benefit to the physicians is merely incidental to promoting the health of the community (ie, by assuring access to health care services by helping to retain and attract new physicians to the state).

The ruling refers to both high premiums and limited or no availability of coverage. Although the rates in the program were described as “commercially reasonable,” it is not clear whether the special features of the program resulted in physicians paying less for coverage (eg, because of lack of a profit motive). The ruling also does not address situations in which coverage is provided by an insurer owned by the hospital (and what effect various eligibility or coverage terms may have on the tax analysis), or where the program involves some subsidy of a commercial premium. Private-letter rulings issued to one taxpayer are not binding on the IRS as to other taxpayers, and they often provide only sparse details of the transactions being reviewed, leaving it open to interpretation as to how the IRS would analyze similar programs for other taxpayers. Moreover, neither the revenue ruling nor the private-letter ruling address the extent to which a particular physician insurance program may result in taxable commercial-type insurance income to the sponsoring hospital under Section 501(m) of the Tax Code. (Commercial-type insurance income is taxable as unrelated business income and, if substantial, may jeopardize tax-exempt status. See 26 U.S.C. ' 501(m).)

Conclusion

Despite the existing guidance, much confusion and ambiguity remain. AHLA believes that a coordinated response from OIG, CMS and IRS to clarify the application of their respective areas of law to these programs, based on common fact patterns described in the Association's April 22 letter, would be in the best interest of the public, the health care community and the AHLA members that provide legal counsel to the health care community. Recognizing the importance of this issue to the health care community, AHLA appointed a task force of member health lawyers to explore these issues and jointly draft this letter. It is AHLA's hope that the agencies will welcome the task force's efforts to facilitate discussions among the three agencies to fully identify the issues and concerns of the health care community as well as to develop an approach that will address the agencies' concerns.

Last month, we discussed some possible ways that hospitals, in order to maintain staffing needs, can help physicians obtain medical malpractice insurance coverage at reasonable rates. These possible solutions range from giving physicians outright payments to help cover their premiums to establishing a physician insurance program through an independent or hospital-owned insurer. It is important, however, that when hospitals and physicians consider any of these alternatives, they take into account the regulatory implications of any program they may devise.

Common Program Features

For all of these solutions there are certain common questions that arise as to what risk management and quality of care related requirements are appropriate from a regulatory perspective. Requirements that are often considered include:

• Excluding physicians representing a higher indemnity risk (eg, due to prior claims experience) or a higher quality risk (eg, based on disciplinary or investigative record).
• Minimum practice levels to demonstrate and maintain competency (eg, active staff of the hospital, minimum average weekly clinical hours, minimum number of procedures in a specialty in the hospital subject to the hospital's risk management program).
• Minimum CME requirements (including risk management courses approved by the hospital).
• Limiting coverage in a hospital setting to the “four walls” of the sponsoring hospital and/or restricting the percentage of covered services at other hospitals (so that the sponsoring hospital is not effectively assuming responsibility for losses at other hospitals where it does not control the risk-management function or quality of care practices).
• Varying the limits of coverage depending on the setting, in direct proportion to the likelihood of joint and several or vicarious liability of the hospital for incidents in that setting.
• Limiting premium assistance to designated insurance carriers that meet the hospital's requirements regarding financial condition.

These programs, however, typically do not restrict the ability of independent staff physicians to maintain privileges at other facilities. Likewise, these programs typically would not restrict the physician's ability to exercise independent medical judgment to admit or refer patients to another facility or other provider.

Limitations of Existing Regulatory Guidance

Anti-kickback Statute

The Medicare and Medicaid Anti-kickback Statute, which falls under the regulatory jurisdiction of OIG, prohibits the knowing and willful payment of any remuneration, directly or indirectly, to induce a person to refer patients or to order, arrange for, or recommend ordering any goods, facility, service, or item for which payment may be made in whole or in part under a federal health care program (including Medicare and Medicaid). Social Security Act, ' 1128(b), 42 U.S.C. ' 1320a-7b(b) (Anti-kickback Statute). The language of the Anti-kickback Statute is very broad and it is potentially applicable to any arrangement under which remuneration passes between providers that are in a position to make referrals to each other.

For a violation to be found, two elements must be present: 1) There must be a direct or indirect offer or payment of “renumeration,” and 2) At least one purpose of the transaction must be “to induce” the referral of patients or other business. The term “renumeration” as used in the Anti-kickback Statute has been very broadly defined as being anything of value. The intent to induce referrals need not be the primary or a major purpose of an activity in order to find a violation, but that purpose must be more than “incidental,” and the intent to induce must be “an intent to influence judgment by economic motives” and more than “mere encouragement.” See, eg, United States v. Jain , 93 F.3d 436 (8th Cir. 1996), cert. den., 520 U.S. 1273 (1997); United States v. Greber , 760 F.2d 68 (3rd Cir.), cert. den., 474 U.S. 988 (1985); Hanlester Network v. Shalala , 51 F.3d 1390 (9th Cir. 1995); United States v. Bay State Ambulance & Hosp. Rental Serv. Inc. , 874 F.2d 20 (1st Cir. 1989); United States v. Kats , 871 F.2d 105 (9th Cir. 1989).

The level of knowledge required to find a violation of the Anti-kickback Statute (ie, specific or general intent) is not clear. Some courts feel the individual must know he or she is specifically violating the Anti-kickback Statute ( Hanlester Network v. Shalala , 51 F.3d 1390 (9th Cir. 1995)), while others have held that knowledge of wrongful conduct in general will suffice. See, eg, United States v. Jain , 93 F.3d 436 (8th Cir. 1996), cert. den., 520 U.S. 1273 (1997); United States v. Neufeld , 908 F. Supp. 491 (S.D. Ohio 1995).

OIG has also promulgated certain safe harbors that will protect arrangements from challenge under the Anti-kickback Statute if they meet all of the elements of a safe harbor; however, because this is an intent-based statute, arrangements that fall outside of a safe harbor do not violate the statute unless the requisite intent is present. The only safe harbor directly related to physician insurance programs is one that protects certain malpractice insurance subsidies offered by hospitals or others to physicians or certified nurse midwives who routinely engage in an obstetrical practice within a primary care health professional shortage area (HPSA). 42 C.F.R. ' 1001 952(o). Although this safe harbor arguably is informative in providing general insights regarding OIG's concerns in this area, the safe harbor itself is of limited applicability and the regulations do not outline a process for how OIG will analyze insurance programs for physicians in other specialties or practicing outside of a HPSA.

OIG has provided some additional guidance under the Anti-kickback Statute pertaining to insurance programs; however, that guidance has been limited and is not generally applicable to many programs. For example, on Jan. 15, 2003, OIG released a letter regarding a proposed arrangement in which a health system would provide temporary financial assistance in obtaining professional liability insurance to physicians on its hospitals' medical staffs in West Virginia, Nevada, Florida and Texas. (The OIG letter is available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/MalpracticeProgram.pdf.) Although the terms of the proposed arrangement are not described in detail in the OIG letter, it involved the direct payment of a portion of the premiums on an interim basis for members of the hospitals' medical staffs.

The OIG letter specifically noted the presence of a variety of safeguards as represented by the system: 1) The arrangement would be limited to an interim period in states experiencing severe access or affordability problems for malpractice insurance, with any extension tied to a continuing disruption in the state's malpractice insurance market; 2) Assistance would be offered only to current active medical staff or to physicians joining the medical staff who are new to the community or in practice less than 1 year; 3) The criteria for receiving financial assistance would not be related to the volume or value of referrals or other business generated by a physician; 4) Each physician receiving assistance would pay at least as much as he or she currently pays for professional liability insurance; 5) Physicians receiving financial assistance would be required to perform services for the hospital and give up certain unspecified litigation rights (and the value of such services and relinquished rights would be equal to the fair market value of the assistance provided); and 6) Assistance would be available regardless of the location at which the physicians provided services, including, but not limited to, other hospitals.

The OIG letter indicated that OIG was aware of the malpractice insurance crisis in some states and its effects on access to care, and that OIG would take those factors into account in exercising its discretion in enforcing the Anti-kickback Statute. The letter, however, stopped short of approving any particular arrangement without an evaluation of all the surrounding facts and circumstances in detail. OIG also did not specifically endorse or require the same safeguards for other programs, nor preclude other elements. The OIG letter does not, for example, address programs where there may be actuarial support for lower than historical premiums; programs where a true subsidy is provided to assist with rising malpractice premiums because the increases are so severe that any additional services that the physician is able to provide are not of equivalent value in a tangible sense (though they may have value to the community in maintaining access to care); hospitals with physicians already in the community joining the staff and facing the same insurance crisis; or programs that may have other (or different) risk management and quality related restrictions on the scope of coverage or eligibility for the assistance.

The Stark Law

The Stark Law, which falls under the regulatory jurisdiction of CMS, generally prohibits a physician from making referrals for the furnishing of designated health services, for which payment may be made under the Medicare or Medicaid programs, to any entity with which the physician or immediate family member has a financial relationship. The Ethics in Patient Referral Act, Social Security Act, ' 1877 & 1903, 42 U.S.C. '' 1395nn & 1396b (Stark Law). The term “designated health services” is broadly defined to include inpatient and outpatient hospital services, clinical laboratory services and a variety of other ancillary services. Financial relationships in this context include any direct or indirect compensation arrangement with an entity for payment of any remuneration, and any direct or indirect ownership or investment interest in the entity (through debt, equity or otherwise). If a financial relationship exists, regardless of the parties' intent, the physician is precluded from referring patients to the entity for designated health services, and the entity is precluded from accepting the referral and from billing Medicare and Medicaid for any such referred services unless the arrangement meets a statutory or regulatory exception.

Outside of a recruitment scenario where assistance with malpractice insurance may be part of a permissible recruitment package for residents and other new physicians in practice for one year or less (42 C.F.R. ' 411 357(e)), the Stark Law exceptions provide little clarity for structuring physician insurance programs. In regulations published March 26, 2004, CMS did adopt the OB malpractice insurance safe harbor from the Anti-kickback Statute described previously (42 C.F.R. ' 411 357(r)). As with the Anti-kickback safe harbor, however, this exception is of limited applicability.

Accordingly, because the Stark Law is a strict liability statute requiring that covered financial relationships fit an exception, hospitals and physicians must structure any malpractice insurance program in a manner that fits another existing exception. Although other exceptions may be applicable — such as the exceptions for certain fair market value arrangements for the provision or purchase of services — CMS has not issued any guidance clarifying how it would apply those exceptions to typical features of a physician insurance program. Those exceptions also do not clearly address consideration of non-economic factors such as the value of assuring continued access to care in the community.

Tax Exemption Issues: Inurement, Private Benefit and Excess Benefit

In addition to the regulatory restrictions facing for-profit hospitals, a non-governmental tax-exempt hospital that wants to maintain its exemption must avoid providing more than incidental private benefit to physicians or allowing its earnings or assets to inure to the benefit of insiders (which often includes influential physicians). See 26 U.S.C. ' 501(c)(3); 26 C.F.R. '' 1.501(a)-1(c) & 1.501(c)(3)-1. See also Harding Hosp. v. U.S. , 505 F.2d 1068 (6th Cir. 1974); GCM 37789 (Dec. 18, 1978).

Non-fair market value transactions between a tax-exempt hospital and members of its medical staff may violate one or both of these provisions. An exempt organization, however, may pay (or charge) reasonable compensation for services and fair market value for goods and services without violating these prohibitions. See, eg, Lorain Avenue Clinic v. Commissioner , 31 T.C. 141 (1958); Sonora Community Hosp. v. Commissioner , 46 T.C. 519, 525-26 (1966), aff'd per curiam, 397 F.2d 814 (9th Cir. 1968); Rev. Rul. 56-185, 1956-1 C.B. 202; Rev. Rul. 76-91, 1976-1 C.B. 150.

From the physician's perspective, transactions that violate these prohibitions also may result in personal liability for excise taxes under the rules applicable to “excess benefit transactions” under Section 4958 of the Tax Code. Section 4958 taxes the benefit received in excess of fair market value at rates up to 225% of that excess, with a separate 10%/$10,000 tax on management approving such transactions.

Indirect transactions also may implicate these provisions. For example, 26 U.S.C. ' 4958(c)(1)(A) applies the same standards to both direct and indirect provision of an excess benefit, and the IRS has interpreted the “directly or indirectly” standard in this context as including anything of value provided by a taxable subsidiary of an exempt organization. Internal Revenue Manual — Exempt Organizations Examination Guidelines Handbook, Irm 7.8.1, ' 28.2(2) Example. Likewise, the IRS has taken the position that the inurement prohibition applies to indirect transactions. See, eg, GCM 39646 (undated, released June 30, 1987).

The IRS has provided guidance to clarify how these rules apply to a number of hospital-physician relationships, but only rarely has the guidance addressed physician insurance programs. One area in which the IRS has addressed assistance with physician malpractice insurance is in the context of physician recruitment. In Revenue Ruling 97-21 (addressing five recruitment situations), the IRS approved hospital payment of a physician's insurance premium for a limited time as part of a recruitment package in a HPSA (Situation 1) and as compensation for agreeing to treat Medicaid and charity-care patients in an economically depressed urban area (Situation 3). 1997-1 C.B. 121.

The IRS has provided some additional guidance applicable to insurance programs; however, that guidance has been limited and is not generally applicable to many programs. For example, on Nov. 11, 2003, the IRS released a private letter ruling (PLR 200347017) addressing the effect on tax-exempt status of a private foundation establishing a for-profit reinsurance subsidiary. The reinsurer's purpose was to share in the risks of writing medical malpractice coverage for physicians in the state. It would be funded by the foundation, with strict repayment obligations if the funds are used for any other purpose. The ruling recites some indicia of the medical malpractice crisis in that particular state, including particular concerns in certain specialties and in one specific geographic region. The ruling concludes that the program will not jeopardize the foundation's Section 501(c)(3) tax-exempt status and that any benefit to the physicians is merely incidental to promoting the health of the community (ie, by assuring access to health care services by helping to retain and attract new physicians to the state).

The ruling refers to both high premiums and limited or no availability of coverage. Although the rates in the program were described as “commercially reasonable,” it is not clear whether the special features of the program resulted in physicians paying less for coverage (eg, because of lack of a profit motive). The ruling also does not address situations in which coverage is provided by an insurer owned by the hospital (and what effect various eligibility or coverage terms may have on the tax analysis), or where the program involves some subsidy of a commercial premium. Private-letter rulings issued to one taxpayer are not binding on the IRS as to other taxpayers, and they often provide only sparse details of the transactions being reviewed, leaving it open to interpretation as to how the IRS would analyze similar programs for other taxpayers. Moreover, neither the revenue ruling nor the private-letter ruling address the extent to which a particular physician insurance program may result in taxable commercial-type insurance income to the sponsoring hospital under Section 501(m) of the Tax Code. (Commercial-type insurance income is taxable as unrelated business income and, if substantial, may jeopardize tax-exempt status. See 26 U.S.C. ' 501(m).)

Conclusion

Despite the existing guidance, much confusion and ambiguity remain. AHLA believes that a coordinated response from OIG, CMS and IRS to clarify the application of their respective areas of law to these programs, based on common fact patterns described in the Association's April 22 letter, would be in the best interest of the public, the health care community and the AHLA members that provide legal counsel to the health care community. Recognizing the importance of this issue to the health care community, AHLA appointed a task force of member health lawyers to explore these issues and jointly draft this letter. It is AHLA's hope that the agencies will welcome the task force's efforts to facilitate discussions among the three agencies to fully identify the issues and concerns of the health care community as well as to develop an approach that will address the agencies' concerns.