§ 17.1 COOPERATIVE HOSPITAL SERVICE ORGANIZATIONS

p. 403. Insert following carryover paragraph:

The IRS has determined that a cooperative healthcare purchasing alliance serving employers with self‐funded medical plans did not qualify for tax‐exempt status as a business league.^50.1 The organization was formed as a cooperative healthcare purchasing alliance to serve its community, participating plan organizations, and members by negotiating, maintaining, and renewing agreements with healthcare providers. It was also responsible for reviewing and recommending changes to proposed and existing legislation, rules, and regulations affecting the corporation and participating plan organizations. The organization comprises an alliance of self‐funded medical insurance plan employers that pay a monthly membership fee to be part of the alliance. In its first year, the organization held meetings with hospital CEOs to hear concerns, and at the end of the year it secured seven provider contracts on a cost‐plus pricing model. In its second year of operation, the organization will manage provider contracts, expand membership, coordinate with third‐party administrators and benefit brokers/consultants of its members, and provide administrative support to members and operations.

The IRS found that the alliance fails to qualify for exemption as a business league because its activities do not promote a common business interest. The organization's members are not from a particular line of business, but are instead various employers with only a mutual desire to address healthcare payment reform and collectively bargain for healthcare rates and services to improve access to healthcare. Further, the organization performs services for the private benefit of its members and not for the improvement of conditions for one or more lines of business.