Becker's Hospital Review

14 CFO / FINANCE Is Mayo Clinic primarily a school or a medical center? Federal judges will decide By Ayla Ellison T his month, federal judges will consider dueling motions for summary judg- ment in a lawsuit Rochester, Minn.- based Mayo Clinic filed against the IRS more than two years ago, according to the Post Bulletin. Mayo filed the lawsuit in September 2016 in an attempt to recover money the hospital says it was wrongly forced to pay the IRS. e case centers on whether Mayo is primarily a med- ical center or a school. Mayo contends it is an "educational organi- zation" that "makes patient care available as a necessary and integral part of its educational activities." However, the IRS considers Mayo to be "a parent company of a healthcare sys- tem as its primary purpose and function." Under the IRS' classification, more of the in- come generated by Mayo's investments is taxable. Two federal judges from the U.S. District Court in Minneapolis will consider mo- tions for summary judgment filed by both sides at a hearing July 1. If the case isn't re- solved, a bench trial is slated to begin Aug. 28, according to the report. e issues involved in the lawsuit date back to 2009, when the IRS audited Mayo Clinic and issued an "adjustment" for 2005 and 2006. e agency later expanded the adjustment to in- clude seven nonconsecutive years of the clin- ic's tax returns — 2003, 2005 to 2007 and 2010 to 2012. e years 2004, 2008 and 2009 were excluded because Mayo did not report any in- come from investments during that time. In 2014, the IRS concluded Mayo Clinic does not qualify for a tax exemption on revenue generated by "debt-financed real-estate in- vestments." at type of income would not be taxed if the IRS categorized Mayo Clinic as a nonprofit educational organization. Because of the adjustments, the IRS required Mayo Clinic to make $11.5 million in addi- tional tax payments. e health system made the payments and then asked the IRS for a re- fund of the full amount. However, the IRS re- jected the refund claim in August 2016. One month later, Mayo sued the IRS to recover the $11.5 million payment. "We don't take the decision to sue the federal government lightly," a Mayo Clinic spokes- person said in a statement to the Post Bulletin. "But we strongly believe that education is a primary function of Mayo Clinic as that con- cept is defined in our federal tax laws. To con- tinue to offer medical education, Mayo Clinic must not be disadvantaged by tax laws compared with other similar educational institutions." n Tennessee hospital to lose Medicare contract By Ayla Ellison J amestown (Tenn.) Regional Medical Center is facing financial troubles and is set to see its Medicare and Medicaid funding cut in June, according to The Tennessean. On May 29, CMS announced the 85-bed hospital will no longer receive Medicare and Medicaid reimbursements as of June 12 because it does not meet conditions of participation. The hospital, which recently halted patient admissions, is strug- gling to stay afloat. In April, power was shut off to parts of the hospital because of a past-due electricity bill totaling $33,000. As of May 30, the hospital owes more than $4 million to 200 vendors and has run out of necessary supplies, according to The Tennessean, which cited CMS inspection reports. According to the inspection reports, the hospital withheld in- come taxes or Social Security funds from employees' paychecks but never deposited those funds with the government. One em- ployee told inspectors that her Social Security payments had not been made in three years, according to The Tennessean. The hospital, owned by West Palm Beach, Fla.-based Rennova Health, was reportedly preparing to close May 16 but ultimate- ly remained opened on a day-to-day basis. On May 21, James- town Mayor Lyndon Baines told local TV station WBIR that the hospital could close "any day now." n HCA hospitals won't get full $150M in Aetna arbitration case By Morgan Haefner A etna will not have to pay Florida hospi- tals owned by Nashville, Tenn.-based HCA Healthcare $150 million related to an arbitra- tion case, according to a Securities and Exchange Commission filing from Aetna's parent company, CVS Health. In October 2018, an arbitrator awarded HCA-owned hospitals in Florida $150 million in out-of-network emergency room payments from Aetna. Aetna ap- pealed the decision, and on March 28, the appellate arbitrator lowered the award to about $86 million. The proceeding was the result of a lawsuit the hospi- tals filed in a Florida court Aug. 25, 2015. The HCA- owned hospitals' arbitration proceeding concerned Aetna's out-of-network and administration practices in Florida for its individual ACA exchange products from 2014-16. Aetna largely exited the individual ex- change business at the end of 2016. n

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