RHIO's Get 501(c)(3) Status from IRS

After a two-year moratorium, the IRS has begun issuing favorable exemption determinations to Regional Health Information Organizations (RHIO's) like this one in rural California. RHIO's are a relatively new development in health care; according to this article, the organizations enable health care providers and community residents to conveniently share and access patients’ clinical data, such as a patient’s electronic health records (EHR) and may act as a central health data collection agency. The activities of a RHIO may also include education and research projects, as well as creating and operating secure communication systems that support the exchange of health information, data and studies.

The IRS has posted a very short FAQ on RHIO's, which indicates that it's decision to begin issuing favorable determinations was prodded by the recent stimulus legislation and is based on the theory that these organizations "relieve government burdens," one of the bases for exemption laid out in Treasury Regulations 1.501(c)(3)-1(d).

The exemption of RHIO's is a relatively significant development, particularly given that the organizations typically charge fees for their service.  Indeed, one "how to" manual for RHIO's states 

Crucial to the sustainability of a RHIO is the ability to collect fees that accurately reflect the value that each stakeholder receives from participating.(9) To achieve this, RHIOs should consider as many different business models as possible, including service-fee models and transaction-fee models. 

In short, RHIO's essentially are businesses in their operating models.  The IRS apparently has not yet released the actual private rulings on RHIO's (at least, a Lexis search did not turn any up, and I haven't seen any listed in the usual places, such as the Exempt Organizations Tax Review's monthly review of EO rulings).  It will be interesting to see how the IRS handled the commercial activity aspect of these organizations in its rulings.

JDC