The Treasury Department agrees with Rep. Jim McDermott, D-Wash., that the 16-year-old safe harbor provisions for tax-exempt health care bonds need to be updated so they won't conflict with health care reform.

"The Administration shares your interest in advancing coordinated care among hospitals, physicians, and other health care professionals, and in successfully implementing the Affordable Care Act," Alastair Fitzpayne, the Treasury's assistant secretary for legislative affairs, wrote in a July 31 letter.

Fitzpayne's letter was in response to a letter McDermott sent to Treasury on July 1 expressing his concerns that some of the safe harbor provisions inhibit the ability of certain new payment models, such as the accountable care organizations (ACOs) to flourish.

McDermott is a ranking member of the House Ways and Means Committee's subcommittee on health. He told Treasury officials that he is interested in initiatives that advance better coordinated care among hospitals, physicians, and other health care professionals.

McDermott and other muni groups, including the National Association of Bond Lawyers, have urged the Treasury to update Rev. Prov. 97-13 because it limits the amount of private involvement between tax-exempt governments and non-profit hospitals or other organizations that join together with private parties such as physician groups and suppliers.

They are concerned that the existing safe harbor rules do not cover the types of arrangements contemplated by the affordable care act. As a result, muni participants have said it will cause uncertainty as to whether these arrangements will result in "private business use" in tax-exempt bond financed facilities.

Fitzpayne said the Treasury is considering McDermott's concerns as well as other comments they have received on the subject as they develop plans for future guidance.

"We are encouraged to hear that Treasury is considering these issues because we continue to believe successful implementation of the ACA will require Treasury and IRS to address these tax issues related to tax-exempt bond related facilities," said Scott Lilienthal, president of NABL and partner at Hogan Lovells.

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