IRS Legal Opinion Declares Healthcare’s Contractual Adjustments Illegal

Fort Myers, Florida Oct 3, 2025 – Washington, D.C. — The IRS Chief Counsel’s Office has officially declared that the use of ‘contractual adjustments’ in healthcare billing is illegal, a move championed by Roy J. Meidinger, who has long fought against hidden tax manipulations between hospitals and insurance companies.

Contractual adjustments, which involve billing patients inflated rates and then writing off portions as discounts for insurers, have masked cancellation-of-debt income and promoted kickbacks. The IRS Chief Counsel’s interpretation, detailed in Chief Counsel Advice (CCA 20151101F), states that only documented discounts at the time of billing are acceptable. Other write-offs are considered taxable income under Internal Revenue Code §61(a)(12).

This decision ends a decades-long practice that allowed insurance companies to receive undisclosed discounts. Uninsured patients or those paying out-of-pocket were charged inflated rates. This eliminates the system of negotiated fees that skewed the market and fostered anticompetitive behavior.

Roy J. Meidinger stated: ‘This ruling creates a level playing field, ensuring every patient is billed the same price for the same service. This promotes transparency, fairness, and competition in healthcare.’

Experts anticipate that eliminating contractual adjustments will significantly lower costs by revealing actual care prices, compelling hospitals and insurers to compete openly. This is expected to save employers, patients, and taxpayers billions as billing practices become more transparent.

This shift promises transparency in healthcare pricing, the end of insurer kickbacks, increased competition, and lower national healthcare costs. This signifies a structural reform of the healthcare economy.

Meidinger continues his campaign to ensure industry accountability and to rebuild trust in the system.

IRS CCA 20151101F (Nov. 2015) – Key Points

• Topic: Are a hospital’s “contractual adjustments” (post-billing write-offs where insurers pay less than the full bill) discounts or taxable income?

• IRS Position in the CCA:

  • A reduction can be considered a price concession (i.e., reduced revenue) only if:

  • The reduced price was the price agreed to at the time of billing,

  • The concession is documented at the same time as billing (on the patient bill, contract, or record), and

  • The policy is applied consistently to all similar patients.

  • If those conditions are not met, the adjustment is not a discount. Instead, the unpaid portion is cancellation-of-debt (COD) income under IRC §61(a)(12).

• Statutory Analysis:

  • There is no specific “contractual adjustment” exclusion in the Internal Revenue Code.

  • The only possible exclusions are the limited §108 exceptions (bankruptcy, insolvency, qualified farm or real property debt). These do not apply to healthcare billing write-offs.

• Nature of the Document:

  • CCAs are non-binding and apply only to the specific taxpayer/situation presented (IRC §6110(k)(3)).

  • However, they show how the IRS interprets the law internally and guide IRS agents.

• Supreme Court Ruling

The IRS Chief Counsel’s position in CCA 20151101F aligns with Supreme Court precedent. In Spring City Foundry Co. v. Commissioner, 292 U.S. 182 (1934), the Court ruled that the customer’s bill establishes the amount of income that must be recognized under accrual accounting. The “contractual adjustments” that lower patient bills afterward are essentially debt cancellation, which is taxable under the Internal Revenue Code.

This confirmation by the IRS Chief Counsel’s Office, supported by the Supreme Court, eliminates the loophole that has allowed hidden discounts, kickbacks, and secret fees for decades.