CalRHIO has received tax-exempt status from the Internal Revenue Service, a ruling that opens up a number of other funding sources the regional health information organization can tap in its bid to build a statewide health information exchange in California.

The IRS decision comes three years after CalRHIO first filed for 501(c)(3) exemption, shortly after it became an independent nonprofit.

CalRHIO becomes only the second such organization to receive the tax-exempt designation, following a March 19 ruling that conferred the same status on CareSpark, an Appalachian RHIO that operates in northeast Tennessee and southwest Virginia.

CareSpark built a tax-exempt status into its original business model as a way of attracting large tax deductible funds from donors. The failure to get an early IRS ruling stalled some of the RHIO's early development plans, though it decided to launch in late 2007 even without the ruling.

RHIOs were a completely new phenomenon to the IRS when organizations began making their tax-exempt applications some years ago, said Karen Hunt, CalRHIO's communications director, so to some extent the delay is not that surprising.

Given that the IRS has been working on this for such a long time, she believes the CareSpark and CalRHIO decisions could mark the tipping point for RHIOs overall. "I expect we'll be seeing quite a few more in the coming weeks," she said.

Tax-exempt status won't mean as much for CalRHIO as other organizations, however, since it has worked to bring a broad coalition of health plans, providers, hospitals, public agencies and other bodies to help finance and develop what will eventually be a statewide health information exchange.

But it will make it eligible for low-interest tax-exempt bonds. And a lot of grant-making bodies require 501(c)(3) status before they will provide funding.

"We don't anticipate building (the HIE) with grants, but they could prove useful for some things, such as working on safety net programs," she said.

The ruling also further demonstrates that CalRHIO is doing something positive for the public, she said, as well as signaling a confirmation of its progress to date.

"The IRS determination is welcome validation of the last four years of hard work by our board of directors, staff and literally hundreds of California stakeholders who helped to develop CalRHIO," said Molly Coye, chair of the CalRHIO board.