* A new opinion by the Illinois Supreme Court is very bad news for not-for-profit hospitals in Illinois who want to qualify for local tax exemptions.
The decision will be watched closely by hospitals and policymakers nationally, following years of debate over how best to quantify the charity care that non-profit medical providers dole out in exchange for tax exemptions.
It’s the most notable case nationally in the past two decades of a hospital losing its tax-exempt status over questions of its charitable commitment, says Elizabeth Mills, an attorney at Proskauer Rose LLP in Chicago who specializes in tax exemptions for health care organizations.
“Everywhere I go in the country, people ask me about the Provena case,” she says.
The case goes back to 2003, when Champaign County tax officials stripped the hospital of its exemption. Officials cited the 210-bed hospital’s $831,724 spent on “charitable activities” a year earlier, saying it fell short of the medical center’s $1.1 million in property taxes. The state’s Department of Revenue upheld that decision.
* The court ruled that Provena could not apply for a not-for-profit exemption from property taxes for a few reasons. Here’s one…
[The hospital’s income is] not derived mainly from private and public charity and held in trust for the purposes expressed in the charter. They are generated, overwhelmingly, by providing medicalservices for a fee.
The hospital failed additional tests…
Provena Hospitals likewise failed to show by clear and
convincing evidence that it satisfied factors three or five, namely, that it dispensed charity to all who needed it and applied for it and did not appear to place any obstacles in the way of those who needed and would have availed themselves of the charitable benefits it dispenses. […]
When the law says that property must be “exclusively used” for charitable or beneficent purposes, it means that charitable or beneficent purposes are the primary ones for which the property is utilized. […]
Further undermining Provena Hospitals’ claims of charity is that
even where it did offer discounted charges, the charity was often
illusory. As described earlier in this opinion, uninsured patients were charged PCMC’s “established” rates, which were more than double the actual costs of care. When patients were granted discounts at the 25% and 50% levels, the hospital was therefore still able to generate a surplus.
Provena also asked for a religious exemption. That, too, was denied…
To qualify for an exemption under that statute, the property in question must be used exclusively for religious purposes. There is no all-inclusive definition of religious purpose for tax cases. […]
If Provena Hospitals’ argument were valid, it would mean that the church rather than the judiciary is the ultimate arbiter of when and under what circumstances church property is exempt from taxation under the constitution and statutes of the State of Illinois.
The Illinois Hospital Association responds…
The Illinois Hospital Association is extremely disappointed by the court’s decision, which could do great harm to a hospital and its ability to serve its patients and community. Imposing new tax burdens on a hospital could force it to reduce services and increase health care costs – jeopardizing access to quality hospital services as well as the hospital’s financial viability.