Some nonprofit hospitals may be required to pay property taxes in the not-too-distant future now that the Illinois Department of Revenue has begun evaluating hospitals’ tax status against a 2010 ruling by the Illinois Supreme Court.
Hospital worries about the future of their tax breaks kicked into high gear last week when state revenue administrators yanked the tax exemptions of three non-profit hospitals which had received them in the past. The state reviews exemptions when hospitals change ownership, expand or undergo major construction programs.
The tax breaks were revoked for Northwestern’s Prentice Women’s Hospital in Chicago, Edwards Hospital in Naperville and Decatur Memorial Hospital in Decatur. The hospitals have 60 days to appeal the findings to an administrative law judge.
The three hospitals were among the first to be reviewed following the Illinois Supreme Court’s landmark decision last year involving Provena Covenant Medical Center in Urbana. That long-running case, which dates back to 2002, ended with the high court finding the medical center did not meet enough criteria to be considered a charity, as previously defined by the courts.
The Provena opinion did not specify how much free care hospitals need to provide to meet the criteria involving charity care.
Through a spokesperson, NorthShore University HealthSystem, which runs Evanston, Glenbrook, Highland Park and Skokie hospitals, deferred to the Illinois Hospital Association on the matter.
Evanston Hospital reported providing charity care to more than 6,100 outpatients and 1,100 hospitalized patients during 2009, the most recent year on file with the state. The total $10.3 million in charity care provided that year amounted to 2.3 percent of net revenue.
IHA President Maryjane Wurth decried the rulings, which are “only the first step in the process” but “tantamount to taxing hospitals.”
Wurth expressed concern that hospitals will have to devote precious time and resources to respond to these challenges.
“Losing an exemption could be devastating to an individual hospital, potentially wiping out already thin margins and triggering cuts in the work force and health services for the community,” said Wurth. She noted that all earnings of a non-profit hospital are reinvested in the hospital’s community. “Taxing hospitals will force them to reduce services and increase health care costs for patients and employers, jeopardizing access to quality hospital services as well as the financial survival of many of these hospitals.”
As part of Resurrection Healthcare, Saint Francis Hospital in Evanston is merging with Provena Health, which includes the Provena Medical Center in Urbana. Saint Francis Hospital provided $3.3 million in free care in 2009.
Hospitals have long contended that free care provided to poor patients should not be the sole measure of whether their institutions deserve millions of dollars in tax breaks. Instead, they prefer a broader definition of charity that includes uncollected debt and shortfalls in Medicare and Medicaid payments. Those shortfalls are likely to increase under federal health reform, they note, which is expected to slash Medicare reimbursements to Illinois hospitals by $8 billion by 2020.
Looking at the broader definition of community benefits, NorthShore University Health System reported $172 million in contributions across all of its hospitals for 2009, including $88 million in unreimbursed Medicaid and Medicare for indigent patients.