A familiar scenario is playing out again: An obscure court ruling somehow is parlayed into an attack on the continued property-tax exemptions of a group of not-for-profit hospitals.
It happened in Utah. It happened in Pennsylvania. And now it's happening in Oregon, where a 1989 court decision involving a local YMCA has opened the door to a serious threat on hospitals' preferential tax treatment.
Starting in May, the Multnomah County Division of Assessment and Taxation in Portland will begin a series of public hearings to determine whether not-for-profit hospitals in the division's jurisdiction should continue to enjoy their historic exemptions from real estate and personal property taxes.
Six hospitals are in the division's sites, including five in Portland. The Portland hospitals are Bess Kaiser Medical Center, Portland Adventist Medical Center, Providence Portland Medical Center, Legacy Emanuel Hospital and Health Center, and Legacy Good Samaritan Hospital and Health Center. The sixth hospital is Legacy Mount Hood Medical Center in Gresham, Ore. The division also will review two other non-acute-care properties owned by the Legacy hospital system in Portland.
"Even though not all of the hospitals are named in the lawsuit, we decided to review all their exemptions," said Steven Skinner, a tax-exemption specialist with the assessment division.
The lawsuit Skinner is referring to is a pending challenge of the real estate and personal property-tax exemptions of four of the Portland hospitals. The challenge is an offshoot of a decade-old lawsuit filed by the owner of a for-profit independent medical laboratory who challenged the exemptions of several hospital-owned labs.
In that case, after years of litigation, the Oregon Department of Revenue ultimately ruled last June that medical labs were necessary parts of the hospitals' operations and were tax-exempt because they supported the hospitals' charitable purposes, said Portland attorney Michael Morris, who represents Ted Tosterud, the plaintiff lab owner.
The plaintiff then went after the hospitals themselves. Last October, he demanded that the Multnomah County Division of Assessment and Taxation place the hospitals on the tax rolls because they didn't provide enough charity care to justify their tax exemptions.
After the county failed to act, Tosterud petitioned the Oregon Tax Court in Salem to order the county to take action. And in a precedent-setting ruling, the Oregon Tax Court agreed.
In a Feb. 6 decision, Oregon Tax Court Judge Carl Byers said the county had sufficient evidence to strip the hospitals of their tax exemptions. Byers said the hospitals didn't provide enough charity care, based on financial information reported by the hospitals to the state health department.
In his five-page ruling, Byers cited a 1989 decision by the Oregon Supreme Court that said a local YMCA center didn't qualify for a tax exemption because it devoted less than 4% of its revenues to charitable scholarships and fewer than 5% of its members received such scholarships.
"The hospitals do not qualify for charitable exemption because the percentage of charity provided is less than that found in (the YMCA case)," Byers said.
But neither the state Supreme Court in the YMCA ruling nor Byers in his ruling said what percentage of charitable giving was enough to earn an exemption from real estate and personal property taxes in Oregon.
"This is the first ruling of this magnitude relating to hospital tax exemptions," said Gary Harrell, a healthcare attorney in Portland. "It opens the door to challenges in other counties."
That's because the Oregon Tax Court's jurisdiction is statewide, and the charity-care threshold it set for hospital exemptions is so high that few if any hospitals can meet it, said Harrell, who's not involved in the case.
The four hospitals involved in the challenge had charity-care charges in 1994 that ran from 1.7% to 4.7% of their gross patient revenues (See chart).
Skinner said hospitals' charity-care burden will be just one of several factors the county will consider when determining the fate of the hospitals' tax exemptions. The other factors include the number of people who receive free or low-cost care and other services the hospitals provide to their community, such as patient education and wellness programs.
"All decisions are on a case-by-case basis. There's no set test established by the Legislature or the courts," he said. "I expect the scope of the hospitals' evidence to be fairly wide in nature."
Meanwhile, the Oregon Association of Hospitals and Health Systems is taking the case and the series of public hearings seriously, but it's not concerned about hospitals losing their exemptions, according to Daniel Field, the association's vice president of policy and legal affairs.
"We've looked at the laws and court rulings, and we're confident that the hospitals' exemptions are well-deserved," Field said.
Field said exemptions are based on community service, not just charity care. And, after taking into consideration such things as bad debt, Medicare and Medicaid payment shortfalls, and community health programs, hospital expenditures on community services are well above 10% of revenues, he said.
The association is helping the hospitals involved quantify the benefits they provide to their community as they prepare for the public hearings, Field said. If the challenges end up in court, the association "will jump in at that point" as a party in the matter, he said.
Skinner said he anticipates that the county will render its determinations about 30 days after each hospital has its hearing. He said the county has yet to calculate the potential tax liability of the hospitals.