More chapters are unfolding in the continuing saga of challenges to property-tax exemptions for not-for-profit hospitals.
The latest events have riveted the attention of industry observers, who are waiting anxiously to see how courts and municipalities will react.
Even for an arena that has seen tons of action in the past few years, this has been a particularly busy season. Witness the following:
Ada County, Idaho, officials stripped 267-bed St. Luke's Regional Medical Center in Boise of its property-tax exemption last month.
Reading (Pa.) School District recently sued 215-bed St. Joseph Medical Center and the former 160-bed Community General Hospital for $1.8 million in back taxes.
Six Portland, Ore., hospitals found out they will get to keep their property-tax exemption.
The Pennsylvania Supreme Court decided not to hear an appeal from 163-bed Indiana (Pa.) Hospital, which wants its property-tax exemption back.
Two Pinnacle Health System hospitals in Harrisburg, Pa., are awaiting a decision on their tax-exemption revocations from the Commonwealth Court of Pennsylvania.
Legislation again is pending in Pennsylvania to clarify standards for awarding exemptions.
Nowhere are property-tax exemptions as hot a topic as in Idaho, where only three of the state's 42 acute-care hospitals are for-profit.
The three-member Ada County Commission made history last month when it decided St. Luke's should have all its property placed on county tax rolls because it didn't qualify under state law as a charitable corporation.
Unless the hospital wins an appeal, it will wind up paying $2 million to $4 million in annual property taxes.
That's an outcome the state's not-for-profit hospitals don't want to see.
"They're all worried," said Steven Millard, president of the Idaho Hospital Association. "What happens in Ada County always gets looked at by other counties."
The county commission, sitting as the Board of Equalization, decided last month to take a closer look at St. Luke's tax exemption when the hospital asked that the exemption to be extended to a new satellite facility outside Boise, Commissioner Roger Simmons said.
At its annual meeting to hear tax appeals, the board held a hearing to determine whether St. Luke's is entitled to its charitable and hospital exemptions under state code. The hospital owns other property, such as physician office buildings, for which it didn't seek exemptions.
In the end, officials ruled that St. Luke's didn't pass muster as a charitable corporation and should shoulder its share of the tax burden.
"It wasn't a personal vendetta against St. Luke's," said Simmons, who missed the final vote but signed the order revoking the hospital's tax exemption.
In fact, Simmons said the county plans to review the tax exemptions next year of two other hospitals in Ada County, 274-bed Saint Alphonsus Regional Medical Center and 64-bed Idaho Elks Rehabilitation Hospital.
Among its findings, the county concluded St. Luke's:
Wasn't supported by donations, which make up less than 2% of the hospital's operating revenues.
Passed along the cost of charity care and bad debt by charging higher prices to other patients, thereby providing no public benefit.
Has too much money. The board said the hospital's revenues exceeded expenses by $20 million, and the hospital has a cash reserve of almost $13 million. The hospital also owns all its property outright and spent $37 million in cash on construction last year.
Bill Bodnar, vice president of corporate development at the hospital, said commissioners misunderstood the hospital's financial figures.
For example, last year the hospital earned about $16 million, not $20 million, on net revenues of $175 million.
And the hospital fulfills its charitable mission in more ways than just the provision of charity care, including the operation of a high-level neonatal intensive-care department, Bodnar said. "St. Luke's is committed to its nonprofit mission," he said.
Bodnar said the hospital last year provided more than $16 million in community benefits, including charity care, health screenings, subsidized clinics and shortfalls from Medicare, Medicaid and county programs for the indigent.
But Simmons argued that passing along the cost of charity care to other patients through higher prices in effect nullified the tax exemption.
"Where's the charity?" he asked.
Bodnar said the hospital isn't unique in that regard: "St. Luke's, like every community nonprofit hospital across the country, anticipates the expenses of bad debt and charity care in its budgeting and rate-setting process."
The Idaho Hospital Association hopes other regulators will see the error of Ada County's ways.
"We thought it was an erroneous decision and we think the courts, if it gets that far, will overturn it," Millard said.
Also in court is the case involving St. Joseph Medical Center in Reading, Pa., and the former Community General Hospital, which was merged with St. Joseph in April.
They ended up on the city, county and school district property-tax rolls two years ago and are waiting for the Commonwealth Court, a state appellate court in Harrisburg, to decide on their appeal.
In the meantime, the Reading School District, in two separate lawsuits filed in June and July, sued both hospitals for back taxes and penalties of more than $1.8 million.
"We'll wait and see what the Commonwealth Court decision is (before taking action)," said Mark Thompson, director of communications and marketing for St. Joseph.
Two years ago, the Berks County Court of Common Pleas in Reading decided the hospitals were taxable when they failed to show they operated free from a profit motive. According to the court, the hospitals failed a five-part test designed to see if organizations qualify for property-tax exemptions as "purely public charities."
The test was established by a 1985 ruling by Pennsylvania's Supreme Court. The court said the hospitals failed the test partly because they paid management fees to parent companies that operated for-profit subsidiaries.
While some tax-exemption rulings have been unfavorable to hospitals, six Multnomah County, Ore., hospitals came out on top in a June ruling by the Multnomah County Division of Assessment and Taxation. The county said the hospitals could remain tax-exempt.
The hospitals are 270-bed Adventist Medical Center; 345-bed Legacy Emanuel Hospital and Health Center; 390-bed Legacy Good Samaritan Hospital and Medical Center; 104-bed Legacy Mount Hood Medical Center; 188-bed Kaiser Foundation Hospital-Portland; and 449-bed Providence Portland Medical Center.
A medical laboratory owner had petitioned the county to revoke exemptions of four of the hospitals, saying they didn't provide enough charity care.
When the county didn't pursue the hospitals, the lab owner asked the Oregon Tax Court to force officials to take action. The state tax court said the county could consider stripping the hospitals of their tax exemptions.
More than a year after announcing it would review the tax status of all the hospitals, the county left their exemptions in place.
"It's certainly good news to have that confirmed," said Daniel Field, vice president of policy and legal affairs for the Oregon Association of Hospitals and Health Systems.
But Joyce Bernheim, a Portland attorney who defended Providence Portland, said the case probably isn't over for some of the hospitals.
She said the lab owner who filed the original lawsuit likely will appeal the county's decision. A state law, however, will prevent an appeal against Kaiser and Mount Hood, she said.
"Once you look into the actual activities of many tax-exempt hospitals, you understand the multiple ways in which they give to their communities, not all of which are captured by a line on some report that says `charity care,'*" Bernheim said.
In Pennsylvania, Indiana Hospital is trying to reach a settlement on a valuation to use in determining future property taxes, now that the state Supreme Court has decided not to hear an appeal on the revocation of its exemption.
In the meantime, the hospital has been paying its property taxes under protest. The hospital's annual property-tax bills have been about $570,000, said Dan Mulholland, a Pittsburgh attorney representing it.
Any settlement the hospital reaches with the county and school district won't include a return to tax-exempt status, Mulholland said.
A lower court ruled in May 1995 that the hospital wasn't entitled to a tax exemption because it devoted less that 3% of its expenditures to charity care (Nov. 11, 1996, p. 44).
That case was a first in Pennsylvania in a few ways: It was the first to cite a specific level of charity care, and the hospital was the first to have its exemption decided by the state's highest court.
While the Indiana Hospital case is over, two other Pennsylvania hospitals are awaiting decisions.
The Commonwealth Court heard arguments in March on tax-exemption appeals for the former 453-bed Polyclinic Medical Center in Harrisburg and 398-bed Harrisburg Hospital. The hospitals merged to form Pinnacle Health System and now are called Pinnacle Health at Polyclinic Hospital and Pinnacle Health at Harrisburg Hospital.
They face a combined property-tax bill of about $4 million.
Both hospitals lost their tax-exemption cases in lower courts last year. Their exemptions came under fire because the hospitals owned physician practices.
Like other property-tax exemption challenges in Pennsylvania, this one revolves around the 1985 state Supreme Court decision that created a five-part test for exemptions.
For at least the past four years, the Hospital and Healthsystem Association of Pennsylvania has tried to advance legislation to more specifically define what organizations, such as hospitals, have to do.
Two of the basic exemption requirements are that organizations operate free from a profit motive and donate a substantial portion of their services. Proposals to make the five-part test more specific include requiring that uncompensated goods or services equal at least 75% of an organization's net operating income but not less than 3% of its total operating expenses.
The bill passed the state House of Representatives in March; the Senate is expected to vote on it this fall.
Clarifying the rules is intended to make exemption challenges more predictable. For example, one county might challenge its hospitals' exemptions, while a neighboring county won't, said James Redmond, senior vice president of legislative services for the state hospital association.
"(Many hospitals) have enjoyed their tax status for so long, never thinking (county reviews) could happen to them," Redmond said.