Lower-than-expected Medicare payments, fixed managed-care contracts and extra hospital beds give most hospitals financial nightmares.
But for hospitals owned by Columbia/HCA Healthcare Corp., it's become a winning argument for lower property tax bills.
In what could be a precedent-setting tax case, a judge in Fairfax County, Va., has ruled that industrywide financial trends have so lowered the value of one of Columbia's hospitals that the company shouldn't have to pay as much in property taxes.
The judge said the county's assessment of the value of 121-bed Reston (Va.) Hospital "substantially exceeded the fair market value" because changes in the healthcare industry made the facility "increasingly obsolete."
Those changes, recognized by Judge Jane Marum Roush in her June 29 opinion, included declines in Medicare and Medicaid reimbursement and the shift to outpatient treatments, which has led to a lower inpatient census at Reston.
Roush ordered the county to lower its assessed value of the hospital by $52.9 million for the five tax years in question from 1991 to 1996. That means the hospital's annual tax bill should have dropped to $810,000 from about $1.5 million.
Consequently, Roush ordered the county to return to Columbia nearly $690,000 in property taxes.
"This proves that this approach can succeed," said James Downey, a lawyer with the Fairfax office of Wilkes, Artis, Hedrick & Lane, who represented Columbia in the case.
Fairfax County officials declined to comment on the decision because the county is considering an appeal to the Virginia Supreme Court.
The Reston decision will likely affect the outcome of another hospital tax case in Northern Virginia, involving Columbia's 133-bed Dominion Hospital, a psychiatric facility in Falls Church. The case is scheduled to go to trial in November.
Shortly before the Reston case was decided, Columbia reached settlements in two other tax cases in northern Virginia in which it made similar arguments.
Arlington County, home to 282-bed Arlington (Va.) Hospital and 102-bed Pentagon City Hospital, agreed to lower its assessed value of the two hospitals to avoid a long and costly court fight. That translated into property tax savings of $345,100 for 1996 through 1999 for Arlington Hospital, and $178,000 for 1998 and 1999 for Pentagon City.
After dissolving a joint venture that operated those hospitals along with the Arlington Health Foundation, Arlington Hospital is now a not-for-profit, and Columbia is trying to sell its stake in Pentagon City to the foundation (See story, p. 20).
Columbia's stand in the tax case could lower the price the foundation gets for Pentagon City. Downey said he didn't know how much the lower assessed value of Pentagon City would affect the sales price of the property.
The Reston case also is significant because Columbia in the past has pointed to the taxes it pays as a measurable community benefit equal to charity care.
"It's a classic case of trying to have your cake and eat it, too," said Dean Montgomery, executive director of the Northern Virginia Health Planning Agency and president of the five regional CON regulatory bodies in the state.
Columbia spokesman Jeff Prescott said the company occasionally disputes tax assessments it believes are unfair.
"Local tax assessors have many types of property to assess, and they don't have the ability to look at it in the same fashion that we do, since we're a national healthcare company," Prescott said.
Reston Hospital has enjoyed double-digit profit margins at least since 1995, according to HCIA, a Baltimore-based healthcare information company.
The hospital reported net income of $18.5 million on net patient revenues of $83.5 million, for a profit margin of 21.8% in 1997, the last year for which data is available, HCIA reported.