Armed with a favorable state Supreme Court decision, HCA-The Healthcare Co. is aggressively fighting to lower property tax assessments of several of its Virginia hospitals, including 271-bed John Randolph Medical Center in Hopewell.
These efforts are the latest in a series of challenges Nashville-based HCA and other for-profit healthcare chains have posed in hopes of lowering the property taxes they pay (Feb. 14, p. 16).
In each case, these companies argue that industrywide trends such as lower reimbursement and a move toward outpatient care have so lowered the value of hospital properties that owners shouldn't have to pay as much in property taxes.
Virginia has become a hotbed of such activity. In the past 18 months, HCA has wrested lower assessments from Virginia's Arlington, Fairfax and Montgomery counties and from the city of Richmond.
For-profit protests of property assessments could reach a fever pitch in the wake of last month's Virginia Supreme Court decision on the matter, local government officials said.
The state high court upheld the decision of the Fairfax County Circuit Court, which reduced the county's assessment of 121-bed Reston (Va.) Hospital Center to $12.5 million from about $24 million for the five tax years between 1991 and 1996. HCA got back $696,000 in property taxes for that time period because of the lowered assessment (Aug. 16, 1999, p. 6).
While HCA argued the Reston hospital was less valuable than it had been, it still brought in handsome profits for the company. In 1998, the last year for which data were available, Reston Hospital reported net income of $25.2 million on net patient revenue of $78.3 million for a total profit of 31.3%, according to HCIA-Sachs, a healthcare information company based in Baltimore. The hospital also enjoyed double-digit profits in 1997 and 1996.
On appeal, the county argued that its methods of assessing the hospital were correct and that any discrepancy between its assessment and HCA's was due to a difference of opinion among property tax experts.
Echoing the lower court's decision, the Virginia Supreme Court's 25-page opinion faulted the county assessor for not trying to obtain information about the healthcare market that may have affected the assessment. The assessor routinely considers such data when assessing shopping malls and other properties, the court said.
HCA is hoping the state high court's Sept. 15 ruling will lend credibility to the cases it's preparing against the city of Hopewell, home to John Randolph Medical Center, and Alleghany County, home to 156-bed Alleghany Regional Hospital in Low Moor.
"This demonstrates that assessments based on sketchy work-ups . . . are not going to have a presumption of validity," said James Downey, an attorney representing several of HCA's Virginia hospitals. "Other cases may go the same way" as Reston, he said.
HCA bought John Randolph Medical Center and its adjacent nursing home for $45 million in September 1995. For tax years 1996 through 2000, the city valued the property at $24 million. HCA sued the city of Hopewell this spring, arguing the hospital is worth only $12 million--a claim that city attorney Ted Wilmot called "difficult for us to stomach."
"Our contention is that the assessment is appropriate," Wilmot said. "We may even come back and claim the properties were underassessed."
In 1998, the last year for which information is available, John Randolph reported earning $2.6 million on net patient revenue of $56.2 million for a profit of 4.5%, according to HCIA-Sachs.
Wilmot estimated the lower assessment would result in about $400,000 in total property tax savings for HCA for the four years at issue.
Hopewell officials said they are aware of the Reston decision and are determined not to repeat Fairfax County's experience in the courtroom.
"We're trying to avoid the pitfalls of Fairfax County by hiring the right people," Wilmot said.
One of those people is Robert Kleeman Jr., a Denver-based consultant who has worked in opposition to HCA and other for-profit companies on cases in several states.
Denver County Assessor Jerry Ogden said Kleeman was part of a team of independent appraisers and consultants who worked with the county in 1997 on cases involving HCA's Denver facilities, 250-bed Rose Medical Center and 442-bed Presbyterian-St. Luke's Medical Center. Ultimately, Denver County settled with the hospitals on assessments that were "pretty close to our original value," Ogden said.
Kleeman declined to comment on the Hopewell case, but he downplayed the Reston ruling's possible impact.
"That decision isn't an affirmation of what HCA does," Kleeman said. "It's a crushing admonition of the appraiser for screwing up (the assessments)."