As Illinois is now ground zero on the issue of charity-care and community-benefit standards for not-for-profit hospitals, I was excited to moderate a panel discussion on the topic for a Jan. 29 legislative briefing luncheon sponsored by a Chicago-area hospital consortium, the Southland Health Care Forum.
Two recent state tax cases involving not-for-profit hospitals sparked fears that municipal governments and taxing districts throughout the Land of Lincoln would descend on not-for-profit hospitals seeking to supplement their barren tax coffers. Two years ago Illinois Attorney General Lisa Madigan proposed legislation compelling hospitals to provide 8% of their operating revenues in charity care.
While that bill failed to find traction, Madigan again is pitching similar legislation this year. Her office also has subpoenaed the records of one-quarter of the states not-for-profit hospitals, and the Cook County (Ill.) assessor is also scrutinizing tax-exempt hospital properties and businesses. And executives from Illinois hospitals are well-aware of efforts by Sen. Chuck Grassley (R-Iowa) and others to change the Internal Revenue Service community benefit standards that tax-exempt hospitals had been following for decades.
With all that in mind, off I went to the panel, where top executives from the state and metropolitan hospital associations would speak for the industry as well as a chief executive officer and chief financial officer from south suburban Chicago hospitals. In the other corner, tipping the scales at barely 100 pounds, but backed by the might of the attorney generals office, would be Anne Murphy, Madigans senior counsel. A crowd of more than 100 braved frigid temperatures and snow flurries to pack a convention center banquet room in Tinley Park, a southwest Chicago suburb.
The hospital executives not only had a home-field advantage and the benefit of outnumbering Murphy 4-to-1, but also many in the audience worked for or with them. Given the volatility of the issue, I would have expected some cold shoulders and stony-eyed stares, but the crowd of hospital executives was polite, well-behaved and eager to hear Murphy speak for an attorney general with vast power to affect their futures.
In my introduction I vowed to protect Murphy, which turned out to be an empty gesture for unneeded assistance: The crowd never grew violent, and Murphy is no lightweight -- she looked like she could handle herself in any legal street fight. She stepped confidently to the podium and explained why Madigan was holding Illinois tax-exempt hospital executives Gucci-clad feet to the fire. She said there were two reasons: a legal goal to clarify what her office considered a murky state standard and a policy goal that taxpayers handing out those tax-exempt benefits should get their moneys worth.
Under Illinois law hospitals cant simply adhere to the broad IRS community benefits standards to qualify for tax exemptions, standards that include many specialty care and educational services, but must operate exclusively for charitable purposes. That narrower standard focuses more closely on actual charity care provided. She said state Supreme Court decisions have established that dedicating 3% of revenue to charity careas some of the states healthcare systems have doneis insufficient, but what is sufficient under current Illinois law is open to interpretation. Murphy pointed out that the attorney general is flexible and hopes to negotiate a charity-care standard that Illinois hospitals can live with while satisfying taxpayer expectations.
The Illinois attorney general is not trying to harm hospitals, she reiterated.
Not surprisingly, the hospital executives and their association leaders disagreed.
Illinois Hospital Association General Counsel Mark Deaton said Illinois hospitals are already spending millions annually, not just on charity care but also on services that go uncounted under the 8% definition. And physician Lawrence Haspel, senior vice president of the Metropolitan Chicago Healthcare Council, said one-third of his member hospitals in the Chicago area suffered operating losses last year and two-thirds lost money delivering patient care. How much more can they absorb? he wondered, pointing out hearings that day that called for drastic cuts in health services by Cook County.
A one-size fits all tax is simply wrong, said Peter Murphy, Regional chief executive officer for the South Suburban Chicago Region of the Sisters of St. Francis Health Services and president of two-hospital St. James Hospital and Health Centers in Chicago Heights and Olympia Fields. It is a sniperlike strategy for recovering revenue from our overburdened not-for-profit hospitals.
Vince Pryor, the chief financial officer of Ingalls Health System, a Harvey, Ill.-based community hospital, spoke eloquently, without notes, about the charity-care load already facing his system. We provided $20 million in ER services for uninsured patients and were able to collect $150,000, he said. The rest was written off as bad debt. I would contend that should qualify as charity care. Our operating margin is less than .07%. The attorney general is asking us to provide 8% (charity care from total operating expenses)? How (can we do that)?
Only a handful of attendees left the meeting during the discussion, which exceeded its time limit. Even the state legislators continued to pepper panelists with questions on the complex and explosive issue facing tax-exempt hospitals around the country.
Judging from the nature of the questions, it didnt seem like any choir members switched sides. But unlike much of Illinois politics, at least nobody got hurt.
Post a comment on todays news and share your opinion with other readers. Submit your letter to the Daily Dialogue at [email protected]. Submissions must include name, title, affiliation, city and state. Modern Healthcare Online reserves the right to edit all submissions for news value, style, grammar, length and appropriateness. For more Daily Dialogue, subscribe to our daily electronic newsletter, the Daily Dose at modernhealthcare.com.