Illinois hospital leaders may feel the ground trembling. A new ruling by the Illinois Supreme Court suggests not-for-profit hospitals could have to pay local taxes on that turf beneath their feet.
Provena ruling could affect Illinois not-for-profits
The court last week upheld the state's decision to strip the property-tax exemption from 202-bed Provena Covenant Medical Center because it wasn't using the land exclusively for charitable purposes.
The Urbana, Ill., hospital's seven-year dispute drew national attention and paralleled a broader debate about the definition of community benefit and how much of it justifies tax-exempt status. Sen. Chuck Grassley (R-Iowa), who has pushed to make hospitals prove they deserve the tax break, issued a statement saying that the Provena case shows “there is often no discernible difference between the operations of taxable and tax-exempt hospitals.”
The healthcare reform bill that could soon become law would require expansive reporting from hospitals on their finances and charitable activities, periodic reviews of hospitals' worthiness and a $50,000 tax imposed on hospitals that are deemed to have failed.
The American Hospital Association joined its Illinois affiliate in criticizing the Provena ruling, but Melinda Hatton, the AHA's senior vice president and general counsel, said the decision is not likely to influence the issue nationally. “The court is out of step with the broader view shared by the federal government and the majority of other states about what it means to be a charitable organization,” Hatton said in a written statement.
Even in Illinois it's unclear how the opinion will affect decisions by the Illinois Revenue Department as it reviews hospital applications or the thinking of judges if another hospital finds itself challenging a rejection in court. A Revenue Department spokeswoman said exemption applications from hospitals (required for example when there is a change of ownership) have been piling up while officials waited for a ruling in the Provena case.
Mark Deaton, the Illinois Hospital Association's general counsel, said he thinks hospitals will be “shocked and alarmed” by some of the analysis in the plurality opinion, which was joined by just three of seven justices. Two justices recused themselves, and the other two agreed with the opinion's conclusions but disputed some of its core reasoning. That reasoning echoed the findings of the state's revenue director: that the $831,000 Provena Covenant spent providing free care to 302 patients in 2002, the tax year at issue, was not enough to justify its exemption.
“Some of the things said by the three justices are very dangerous and break new ground,” Deaton said. “Which of those have precedential value and which do not?”
Illinois Supreme Court Justice Lloyd Karmeier writes in the opinion at one point that if the number of needy residents in Provena Covenant's community was as insignificant as its charity-care program, there would be little reason for its parent, six-hospital Provena Health, to pursue its charitable mission there. “The only plausible explanation would be that its principal purposes in operating PCMC were, in reality, more temporal than it professes,” Karmeier wrote.
Nor was Karmeier persuaded by the hospital's arguments that its services remove what would otherwise be a government burden. The justice writes that none of the taxing bodies that collect revenue from Champaign County property taxes are in the business of providing healthcare, and the hospital's exemption from state and federal taxes was not at issue.
The dissenting justices, though, counter that Karmeier's opinion wrongly implies that the law requires that exempt hospitals provide a minimum percentage of money or time to charity. “This can only cause confusion, speculation and uncertainty for everyone: institutions, taxing bodies and the courts,” Justice Anne Burke wrote.
The Provena case started in early 2003 when local officials recommended the state reject the hospital's application to renew its exemption. The state's revenue director agreed. Provena asked the courts to review the decision, and a Sangamon County judge sided with the hospital. An appellate court sided with the state in August 2008, and Provena sought a ruling from the Supreme Court.
Provena Covenant President and CEO David Bertauski suggested the case may still bring clarity to the issue, even if the justices failed to provide it. “We can only hope this troubling ruling prompts a dialogue among hospitals and elected officials about not only how we define charity care but also how we better ensure that the people who need financial assistance get it,” he said in a written statement
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.