“No hospital CEO is going to stand in front of the board and say we need to cut back on charity care in order to meet the state number. I think that's true,” he said. “But call me in five years … and see if we have a remarkable convergence on a number.”
Internal Revenue Service figures show that Illinois hospitals and health systems are already far more stingy than their peers nationally when it comes to distributing community benefits.
A Modern Healthcare review of more than 1,800 tax-exempt hospitals and health systems' 2009 tax filings shows that the median U.S. hospital devoted 6.6% of its total expenses to community benefit programs including charity care, shortfalls in Medicaid and the State Children's Health Insurance Program, medical education and research.
In Illinois, hospitals' and systems' median community benefit figure was 1.4% of total spending.
But as is the case nationally, the burden for charity care in Illinois is distributed unevenly. Sinai Health System, for example, has one of the higher community benefit figures in the state, with more than 14% of its total expenses going toward community benefit spending, according to its 2009 tax forms, the most recent publicly available.
Experts say that unevenness could lead to some interesting situations in the future, because the system of basing charity-care goals on estimated property taxes is roughly opposite of how it works in the real world, where often the oldest and least-valuable hospitals provide the most free care.
“The whole problem is charity care and Medicaid shortfalls are inversely distributed relative to property taxes,” said Nancy Kane, a professor in Harvard's Department of Health Policy and Management.
Kane wondered whether hospitals in wealthy areas would be able to use the cash-payment safety-valve option in the law to support those that provide far more charity care—a system that would operate like a “cap and trade” system for urban charity care that Channing has long advocated.
But it's not clear whether that would even be necessary. The definitions under the law give hospitals credit for a wider range of public-support activities than has been advocated in the past at the state level.
For example, in the Provena case the Supreme Court did not count shortfalls in Medicaid spending toward the hospital's charity-care outlay. The new law changes that.
The law also allows hospitals to count broadly defined “health services to low-income and underserved individuals,” direct or in-kind contributions to government programs like federally qualified health centers, and relieving the healthcare “burden of government” for services like trauma and emergency care, medical education and research.
Those definitions mean most hospitals will not have to do more to qualify for their exemptions, said Mark Deaton, general counsel for the Illinois Hospital Association.
Take Northwestern Memorial Hospital in Chicago's tony downtown Streeterville neighborhood, near the Lake Michigan shore.
One of the wealthiest health systems in the state by revenue, Northwestern was stunned last year when its subsidiary, Prentice Women's Hospital, was denied a tax exemption based on criteria in the Supreme Court's ruling in the Provena case.
After the denial, Prentice was hit with a bill for $66 million for tax years 2008-11.
But tax disclosures on file with the IRS say Prentice's parent system, Northwestern Memorial, provided $159 million in 2009 for services that would count toward Illinois' new public benefits standard.
Kane said the ultimate success of the new rules will likely come down to how closely regulators scrutinize the hospitals' filings to enforce the law.
“Whether it's a national blueprint or not depends on how they enforce it,” she said.
TAKEAWAY: Some worry Illinois not-for-profit hospitals may pull back on charitable programs as their responsibility to be charitable becomes tied to the value of their property-tax breaks.