In a case that has be watched by hospitals around the county, the Illinois Supreme in a 3-2 ruling today upheld revocation of the Provenza Hospital System's state tax exemption.
The court noted, among other factors:
PCMC patients under the facility’s charity care program was modest. The hospital waived $1,758,940 in charges, representing an actual cost to it of only $831,724. This was equivalent to only 0.723% of PCMC’s revenues for that year and was $268,276 less than the $1.1 million in tax benefits which Provena stood to receive if its claim for a property tax exemption were granted. The number of patients benefitting from the charitable care program was similarly small. During 2002, only 302 of PCMC’s 10,000 inpatient and 100,000 outpatient admissions were granted reductions in their bills under the charitable care program. That figure is equivalent to just 0.27% of the hospital’s total annual patient census.
In finding that the hospital system failed to satisfy its burden of proving it met the criteria for tax exemption, the
With very limited exception, the property was devoted to the care and treatment of patients in exchange for compensation through private insurance, Medicare and Medicaid, or direct payment from the patient or the patient’s family. To be sure, Provena Hospitals did not condition the receipt of care on a patient’s financial circumstances. Treatment was offered to all who requested it, and no one was turned away by PCMC based on their inability to demonstrate how the costs of their care would be covered. ... Hospital charges were discounted or waived only after it was determined that a patient had no insurance coverage, was not eligible for Medicare or Medicaid, lacked the resources to pay the bill directly, and could document that he or she qualified for participation in the institution’s charitable care program. As a practical matter, there was little to distinguish the way in which Provena Hospitals dispensed its “charity” from the way in which a for-profit institution would write off bad debt.
In reaching its conclusion, the Court was careful to distinguish between the requirements for a property tax exemption under Illinios law, other state exemptions, and federal tax exemption. With respect to the federal exemption, the Court noted:
Illinois’ charity requirements distinguish our property tax exemption standards from the requirements a hospital must meet in order to qualify for tax-exempt status under the Internal Revenue Code. When the Medicare
and Medicaid programs were being established in the late 1960s, there was concern that many hospitals would lose their federal tax exempt status because there would no longer be sufficient demand for charity care to
satisfy IRS requirements. In response, the IRS loosened its previous standards, under which hospitals were required to provide financial assistance to those who could not afford to pay for services, and began to
measure a hospital’s eligibility for tax exemption by utilizing other “community benefit” factors. Adoption of this community benefit standard “abandoned charity care as the touchstone of exemption at the federal
level.” See 37 Loy. U. Chi. L.J. at 497. Illinois has not adopted this approach. Although our General Assembly now requires certain hospitals in Illinois to file annual “community benefits plans” with the Illinois
Attorney General’s office (see 210 ILCS 76/1 et seq (West 2006)) that requirement is not part of the Property Tax Code and does not purport to alter Illinois law with respect to property tax exemptions.
The Illinois decision, it should be noted, rested on legal principles that may vary significantly from state to state. For example, the Illinois Supreme Court held that each tax-exempt parcel must independently meet the criteria for the state property tax exemption. In a 2007 decision,Alliance Home of Carlisle, PA, v. Board of Assessment Appeals, 591 Pa. 436, 465, 919 A.2d 206, 224 (2007), the Pennsylvania Supreme Court reached the opposite conclusion.
In any event, questions about the tax-exemption status of hospitals will continue to arise. In 2009, for example, the IRS issued an extensive (but inconclusive) report about the standards applied to hospitals for federal tax-exemption. The summary to the report noted:
"Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns. Some
have suggested that these standards need to be revised. As these discussions occur, and despite the limitations described above, the study provides important information.
In essence, the IRS threw up its hand it left the issue on the table for others.
A copy of the Illinois Court's opinion can be download from the link below.
