Nonprofit hospital not exempt from local tax

By Jamey Dunn

The Illinois Supreme Court issued a ruling today that could affect nonprofit hospitals across the state and eventually lead to new legislation.

The court ruled that Provena Covenant Medical Center in Champaign County is not eligible for a local property tax exemption it applied for in 2002 based on the hospital’s status as charitable operation. Provena is exempt from paying federal income taxes under that status.

Provena’s request was previously rejected, and it appealed the decision. But the courts sided with the Illinois Department of Revenue, saying the hospital did not provide enough charity care.
The court ruled that Provena only offered charity care as a “last resort” and was critical of the health care provider for turning unpaid bills over to collection agencies.

“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,” Republican Justice Lloyd Karmeier’s opinion said.

Provena contends that its treatment of Medicaid and Medicare payments constitutes charity because reimbursements do not cover the cost of care. The justices did not agree, saying that hospitals have a choice whether to treat patients on those programs. The opinion said that state and federal dollars also provide Provena with a steady revenue stream.

The court’s opinion does note: “Treatment was offered to all who requested it, and no one was turned away by [Provena Covenant Medical Center] based on their inability to demonstrate how the cost of their care would be covered."

Democratic Justices Anne Burke and Charles Freeman disagreed with part of the ruling, saying the court does not have the power to set the standards for defining a charity.

“This can only cause confusion, speculation, and uncertainty for everyone: institutions, taxing bodies, and the courts. Because the [Illinois Supreme Court] imposes such a standard, without the authority to do so, I cannot agree with it,” Burke wrote in her dissent.

It is the possibility of confusion and speculation that concerns some legislators.

“I have a concern now that we are going to see a rush of local governments trying to go after other health facilities. Thinking that this is a way to get some quick revenue from property taxes … the government may get a few extra dollars in property taxes, but then government is going to have to start providing all those services that those health care facilities used to provide,” said Rockford Republican Sen. Dave Syverson, the minority spokesperson of the Senate Public Health Committee.

“Some legislative response is probably going to have to be made to protect those health care facilities,” he added.

Chicago Democratic Sen. William Delgado, the chairman of the Senate committee, agrees that lawmakers may have to address the issue. “[The ruling] triggers a legislative opportunity, they are sending you a message. … That’s a direct way of saying we’d better look at that from our perspective again.”

Justice Thomas Kilbride, a Democrat, and Justice Rita Garman, a Republican, did not participate in the decision.