State's decision on hospital exemptions may be signal

State's decision on hospital exemptions may be signal

URBANA — Nearly a decade has passed since Provena Covenant Medical Center first lost its property tax exemption, putting hospitals statewide on notice that charitable tax breaks have to be earned.

Now, some say the Illinois Department of Revenue is signaling hospitals once again with its preliminary decision to deny property tax exemptions for three more hospitals in Illinois.

"I think what it says to hospitals is they need to take a really serious look at their financial assistance programs and make sure their programs are accessible to all who need it," said Claudia Lennhoff, executive director of Champaign County Health Care Consumers.

The revenue department said it didn't use a set standard to determine how much charity care the three hospitals had to meet, but Lennhoff said 3 percent of a hospital's net revenue — with some exceptions — should be the minimum.

After reviewing reports from every hospital in the state, she said, she found almost 80 percent of Illinois hospitals provide less than 3 percent of their net revenue in charity care and nearly two-thirds of the state's hospitals are providing less than 2 percent.

"I think these hospitals need to take very seriously what they're doing, and see if there are any barriers to people who are applying (for charity care) and make it as friendly as possible, so all who need it can apply," she said.

University of Illinois law Professor John Colombo said the decision to deny the exemptions surprised him a bit.

"My initial reaction was this is very big news, because these were three major nonprofit hospitals," he said.

Plus, Colombo said, in the case of Northwestern Memorial Hospital, the charity care the hospital awarded was significantly more than Provena Covenant gave in the 2002 tax year involved in its case that was eventually decided by the Illinois Supreme Court.

The high court eventually denied a tax exemption for Covenant, but Covenant still has tax exemption cases pending on appeal before the Department of Revenue for other tax years.

Colombo said he hoped to see the department come out with some compelling rules for hospitals to meet. But he's also happy to see the department didn't give in to the "community benefit argument," that says certain services hospitals provide should count the same as free care or reductions on charges for needy patients who can't pay when it comes to determining tax exemptions.

Businesses like Kraft provide services to the community, too, and they pay taxes. Tell him how hospitals are different, Colombo says.

"I want a standard, and one that rejects the community-benefit argument," he said.

On the other hand, he adds, some services such as trauma centers and burn units are vital services and may need to be regarded differently, "so my approach is bit more complex."

Carle Foundation Hospital CEO Dr. James Leonard said he also wasn't surprised and the Department of Revenue's decision is consistent with hospitals have been hearing from this department .

"I think we've been right up front that we think this is a big deal," he said.

The decision doesn't have any specific bearing on Carle's own property tax exemption case.

Carle also lost its tax exemption, and has a case pending in Champaign County Circuit Court to determine whether it must pay taxes on four hospital properties for tax years 2004 through 2009.

The latest decision on the three other hospitals comes at a time when hospitals throughout Illinois are already coping with reduced Medicare payments, increasing numbers of patients affected by the recession who can't pay their bills and new delays in state Medicaid payments, according to the state hospital association.

"Anything that injects more uncertainty makes things worse," Leonard said.

He also said he thinks the denial of exemptions for three additional Illinois hospitals "shines a bright light" on this issue that will prompt both a statewide discussion and national focus.

"The more we move toward a decision and an open discussion and a set of decisions," he said, "the better it would be and the more it would benefit all of us."