Push on to make hospital pay taxes

Lawmakers trying to pass bill in response to Landmark switch to nonprofit status

WOONSOCKET — For the second time in as many years, state lawmakers are trying to pass a bill that would compel Prime Healthcare Services to continue paying some $1.6 million a year in property taxes on Landmark Medical Center, despite the hospital’s switch back to nonprofit status last year.

Amid pushback from Landmark and the trade group that lobbies for healthcare interests, the Hospital Association of Rhode Island, the measure has been held for further study by both the House and Senate finance committees, however.

But – even though the legislative session will likely be over in a matter of days – House and Senate sponsors of the measure say they intend to do everything possible to put the bill to a vote before lawmakers recess until next year.

“I am pushing for it,” said State Sen. Roger Picard (D-Dist. 22, Woonsocket, Cumberland). “I’m going to keep pushing for it until they bang the gavel to close the session and we can’t go anymore.”

Picard said he plans to discuss the importance of the bill with Senate President Dominick Ruggerio next week in attempts to dislodge the measure from procedural limbo. The Senate Finance Committee held a hearing on the bill Tuesday and later ordered it held for further study. The companion measure was ordered held for further study by the House Finance Committee after a hearing more than a month ago.

“That’s not like a death blow,” said State Rep. Michael Morin (D-Dist. 49, Woonsocket), a House sponsor of the measure. “It gives the bill time to be worked on.”

Landmark’s tax status is a major concern for Mayor Lisa Baldelli-Hunt and other city officials, who urged state lawmakers to introduce the measure. Revenues from Landmark Medical Center represent one of the single biggest income streams in the city, and their loss would put pressure on officials to compensate by cutting programs and services or raising taxes.

The switch to nonprofit status was approved by the state Department of Health last December – too late to affect the tax rolls for fiscal year 2019, which begins July 1. Still, in the preamble to her proposed $144.3 million budget for the cycle – which doesn’t envision a general tax increase – the mayor calls the possible loss of Landmarks’ revenues “the new elephant in the room.”

“Our city is clearly moving in the right direction, and as positive as our future looks, there is a new elephant in the room that I will not avoid discussing, and that is the potential significant loss of tax revenue from the looming nonprofit conversion of Prime/Landmark Healthcare,” she said. “While we are diligently working to either delay or avoid this occurrence, there is the chance that it could happen as early as the 2020 fiscal year.”

The mayor proposed the creation of a new position for economic development director in the budget, at a cost of $70,000, arguing that the city needs to be more aggressive in growing the tax base “so we can piece-by-piece replace the tax revenues that we may lose from Prime/ Landmark.”

In a preliminary pass at the proposed budget earlier this week, Councilman James Cournoyer, too, expressed concern about Landmark’s conversion to nonprofit status. But he came to a completely different conclusion about how to prepare for it than Baldelli-Hunt, spearheading a proposal to cut some $780,000 from the budget, including the elimination of the economic development director’s position.

The way to brace for a possible blow on the scale of Landmark’s revenue loss isn’t by larding up the budget with new positions and infusions of revenue from onetime sources, as the mayor’s would, Cournoyer argues. He says the city should be more focused on floating a spending plan that’s sustainable for the long haul with the reve- nues it’s sure of.

“I’m telling the community that we can’t expand our cost structure,” said Cournoyer. “We have to be cautious because we’re facing a potential headwind. There’s the potential we don’t get $1.6 million from Landmark next year.”

Cournoyer said he and the mayor “are both saying we might lose Landmark.” But “her answer is to hire an economic development director and my answer is don’t expand the cost structure.”

The bill before the house would amend a section of state law pertaining to tax-exempt properties. It doesn’t mention Landmark by name, but it’s the only hospital in the state that would be affected by the specific language in the measure.

It says, “The real and personal property of a nonprofit hospital that converts to a for-profit hospital and then, on or after Dec. 31, 2016, converts back to a nonprofit hospital shall not be exempt from city or town taxes.”

If it sounds confusing, that’s because Landmark’s journey to for-profit status wasn’t linear; on the contrary, it was circular.

Based in California, Prime Healthcare acquired Landmark in a $62 million deal in 2013, rescuing the hospital – a nonprofit entity at the time – out of receivership in a sale monitored by Superior Court Judge Michael Silverstein. As a condition of the sale, however, Prime insisted that the Landmark be allowed to convert to for-profit status, a move that seemed like a good idea to city officials because it meant the hospital would lose its tax-exempt status and generate taxes on its medical equipment and real estate for the first time.

After the sale, Landmark and the city reached a preliminary agreement that allowed the hospital to pay about $900,000 in lieu of taxes pending an appraisal of its real estate and other holdings. After the appraisal, the city began taxing the hospital at the rate of about $1.6 million a year.

The hospital initiated the groundwork for a formal appeal by paying under protest, but ultimately abandoned those efforts. A short time later, in late 2016, Prime Healthcare applied to DOH for a change of ownership, seeking the agency’s blessing to transfer Landmark’s assets to its charitable arm, the Prime Healthcare Foundation.

Though city officials hotly opposed the move, Health Director Nicole Alexander Scott approved Prime’s application last December, a decision that, in effect, restored Landmark’s nonprofit status. But Alexander-Scott also hit Prime with a $1 million fine for transferring the hospital’s assets to the foundation on the same day it applied to DOH to do so – Dec. 31, 2016 – nearly a year before the agency approved the request.

Founded in 2001, Prime Healthcare Services now operates 45 hospitals in 14 states, including 15 facilities it runs under the aegis of the Prime Healthcare Foundation as nonprofits, according to the chain’s website.

Picard said that the bill before state lawmakers would allow Landmark to preserve all of the benefits of being a nonprofit hospital except for its tax-exempt status, including perks for new doctors saddled with academic debt and discounts on prescription medication costs.

When he meets with Ruggerio next week, Picard said, he intends to remind the senate president how critical Landmark’s revenues were in the long-range planning of the now-defunct Budget Commission, which was put in place around the same time the hospital was sold to prevent the city from lapsing into insolvency.

“We’re coming to the end of the legislative session here, so timing is of the utmost importance,” said Picard. “He’s got a lot of the preliminary information. He’s knows the situation of Landmark and the financial situation of the city. We’re just trying to balance the needs of the hospital and the needs of the community.”