Win in Wisconsin
Court rules in favor of clinic in tax-exemption suit
With cash-strapped governments across the country looking to levy assessments against notfor-profit healthcare providers, the Wisconsin Supreme Court sided with a hospital that sought to extend its tax exemption to an outpatient-care clinic.
A divided court on July 19 overruled a decision by a local assessor in the Milwaukee suburb of Wauwatosa that the five-story building, St. Joseph Outpatient Clinic, was subject to tax because it operated more like a doctor’s office than an a hospital.
Judges and outside observers said the case highlighted a tension in Wisconsin law in adapting long-standing statutes on tax exemption to the realities of modern integrated delivery systems, which can blur traditional notions of the idea of a “hospital,” par- ticularly in light of the strong push to move services into cheaper outpatient settings.
Wisconsin Supreme Court Chief Justice Shirley Abrahamson dissented from the majority opinion, noting that modern outpatient technology and techniques allow doctors to perform services previously provided only in acute-care hospitals. The evolution challenges the 34-year-old state law that grants exemptions to hospitals but not doctors’ offices.
In 2003, the assessor for Wauwatosa deigned that the St. Joseph Outpatient Clinic was taxable, even though three of its five floors were occupied by an outpatient clinic operated by two not-for-profit organizations, Wheaton Franciscan Healthcare and Felician Services, through the organizations’ joint holding company, Covenant Healthcare System.
After mixed rulings in the lower courts, the state’s highest court ruled that floors occupied by the St. Joseph Outpatient Clinic should be exempt from taxes. At issue were about $7 million in taxes assessed between 2003 and 2006.
The Wisconsin Hospital Association hailed the decision, praising the judges for recognizing hospitals’ efforts to modernize care delivery.
“Wisconsin hospitals have responded to our patients’ needs for quality care closer to home by locating services away from the traditional hospital campus,” WHA President Steve Brenton said in a written release.
But in a friend-of-the-court brief filed in the case, the League of Wisconsin Municipalities predicted financial harm to many of Wisconsin’s struggling cities and towns, as well as for-profit healthcare providers that pay taxes.
“Nonprofit hospitals will rush to seek exemption for existing outpatient clinics comparable to the one in this case or, where they don’t have such clinics, will rush to build such outpatient clinics to compete with existing lucrative and private clinics in affluent areas,” the brief says. “If the property-tax exemption were extended to clinics owned and operated by nonprofit hospitals, similar privately operated facilities would be put at a distinct competitive disadvantage.”