Tax-ex­empt sta­tus un­der fire in III.

Hos­pi­tals say Illi­nois rev­enue de­part­ment’s ac­tion threat­ens their fu­ture

Modern Healthcare - - Front Page - Ashok Sel­vam

As many as 15 Illi­nois hos­pi­tals could be forced to pay prop­erty taxes af­ter last week’s de­ci­sion by state of­fi­cials to take away prop­erty-tax ex­emp­tions from three fa­cil­i­ties. The Illi­nois Hos­pi­tal As­so­ci­a­tion’s pres­i­dent, Mary­jane Wurth, called the Illi­nois De­part­ment of Rev­enue’s ac­tions “nar­row and in­flex­i­ble” as 334-bed De­catur (Ill.) Me­mo­rial Hos­pi­tal, 320-bed Ed­ward Hos­pi­tal in Naperville and Pren­tice Women’s Hos­pi­tal at North­west­ern Me­mo­rial Hos­pi­tal in Chicago lost their ex­empt sta­tuses. The hos­pi­tals have 60 days to file for an ap­peal hear­ing be­fore an ad­min­is­tra­tive judge, and of­fi­cials from all the hos­pi­tals vowed to take that ac­tion.

The events build­ing to the de­part­ment’s ac­tions have gar­nered na­tional at­ten­tion, as many state and lo­cal gov­ern­ments tar­get ex­empt hos­pi­tals and other not-for-prof­its, hop­ing to tap a new rev­enue source (May 3, 2010, p. 10). Illi­nois hos­pi­tal of­fi­cials said they are per­plexed by the de­part­ment’s mo­ti­va­tion for tak­ing ac­tion and what cri­te­ria they used.

“We be­lieve the ap­peal process will al­low us to prove that all of our cur­rent op­er­a­tions clearly fit within the tax-ex­empt stan­dards,” De­catur Me­mo­rial spokesman Mike Cas­sell said.

Wurth took is­sue with a pub­lished state­ment at­trib­uted to the man­ager of pol­icy and com­mu­ni­ca­tion for the state de­part­ment rev­enue, Mike Kle­mens, who told the As­so­ci­ated Press: “The ques­tion for us is: Is it a char­ity or busi­ness? Is it Mo­torola or is it a soup kitchen?”

That per­spec­tive is too sim­plis­tic and leaves all char­ity groups un­der the threat of re­view, Wurth said: “If the stan­dard is a soup kitchen, we think that is very dis­turb­ing and wrong,” she added.

Hos­pi­tals say they al­ready face the prospect of de­clin­ing Medi­care pay­ments un­der the health­care re­form law, and con­tend that forc­ing them to pay prop­erty taxes could crip­ple many Illi­nois hos­pi­tals, not­ing that theirs is one of few in­dus­tries cre­at­ing jobs in the state. The as­so­ci­a­tion has es­ti­mated that Illi­nois hos­pi­tals al­ready face a cu­mu­la­tive $8 bil­lion hit from Medi­care cuts be­tween now and 2020 as a re­sult of fed­eral health­care re­form.

It’s un­clear how much money the state would re­ceive if the hos­pi­tals ever land on the tax roll, said de­part­ment of rev­enue spokes­woman Su­san Hofer, as the prop­er­ties have never been ap­praised. If an Illi­nois hos­pi­tal changes own­er­ship, adds a build­ing, changes how prop­erty is used or buys land, its tax-ex­empt sta­tus comes un­der re­view on the county level. County of­fi­cials then make a rec­om­men­da­tion to De­part­ment of Rev­enue Di­rec­tor Brian Hamer.

“We make the fi­nal de­ci­sion: Does this meet the con­sti­tu­tional and le­gal def­i­ni­tion of char­ity?” Hofer said.

The con­se­quences are al­ready be­ing felt. Hope­dale (Ill.) Med­i­cal Com­plex is un­der re­view and has de­layed con­struc­tion of a re­place­ment hos­pi­tal, fear­ful of pay­ing prop­erty taxes on the new build­ing, Wurth noted. She’s wor­ried ru­ral fa­cil­i­ties could be hit the hard­est by be­ing re­quired to pay those taxes.

The lake­front Chicago prop­erty where Pren­tice stands has not been taxed in more than a cen­tury, hos­pi­tal of­fi­cials said. “As part of an aca­demic med­i­cal cen­ter, our tax ex­emp­tion per­mits us to rein­vest in the health of our com­mu­nity and to con­tinue to pro­vide life-sav­ing di­ag­nos­tics and treat­ments, re­search into ground­break­ing cures and in teach­ing the next gen­er­a­tion of physi­cians and other care providers,” North­west­ern Me­mo­rial said in a state­ment.

Last year, the Illi­nois Supreme Court ruled that 202-bed Provena Covenant Med­i­cal Cen­ter, Cham­paign, was no longer tax-ex­empt. Provena first chal­lenged the de­ci­sion in 2002, seven years af­ter lo­cal of­fi­cials rec­om­mended re­vok­ing the re­newal of their ex­emp­tion.

Hofer said the de­part­ment is re­view­ing the ex­empt sta­tuses of “10 to 15” hos­pi­tals. In 2008, the de­part­ment was re­view­ing 85 such cases, as of­fi­cials hoped the Provena de­ci­sion would set a prece­dent.

The de­part­ment be­gan re­view­ing De­catur in 2006 af­ter an own­er­ship change. Ed­ward came un­der re­view in 2007 af­ter hos­pi­tal prop­erty was newly di­vided. Re­view for Pren­tice also started in 2007, trig­gered by a move to a new build­ing. The de­ci­sions were based on net pa­tient rev­enue, whether the par­ent health sys­tem op­er­ated a for­profit en­tity and the cost of char­ity care.

Hos­pi­tal of­fi­cials dis­pute that the de­part­ment’s con­clu­sions re­flect what they do for their com­mu­ni­ties.

Ed­ward Hos­pi­tal is­sued a state­ment ar­gu­ing that it “has one of the most gen­er­ous char­ity-care poli­cies in Illi­nois, and con­trib­uted $77 mil­lion in char­ity care and com­mu­nity ben­e­fit pro­grams last year.”

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