Tax-exempt status under fire in III.
Hospitals say Illinois revenue department’s action threatens their future
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.”