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Illinois denies 3 hospitals tax exemption

Updated: October 19, 2011 4:17AM

The Illinois Department of Revenue has denied property tax exemptions to three hospitals and is reviewing applications from 15 others, officials said Tuesday, signaling that the state plans to get tough on nonprofit hospitals it believes operate more like businesses than charities.

At stake are millions of dollars in tax revenues that the hospitals could contribute to cities, parks and schools by paying taxes.

Northwestern Memorial’s Prentice Women’s Hospital in Chicago’s Gold Coast neighborhood, Edward Hospital in Naperville and Decatur Memorial Hospital in Decatur were informed of the decisions Tuesday morning, Revenue Department officials told The Associated Press.

They follow last year’s Illinois Supreme Court ruling that found a central Illinois hospital wasn’t doing enough free or discounted treatment of the poor to qualify for an exemption, obligating it to pay $1.2 million in local property tax payments per year.

The hospitals have 60 days to ask an administrative law judge to review the decisions. In Illinois, property taxes are collected by county governments, and the Department of Revenue decides which institutions are eligible for tax exemptions.

Illinois Hospital Association President Maryjane A. Wurth said in a statement that she was disappointed and “deeply concerned” by the preliminary rulings, and worries the hospitals will be forced to reduce services and increase costs for patients and employers.

“Hospitals in Illinois are vital community resources that deserve tax-exempt status, treating patients 24 hours a day, seven days a week, and providing services to thousands of people who do not have the financial means to pay for the treatment they need, and providing billions of dollars in benefits to their communities” Wurth said.

Edward Hospital released a statement saying it planned to “mount a vigorous defense,” adding that it contributed $77 million in charity care and community benefit programs last year. Representatives for the other two hospitals said they could not immediately comment.

Cook County Board President Toni Preckwinkle said she “applauds the state” for the decision involving Prentice, adding that “many institutions in Cook County” provide “a paltry amount” of charity care.

There is no state money involved in the property tax decisions, but cash-starved local governments could benefit if the hospitals end up paying taxes. About 15 other health care systems are awaiting decisions on tax exemptions for hospitals throughout the state, said Mike Klemens, manager of policy and communication for the Department of Revenue.

The department used guidance from the Illinois Supreme Court’s decision, previous court cases and the state constitution to determine whether the hospitals qualified as charitable institutions, officials said. There was no dollar amount or percentage of revenue used as a threshold.

“The question for us is: Is it a charity or a business? Is it Motorola or is it a soup kitchen?” Klemens said.

But Mark Deaton, an attorney for the Hospital Association, called Klemens’ analogy “astonishing and frightening, because that’s just absolutely not the test for a charitable exemption.”

There is no clear rule about how to measure a hospital’s level of charity care, but the primary requirement is that tax-exempt hospitals “dispense charity to all who need and apply,” Deaton said. He said the amount of charity care can vary between hospitals, communities and years, and the percentage will probably be lower in more affluent communities even though the hospital might be serving many patients who cannot pay.

“There almost could not be a worse time for the administration to take this action, when hospitals are being pummeled by Medicare cuts, Medicaid slowdowns in payment and an economy that’s struggling,” Deaton said.

It’s not clear how much the three hospitals in Tuesday’s action would have to pay in taxes because the property hasn’t been assessed.

In justifying their hospitals’ tax-exempt status, executives say they do much more for the community good than the charity care they provide. They also note that Medicare and Medicaid rates are so low that they don’t cover a hospital’s costs.

In the case of the three hospitals, all have for-profit entities in their ownership chains, Klemens said. They all charge fees for the health care they provide and documented no charity care on their financial statements, Klemens said, although they reported charity care figures in other records.

The Northwestern Memorial decision was based on its 2007 application for its newly constructed $450 million women’s hospital. The Northwestern system had $1.17 billion in net patient revenue in 2007, according to Klemens. Northwestern reported charity care totaling 1.85 percent of its revenues.

Edward Hospital’s application for tax exemption in 2007 was submitted after its property was subdivided. The hospital in Naperville had $448 million in net patient revenue that year and reported charity care equal to 1.04 percent of net patient revenues.

Decatur Memorial Hospital’s 2006 application for tax exemption came because of an ownership change. The hospital had $252 million in net patient revenue that year and its charity care amounted to 0.96 percent of that.

The Illinois Supreme Court ruled last year that Provena Covenant Medical Center in Urbana didn’t do enough to deserve a property tax exemption. Backing a state decision to repeal Provena’s exemption status, the court said the hospital provided minimal free or discounted care, did little to advertise its charity care and used tough tactics to go after unpaid bills.

In 2002, the year in question in the Supreme Court case, the Urbana hospital’s charity care was valued at 0.7 percent of the hospital’s revenue. That was about $270,000 less than the $1.1 million in tax exemptions the hospital would have received. The hospital has been paying about $1.2 million in local property taxes since the decision.

The Supreme Court also said Provena didn’t lessen the burdens of affected taxing districts in performing their functions.


Associated Press writer Tammy Webber contributed to this report.

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