Facing a budget deficit exceeding $11 billion, the State of Illinois in recent weeks has begun challenging the property tax exemptions of some of its best-known hospitals, saying they should pay more because they are not providing enough charity care.
The Illinois Department of Revenue moved last month to strip property tax exemptions from Prentice Women’s Hospital, a sparkling new medical center in Chicago’s tony Streeterville neighborhood; Edward Hospital, a rapidly expanding medical center in the western suburb of Naperville, and Decatur Memorial Hospital in central Illinois.
If successful with those three, the state is expected to look for other not-for-profit hospitals with low percentages of charity care, with an eye toward challenging their property tax exemptions, too. A Department of Revenue spokesman said the agency was reviewing parcels owned by 15 hospital systems, but declined to say if the tax exemptions would be challenged in each case.
All three of the hospitals the state is focusing on provided free and discounted medical care that ranged from 0.96 percent to 1.85 percent of patient-care revenue, according to the revenue department. The state also said that each one had been operating as a “for profit” business when the state’s Constitution says that “only charities are entitled to a tax exemption.”
In anticipation of new tax challenges, hospitals in Illinois are preparing a lobbying push that would seek to redefine the qualifications for tax exemptions. The new definition would go beyond just charity care and expand to include patients’ unpaid debts, costs of medical care not covered by Medicare health insurance for the elderly, Medicaid coverage for the poor, as well as direct costs that teaching hospitals pay to train doctors and conduct research.
In interviews, executives of the Illinois Hospital Association told the Chicago News Cooperative that they had discussed with state policy makers a plan to draft a broader legal definition for hospital tax exemptions. The lobbying group — which is adding staff members to bolster its effort — would also figure into a hospital’s tax exemption the cost of subsidizing money-losing services like emergency care, trauma care, burn units and neonatal intensive care units.
“We strongly believe that charity care should not be the sole determining factor for a hospital’s nonprofit, tax-exempt status and respectfully suggest the legislature establish clear standards for tax exemption,” Dean Harrison, chief executive of Northwestern Memorial HealthCare, the parent company of Prentice Women’s Hospital, said in a statement.
The hospital industry’s push is at odds with the changes under way at the Department of Revenue, which is acting in the wake of the State Supreme Court ruling last year upholding the revocation of the property tax exemption for Catholic-owned Provena Covenant Medical Center in downstate Urbana, in Champaign County. For that hospital, the value of care provided to indigent patients amounted to less than 1 percent of its revenue in 2002.
The Department of Revenue cites the state’s Constitution that allows tax exemption only on property used exclusively for charitable purposes. In the Provena case, the state had argued the hospital should lose its tax exemption because only 302 patients received charity care worth $832,000, or just 0.7 percent of the hospital’s $113 million in revenue that year, state records show. In the Supreme Court ruling, justices noted that 13 percent of Champaign County’s more than 185,000 residents had incomes below the federal poverty guidelines.
Since the revenue department moved to strip the three hospital tax exemptions, State Senator Iris Y. Martinez, Democrat of Chicago, has intensified her effort to pass a bill that she and others introduced earlier this year requiring hospitals to provide 3.5 percent of their annual revenue in charity care. The level advocated by Martinez would still be far less than the 8 percent that the Illinois attorney general, Lisa Madigan, proposed five years ago.
“Hospitals think they should get tax exemptions for merely what they do in the community,” said John Colombo, a professor of law at the University of Illinois at Urbana-Champaign who has followed the issue of nonprofit hospital tax exemptions nationally. “It’s problematic: The overall number that each of these hospitals is reporting is abysmally low. Given the state of the economy, one would expect the charity services going up.”
Services like prenatal care may be expensive for hospitals, Professor Colombo said. “But in reality the prenatal care can be a mint to them once it results in women coming into the delivery room to have their babies.”
For the year 2007, Northwestern Memorial HealthCare showed charity cases as 1.85 percent of its $1.18 billion in net patient revenue. Edward Hospital showed charity care at 1.04 percent of its $448 million in net patient revenues that year. Decatur Memorial reported costs of charity care at 0.96 percent of its $252 million in net patient revenues in 2006, the year revenue department officials evaluated the hospital’s recent ownership change.
The hospitals argue that their contributions are significant, even though charity care is a small percentage of their business. Community benefit provided by Northwestern’s flagship, Northwestern Memorial Hospital on Chicago’s Gold Coast, has increased more than 10 percent since 2005, to $255 million, according to Harrison. And Edward Hospital said it treated patients “24 hours a day, 7 days a week, regardless of their ability to pay.”
Mark Deaton, the Illinois Hospital Association’s general counsel, said hospitals “in some fashion relieve the burden of government” because of the community benefit they provide.
But analysts say hospitals that pay taxes provide community benefit in other ways. Provena’s Urbana hospital now pays about $1.2 million annually in taxes.
“A million dollars in revenue will fix pot holes, help schools and infrastructure and make the city safer,” Professor Colombo said. “Those tax dollars are a pretty big community benefit.”
The Chicago area has seen a rising number of for-profit hospitals that serve the poor while still paying taxes on their property. For example, Vanguard Health Systems , the for-profit hospital operator, has bought five former nonprofit hospitals in the Chicago area, two of them former nonprofit hospitals near the poor Austin neighborhood on the West Side. Vanguard pays taxes on the properties.
“The relative amounts of charity care provided by not-for-profit tax-exempts are not materially different from the amount provided by for-profit hospitals,” said Jim Unland, a longtime analyst of Illinois’ health care industry and president of the Health Capital Group, a consulting firm in Chicago. “This raises the issue of whether the tax-exempts are getting prejudicially favorable treatment.”
The battle comes during a period of high unemployment and related loss in health benefits by hundreds of thousands of Americans that analysts say are in greater need for discounted and free medical care.
Hospitals say they will challenge the Department of Revenue in court. They intend to respond by mid-October to the denial of their tax exemptions by the agency’s director, Brian Hamer.
In capitalism, when you can’t find a customer, you lower your price. Even the federal government understands that. The premiums have now dropped by 20% to 40%, depending on your age, circumstance and state. If you considered this pre-existing coverage plan before and found it too costly, give it a look now. best would be to check “Penny Health” for your health insurance
Health care isn’t a retail commodity business, and you’d better get on your knees and thank whatever deity you believe in that it’s not. And what the hell source do YOU have on health insurance premiums dropping?? Compare apples to apples, woman: the only plans with dropping premiums belong to insurance companies that either a) want short-term inroads with new employers as customers, after which they’ll raise rates next year or the year after that, or b) offer health plans with lousy benefit packages and high co-pays and deductibles that aren’t worth squat and still cost money. No health insurance plan worth having has had a drop in premiums, not if you believe the annual benefits surveys that firms like William M. Mercer conduct. Cite your sources, or shut up.
follow this scenario..
hospital A does not invest in getting people covered into the medicaid program and uses software to make it easy to declare charity care..result high charity care writeoffs..less people with insurance..more use of the emergency room
hospital B invests in staff and aggressively pursues coverage for the patient so they can see doctors and get prescriptions filled and be assigned a PCP..less charity care write offs..higher conversions to state program..people receiving the right care in the right location..
which hospital is doing the right thing?
by pushing hospitals to have higher charity care ,you are actually hurting the majority of the patients in their long term care needs..charity care is not insurance and creates an incentive for patients not to be enrolled in a program..i thought we are trying to improve the quality of health care and reduce admissions?..
Uh, have you considered that women without children and single men don’t qualify for Medicaid in this state?? Or that Medicaid in Illinois is a year or more behind in paying doctors and hospitals, thanks to our chronic budget woes (and to the fact that Illinois has one of the lowest income tax rates in the nation)? Or that the eligibility cutoff might be set too high and therefore excludes many of the working poor?? Hospitals don’t get to defer their payments to suppliers for that long. Where do you think the money comes from to pay those suppliers, if not from that all-important operating margin? And it’s not like hospitals get to collect interest on Medicaid payments that are due to them by the state. All in all, it’s an argument for higher state income taxes, particularly the corporate ones. Yet I can already hear people screaming about that. So where do you think the money *will* come from, eh? Thin air?? Nice try.
Many savvy Illinois not-for-profit hospitals understand that by financially supporting agencies providing community-based preventive health care they are helping to keep uninsured and under-insured people well and living at home instead of ending up perilously sick in their emergency departments and hospital wards. By focusing hospitals’ community benefit programs on prevention, the traditional charity care burden of the hospitals is more coordinated, controllable and cost effective even if the total amount of charity care increases. Call it more bang for the charity care buck. Yet hospitals get no credit in terms of tax-exempt status for this common sense public health approach. Rather than strict formulas which count only hospital-based charity care, policy makers should look at best practices where hospitals partner with community health centers, free clinics and other primary care providers who have expertise in caring for Chicagoans in need in the very communities in which they reside.
Yes, community-based primary care, which includes but is not limited to preventive care, is necessary and will help the uninsured and underinsured (for as long as those agencies’ budgets last, anyway), but that won’t make a big dent in uncompensated care in the short run. For one thing, simply meeting all of those folks’ backlog of unmet medical needs won’t immediately improve their health significantly over the long term if they have chronic conditions that have arisen because they’ve delayed getting care for so long. And really improving their care requires that those folks *continue* to have regular access to care, which is not a given: those community agencies can go broke, too. See my comment below for further details.
Preventive health care is an absolute necessity — but it WON’T automatically result in less uncompensated care in hospitals. You think that, and you’re hallucinating. The only thing that lowers uncompensated care in hospitals is having everyone insured — and insured with coverage that *doesn’t* leave them with huge amounts of cost sharing (big deductibles, big co-payments, benefits packages that don’t cover a lot of needed care, etc.). However, employers have been trying for at least the last 20 years to find ways of dumping an ever greater share of health care (and health premium) costs onto their workers and cutting back benefits packages so that workers carry a greater level of medical debt than before. That means more bad debt from people who can’t pay their share of hospital costs. If you really want hospitals not to go broke caring for people, that means covering everyone — and that probably means national health insurance, via a single-payor plan (don’t cry for the insurance companies which, in that case, will have to content themselves with only offering disability, workers’ comp, and long-term care insurance and making a higher profit margin on those anyway: they were never guaranteed a living from selling health insurance any more than buggy whip makers were guaranteed a living from that product). But that’s not gonna happen this year, or next. Meanwhile, comprehensive preventive care is NOT cheap, either, if you do it right. It’s just cheaper than paying for acute or chronic care when people get sicker because they didn’t get adequate preventive care early on. You think employers really want to pay for that, either? HA! There’s a lot of lip service being paid to preventive care by employers, but that’s all it is when your health insurance policy has big co-pays and deductibles and won’t cover, say, yearly mammograms once you’re past a certain age (but will, for example, cover a guy’s Viagra prescription; gee, do you see a disconnect there?). And the dirty little secret about health benefits is that it isn’t necessarily the insurer’s fault if you have a lousy coverage package: employers usually dictate what’s covered in the benefit package and what’s not because that’s how they control what they pay in premium costs. In fact, it’s the *only* influence they have over premium costs, so of course they’ll use it. Oh, and BTW, just because you make everyone buy health insurance doesn’t mean that the policies they can afford will be worth squat or that they can afford the policies in the first place. That ain’t how it works.
So: no radical changes on the horizon regarding insuring everyone or getting benefit packages to really cover preventive care with minimal or no patient cost sharing.
As for a 3.5 percent charity care requirement: what, are you guys incapable of math??!? That’s bigger than the operating margin most hospitals have; 3.5 percent is considered a barely adequate margin to stay in business, so where’s the money going to come form?? Retail businesses might be able to get by on that thin a margin, but they don’t have the overhead that health care delivery does. Remember the saying: no margin, no mission. Meaning, no hospital and no care. It means hospitals DO have to make an adequate ‘profit’ margin to stay in business — but that so-called ‘profit’ gets reinvested in care for the community as a whole: it DOESN’T go out in dividends to shareholders. Be **happy** your care rests in the hands of people who don’t answer to greedy shareholders and takeover artists.
So: considering all of the above, hospitals will continue to struggle with uncompensated care. The number one cause of personal bankruptcy filings is medical debt, and those filings have been on the rise for years. So YES, uncompensated care — meaning care for which the hospital must eat the costs — consists of more than just outright charity care, and the tax laws have to recognize that. Gov. Quinn is desperately looking for an easy target for more tax revenues, but he’s being just deliberately stupid on this one. It’ll backfire if he pushes it. Gee, Gov, if more hospitals close, who provides the care? (and the trauma care for the local trauma network? The county hospital?? That won’t work for long. Guess again.)
Gov: stop being an idiot and change the tax laws to reflect reality. Then start paying your Medicaid bills to doctors and hospitals on time (what, are you only a year behind at this point, or more?) and start pushing Washington to reconsider national health insurance. It’s a better use of your time.