In a decision that could have implications for hospitals across the country, the Illinois Supreme Court has denied an appeal by Provena Covenant Medical Center to regain its property tax exemption.
The ruling upheld a 2003 decision by the Illinois Department of Revenue to end the Urbana, Ill.-based medical center’s tax-exempt status after the state learned that the center’s charity care equaled less than 1 percent of revenue.
The state’s high court concluded that Provena did not warrant its tax-exempt status because it did not prove the property was used “actually and exclusively” for a charitable purpose, and that the hospital did not provide a sufficient amount of free and discounted care to uninsured patients.
“The record showed that during the period in question here, Provena did not advertise the availability of charity care,” Justice Lloyd Karmeier wrote for the majority. “Patients were billed as a matter of course and unpaid bills were automatically referred to collection agencies.”
Two judges joined Karmeier’s opinion in full and two more joined in part. Two others did not vote.
The Illinois Attorney General’s office had argued that only 302 patients at Provena received free or discounted care out of more than 100,000 admissions in 2002. Those patients cost the hospital $831,724, or about 0.7 percent of its $113 million in revenue.
Melinda Hatton, general counsel of the American Hospital Association, criticized the court’s ruling.
“The court is out of step with the broader view shared by the federal government and the majority of states about what it means to be a charitable organization,” she said. “We don’t expect that the Illinois court’s decision about the property tax exemption will be embraced by other states.”
The American Hospital Association had supported the Illinois Hospital Association’s battle to reinstate the tax exemption in an amicus brief filed earlier in the case.
According to Standard & Poor’s Ratings Services, the ruling sets an “important precedent that could affect other healthcare systems and hospitals in Illinois, as well as nationwide if adopted elsewhere.”
Nonetheless, the ratings firm said Provena’s balance sheet provides sufficient cushion against the need to pay its tax liability. Provena owes approximately $1.1 million in taxes for fiscal 2002. It’s unclear whether the medical center will be required to make payments for the years following 2002, which could amount to $10 million if each year’s property tax amount was about the same as in 2002.
Maryjane Wurth, the IHA’s president, said the decision could do great harm to a hospital and jeopardize its ability to serve its patients.
“Imposing new tax burdens on a hospital could force it to reduce services and increase healthcare costs – jeopardizing access to quality services as well as the hospital’s financial viability,” she said.
David Bertauski, Provena’s president and CEO, said he hopes the ruling prompts a dialogue among hospitals and elected officials “about not only how we define charity care but also how we better ensure that the people who need financial assistance get it.”