Nonprofit Hospitals and Endangered Tax Exemptions: Illinois Edition

Thanks largely to some classic muckraking by the WSJ, it's now fairly common knowledge that many nonprofit hospitals have indulged themselves by building big, expensive facilities designed to attract well-insured or wealthy patients, gouging less fortunate individuals with huge up-front payment demands for expensive treatment, and sometimes even by building effective local monopolies that force up the cost of care.

What all of these cases have in common is that these distasteful practices often come at the expense of charity care, which many hospital administrators now tend to view as an undesirable cost that needs to be managed away by any means possible. The only catch is that charity care is supposed to be a quid pro quo of sorts for the lucrative tax exemptions that nonprofit hospitals enjoy.

Although there's been some public discussion about forcing delinquent hospitals to boost their charity-care spending -- much of it driven by Iowa Sen. Chuck Grassley --there's been relatively little real action. Except, that is, in Illinois, where a county board of review, and, later, the state tax agency concluded that Provena Covenant Medical Center doesn't deserve its property-tax exemption. The county board dinged Provena for an overly aggressive debt-collection program, while the tax agency decided in 2006 that the hospital wasn't providing enough charity care in the first place:

The Dept. of Revenue concluded that Provena Covenant provided charity care equal to only 0.7% of its total revenues in 2002. That year the hospital gave free care to 196 patients and discounted care to 106 patients out of 110,000 admissions.

The case has been winding its way through the courts ever since, although things took a sudden turn last month when a state appeals court ruled that Provena should forfeit its tax exemption. Provena Health, a Catholic chain that owns five other hospitals in the state, will now appeal the case to the state supreme court.

Unsurprisingly, the rhetorical battle has escalated accordingly. The Illinois Hospital Association, for instance, now makes the apocalyptic argument that the appellate-court ruling could force nonprofit hospitals across the state to pay hundreds of millions of dollars in property taxes.

If there's a silver lining here, it might be that all the attention could accelerate plans to enforce national standards for hospitals' charity-care programs. According to American Medical News:

The appeals court decision could encourage other local governments to follow in the footsteps of Champaign County by challenging the tax exemption of nonprofit hospitals, said an aide to U.S. Sen. Charles Grassley (R, Iowa). Grassley, the Senate Finance Committee's ranking Republican, has been investigating hospitals' property tax exemptions since 2005 and is considering legislation that would set national standards for hospitals to qualify for such exemptions.

New hospital charity care reporting requirements from the Internal Revenue Service should shed more light on the issue and help determine the next move, the Grassley aide said.