Hospitals Watch Provena Covenant Medical Center's Battle with the Illinois Department of Revenue
Urbana hospital, state agency head to Illinois Supreme Court Wednesday on property tax exemptions
By Bruce Japsen, Chicago Tribune reporter, September 21, 2009
How much charity care must a hospital provide to get tax breaks?
On Wednesday, the state's highest court will look at that question when it hears arguments in the case of an Urbana hospital's property tax exemption. The answer will have implications not only for nonprofit hospitals and those public officials responsible for tax policies, but also for consumers, who could face higher medical bills or see a reduction in health services.
Hundreds of millions of dollars in property tax exemptions in the state could be at stake. That means the case of Provena Covenant Medical Center is being watched closely statewide as the Illinois Supreme Court tries to provide clarity to what medical facilities in the state need to do to qualify for tax breaks. Cook County alone has about 70 nonprofit hospitals.
A key issue: The state has no clear definition of how much charity care should be provided or whether unpaid medical bills and services that are offered for free, among other practices, should be included to determine whether a hospital receives a property tax exemption. The case pits Provena Covenant, a Catholic-run hospital, against the state Department of Revenue.
The Provena case comes at a critical time. The country is embroiled in health-care reform, the number of uninsured Americans is on the rise and the lagging economy has forced many hospitals to reduce certain services.
The case also is being monitored nationwide, since the court's decision could provide political fodder for state and federal lawmakers across the country looking for dollars to fund health programs. The implications also could seep into the national debate over health reform: The case is being heard as President Barack Obama and the Democratic-controlled Congress are looking for ways to raise $900 billion to fund medical care to the more than 46 million uninsured without adding to the deficit.
"It's an extremely important case," said Larry Singer, professor and director of the Beazley Institute for Health Law Policy at Loyola University Chicago School of Law. "There is a real fear [among hospitals] that if we have 95 percent or more of the American public with health insurance after reform, what do hospitals do to justify their tax-exempt status?"
The court will decide, among other issues, whether the Provena property is being used for an "exempt purpose," Singer said.
Provena Covenant is one of six Catholic hospitals owned by Mokena-based Provena Health, which also has facilities in Aurora, Danville, Elgin, Joliet and Kankakee and is sponsored by three religious orders.
"It certainly challenges a fundamental tenet of the mission," Singer added. "The institution exists to fulfill the Catholic mission of service. If the state is saying, 'They are not meeting that test,' it's a challenge."
The high court's decision may affect how nonprofit hospitals, which account for the majority of health facilities in the U.S., handle the bills of uninsured Americans. Making nonprofit hospitals pay taxes could lead to an increase in the price of medical care or to a reduction in some services.
"If hospitals lose their charitable property tax exemptions, revenues now spent on financial assistance and other patient and community services will be diverted to tax payments," Provena's Chicago attorney, Patrick Coffey, wrote in a brief outlining arguments before the court. "Hospitals will also seek other ways to meet their new tax liabilities. They might initially seek to pass on the tax burdens, but ultimately there will be an impact on community services."
And though the court has jurisdiction only in Illinois, hospitals elsewhere fear a decision against Provena Covenant could give lawmakers and members of Congress ideas on ways to help pay for medical services by revoking tax exemptions. Nonprofit medical facilities do not have to pay federal income taxes and are allowed to issue tax-exempt bonds for capital projects such as hospital expansions or renovations.
The Provena case started in 2002 when the hospital applied for a property tax exemption based on its status as a charitable entity. The local tax review board stripped Provena's tax exemption in 2003, after questioning whether the hospital was providing enough free care. Provena challenged the Champaign County board's decision by seeking a review by the state Department of Revenue. The state agency sided with the local board.
En route to the state's highest court, lower judicial bodies have come down on both sides of the hospital's stance. Last year, a three-judge 4th District Appellate Court panel in Springfield reversed a lower court's decision that let Provena keep its tax-exempt status.
The appellate court justices sided with Illinois Department of Revenue Director Brian Hamer, who ruled three years ago that Provena's charity care was not enough to justify an exemption. In 2002, Hamer said, Provena's charity care was less than 1 percent of its revenue.
After it lost its tax exemption, Provena paid more than $5 million in property taxes but later recouped the funds during an appeal process.
Provena's business practices also will be in the legal spotlight.
According to the state's briefs filed in preparation for Wednesday's oral arguments, Attorney General Lisa Madigan said Provena billed patients in a manner that "concealed the availability of charity care" and sent poor patients to debt collectors. "These practices undoubtedly prevented needy patients from even applying for charitable care, much less receiving it."
Madigan will urge the court to affirm the appellate ruling.
Neither Madigan nor her staff would agree to an interview, citing the pending nature of the case.
Provena executives have denied the hospital was not providing enough charity care, saying it gives millions of dollars in free and discounted medical-care services annually. And Provena said it has "never denied treatment to anyone due to inability to pay."
Hospitals argue the nonprofit definition should go beyond free medical-care service, saying they make up for shortfalls in payments from government health programs like Medicaid insurance for the poor and Medicare for the elderly. They also point to investments in education, research, money-losing trauma units and other community benefits that justify the tax breaks.
"If you have an outreach program where you are spending money and trying to keep people well by combating diabetes, obesity or asthma, you ought to get at least as much credit for keeping them well as you do for patching them up when they are sick," said Melinda Hatton, general counsel for the American Hospital Association.
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