Stinginess Could Cost Non-profit Hospitals Millions in Tax Relief

Wednesday, July 1, 2009
by Marc J. Lane

Non-profit hospitals across Illinois shuddered when the state's Department of Revenue rescinded the property tax exemption of Provena Covenant Medical Center in Downstate Champaign for failing to provide enough free care to the poor. The revenue department noted that Provena Covenant gave free care to only 196 of the 110,000 patients it admitted in 2002 and hired collection agencies to pursue 64 patients to whom it gave discounts.

The Illinois Supreme Court will soon review an appellate court ruling from August that upheld the revenue department's action.

Provena Covenant is not an isolated case. The property and sales tax relief afforded Chicago-area non-profit hospitals totals nearly three times the value of the free and discounted medical care they provide poor patients, according to the Center for Tax and Budget Accountability.

The Congressional Budget Office estimates that non-profit hospitals receive about $12.6 billion in annual tax exemptions plus their share of the $32 billion in federal, state and local subsidies the hospital industry receives each year.

Yet the IRS recently reported that 489 non-profit hospitals surveyed throughout the nation spent, on average, only 9% of their revenues on community benefit, about half that amount on uncompensated care. Even that small number was fudged: Many respondents claimed bad debts and the difference between their costs and Medicare and Medicaid payments as charity.

No one should be surprised about calls for the Treasury to re-establish the federal charity-care requirements scrapped in 1969 after Medicare and Medicaid became law.

Provena Covenant argues that uncollectible receivables due from poor patients, discounts allowed third-party payers by contract, and Medicare and Medicaid shortfalls are all sacrifices equivalent to the giving of charity.

But, by law, it takes charitable health care, which eases the financial toll on government, and nothing less, to qualify for property tax exemption. When non-profit hospitals fail to provide charity, some poor, uninsured and underinsured patients find themselves in public hospitals, funded by public dollars and stretched beyond capacity.

Others, afraid to incur debt they can't repay, delay their medical treatment, adding to its eventual cost and jeopardizing their health outcomes, if not their lives.

In the depths of a recession, budgets at every level of government are strained, and people are in peril. However the Supreme Court decides the Provena Covenant case, our non-profit hospitals must deploy the public funds they're given to shore up the public-health safety net both the poor and the taxpayer deserve.

For further information, please contact:

Marc J. Lane
The Law Offices of Marc J. Lane, A Professional Corporation
180 North La Salle Street
Chicago, Illinois 60601-2701
(312) 372-1040
Nationwide: (800) 372-1040
Facsimile (312) 346-1040


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Our July 2009 Lane Report was adapted from a column published in Crain's Chicago Business on June 8, 2009. Reprinted with permission from Crain Communication Inc., Copyright 2009.

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