In a series of decisions that may affect healthcare nationally, Illinois is tightening the noose on hospitals that claim tax-exempt, non-profit status. What began as the denial of a property tax exemption by the Champaign County Board of Review for one hospital system in 2002 has become a state-wide analysis of how much actual “charity care” hospitals are providing.
The immediate implication is that hospitals’ property tax exemptions could be revoked and vital revenues could be collected. However, this raises a broader structural question around the use of tax-exempt municipal bonds for entities that may be passive vehicles for for-profit activity.
Becker’s Hospital Review has the specifics:
[T]he Illinois Department of Revenue’s crackdown on Illinois non-profit hospital tax-exempt statuses came on the heels of an Illinois Supreme Court ruling from last year. In 2010, the Illinois Supreme Court ruled that Provena Covenant Medical Center in Urbana, Ill., could not qualify for property tax-exempt status because it did not provide enough charity care to its community, although Provena argued that it provided millions of dollars in other free care and community benefits.
The microscope on Illinois non-profit hospitals does not end there. Chicago Mayor Rahm Emanuel also recently proposed cutting free water and sewage services for city non-profits in October, and Moody’s Investors Service recently released a report that said the revocation of Illinois hospitals’ property tax-exempt statuses could be debilitating to the sector’s finances. “This has implications beyond property taxes,” Mr. Dunn says. “A not-for-profit status is, by virtue, about the level of charity work they do, and this could jeopardize their 501(c)(3) statuses.”
Fitch Ratings had a report today that gave some color on the legal and legislative processes: