Nonprofit Illinois Hospital Must Pay Property Tax


In a closely watched case, Illinois' highest court Thursday determined that a not-for-profit hospital had to pay property taxes, because it didn't offer enough charity care to qualify for a tax exemption.

The decision is the culmination of a five-year fight over whether Provena Covenant Medical Center, a Catholic hospital in Urbana, provided enough of a benefit to the community to justify the tax break. Provena came under scrutiny by state regulators for its aggressive collection policies, especially toward uninsured patients.

"The record showed, however, that during the period in question here, Provena Hospitals did not advertise the availability of charitable care at PCMC. Patients were billed as a matter of course, and unpaid bills were automatically referred to collection agencies," Justice Lloyd Karmeier wrote for the court.

"As a practical matter, there was little to distinguish the way in which Provena Hospitals dispensed its 'charity' from the way in which a for-profit institution would write off bad debt," he added.

The Chicago Tribune called the decision a "blow to the state's hospital industry."

"It sets the stage for a potential debate about exactly how charitable hospitals must be, with some experts predicting that Springfield could seek to pass a law mandating the amounts," the Tribune wrote. In fact, Illinois Attorney General Lisa Madigan, a Democrat, has long pushed for that type of rule. Her office represented the state in trying to strip Provena of its property tax exemption.

But the ruling ( PDF ) was a fractured one. Two of the court's seven judges recused themselves, leaving only five judges to decide the case. And those five split 3-2 on their reasoning for denying the exemption. John Colombo, a law professor at the University of Illinois at Urbana-Champaign, told The Wall Street Journal the decision wouldn't carry much weight because of the split."Its national impact is going to be muted because there is not a majority opinion on the substantive grounds as to why Provena lost,"he said.

Still, the decision reverberated beyond Illinois. The Associated Press reported that U.S. Sen. Charles Grassley, an Iowa Republican who frequently criticized non-profit hospitals, said the ruling reinforced the problems he had pointed out. "There is often no discernible difference between the operations of taxable and tax-exempt hospitals,"he said, according to the AP ."Tax-exempt hospitals should give more attention to their charitable activities."



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