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Provena decision could have 'chilling effect' on hospitals, lawmaker says

By Ann Maher | May 3, 2012



A two-year-old Illinois Supreme Court decision that snatched the property tax exemption from a central Illinois hospital could have a "chilling effect" on all state hospitals, says an area lawmaker.

"First we chipped away at hospitals and doctors, slowed pay down to about as slow as it could be," said Rep. Dwight Kay (R-Glen Carbon).

Kay said he is not in favor of eliminating property tax exemptions for hospitals, which he says are already struggling with low reimbursement rates and slow reimbursement by the state.

Anderson Hospital in Maryville and Gateway Regional Regional Medical Center in Granite City are in Kay's district, and like many other hospitals in the state, are not-for-profits that enjoy property and sales tax exemptions.

"Some of them have to borrow money to keep operating," Kay said about hospitals that struggle with cash flow problems because the state is so far behind in reimbursing providers. "With the loss of tax exemption, they would have to consider even whether to stay in business."

In Provena Covenant Medical Center v. Illinois Department of Revenue (IDOR), the court ruled that the Urbana hospital should not be exempt from paying taxes in 2002 because it did not establish that the property in question was owned by a charity.

Hospitals and others seeking a charitable exemption must show that their property is primarily used for charitable purposes and that the property is owned by an institution of charity.

Provena did not contain an authoritative ruling on the charitable use issue. As a result, hospitals are unsure of what kind of activities are considered charitable or how much charitable activity is necessary to be entitled to an exemption.

Brian Hamer, IDOR director, however, is taking a very stringent view regarding what kind of activities are charitable and how much of those activities are necessary to be entitled to a charitable use.

The Illinois Hospital Association (IHA) and its members are fighting efforts by IDOR, which since last year has decided (based upon the Provena decision) that another three hospitals don't qualify for property tax exemptions. The IHA is said to be working with Senate Majority Leader James Clayborne (D-Belleville) in drafting legislation that would clarify standards and deal with the phrase, "charitable purposes."

A position paper from the IHA states that standards for the charitable property tax exemption "have become unworkable for hospitals."

It states that the term "charitable purposes" has come to mean only one thing to the IDOR, "free and discounted care for poor people delivered in the hospital.

"Since the vast majority of people in Illinois have some form of health coverage, there is probably not a hospital in the state that can meet this test."

A phone call to Clayborne's Springfield office has not been returned.

One of the hospitals that lost its exemption last year – Decatur Memorial Hospital – is in Sen. Kyle McCarter's district. The hospital didn't qualify for the exemption because IDOR determined its charity work was less than one percent of its revenue.

McCarter said Gov. Pat Quinn is using the issue as leverage in his proposal to cut $2.7 billion in Medicaid spending.

"They're (hospitals) hostage right now," McCarter (R-Lebanon) said.

McCarter also said people will lose access to care if hospitals lose their exemptions.

Public relations officer Brian Reardon for Hospital Sisters Health Systems (HSHS) said hospitals also are facing the threat of a reduced Medicaid reimbursement rate, which already is below the value of services provided at 70 cents on the dollar.

He said that the eight hospitals operated by HSHS in Illinois – three of which are in the Metro-East: St. Elizabeth's in Belleville, St. Joseph's in Breese and St. Joseph's in Highland – provide service to "whoever walks in the door," whether they are covered by Medicare, Medicaid, private insurance, or not covered at all.

"What gets lost in the debate is that we as hospitals do more in keeping people healthy," Reardon said. He said HSHS hospitals are proactive in providing a variety of services to the community.

He also said that "excess revenues" achieved by its hospitals are used to make improvements, "not to payout shareholders."

"We expand services and buy new equipment," he said.

The loss of its tax exempt status would require the system to make decisions on what services it could continue to provide.

"That affects everyone in the community," he said.

Of the three area hospitals in the HSHS system, Reardon said St. Elizabeth's provided $10.7 million in community benefits, according to figures reported through June 2011. The amount represents charity care as well as Medicaid shortfall.

St. Joseph's in Breese reported $1.5 million; and St. Joseph's in Highland reported approximately $970,000 in community benefits, Reardon said.

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Organizations in this Story

Illinois Hospital AssociationIllinois Supreme CourtAnderson Hospital