Sunday, April 6, 2008

Chicago Area Nonprofit Hospital Closes Doors Due to Charity Care Burden

Earlier today, I reported on a Wall Street Journal article describing the big profits earned by some nonprofit hospitals.  The WSJ article generally left the impression that nonprofit hospitals were using tax exemption to reap huge profits.  A story in today's Chicago Tribune, though, paints the opposite picture of a nonprofit hospital that will soon be closing its doors because of the financial strain caused by charity care.  According to the report:

St. Francis said it was losing tens of millions of dollars in recent years because of the rising number of uninsured patients it was treating. That threatened the 410-bed hospital's ability to provide service even to those who could pay, it said. The situation was so bad that when SSM offered St. Francis to another provider for free, no one stepped up.  "If anyone thinks we would walk away from this lightly, that is just not the case," Platt said. "It is having an enormous impact on Blue Island, but we serve a lot of other indigents in our communities and we had to look at our ability to serve and this ultimately was undermining our ability." SSM, which announced its plans to close St. Francis last week, said 28 hospital operators, mostly non-profits, rejected the hospital.

The Chicago Tribune article describes the ease with which hospitals can obtain tax exemption and contrasts the state of St. Francis with that of Northwestern Memorial Hospital (where two of my daughters were borrn, incidentally).  Perhaps we ought to continue tax exemption for hospitals but then yank that exemption (as Cook County has done for some hospitals in the Chicago area) when those hospitals start looking like for profit operations.  That, in a nutshell, is what the "commerciality" doctrine is about.  A primary criterion for taking this action would be the percentage the "nonprofit" hospitals spent on charity care (excluding research which is often the subject of a research hospital's technology transfer efforts resulting in still lmore millions in untaxed royalties).  The jeopardy to tax exemption might apply only after the nonprofit earns a hurdle rate of aggregate profits either in one year or over a definite period of time.  If nothing else, the Chicago Tribune article and the Wall Street Journal article proves that one size does not fit all with regard to tax exemption. 


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