Monday, February 28, 2011

Dialysis Clinic v. Levin: A Different View on Hospital Tax Exemption

Unlike the Illinois Supreme Court and its decision in the Provena Covenant tax exemption case (see prior posts here and here), the Ohio Supreme Court last June rejected a strict charity care test for property tax exemption for health care providers in an opinion that seems to have mostly flown under the radar.  In Dialysis Clinic, Inc. v. Levin, 125 Ohio St.3d 1455 (2010),  the Ohio Supreme Court faced a case involving an entity that provided dialysis services for patients who suffer from end-stage renal disease.  The taxpayer Dialysis Clinic had been denied a tax exemption by the Ohio Tax Commissioner, a decision upheld by the Board of Tax Appeals.

The facts showed that Dialysis Clinic admitted both Medicare and Medicaid patients, and often “wrote-off” the co-pay required of Medicare or Medicaid in the case of indigent patients.  The Clinic also claimed that it provided “charity care” for persons ineligible for either Medicare or Medicaid, but apparently did not offer any proof regarding the dollar value of such care.  Both the Tax Commissioner and Board of Tax Appeals held that the write-offs of the co-pays or other bad debts were not charity care, that there was no other evidence of charity care in the record, and that some such evidence was required to support exemption under Ohio law. 

On appeal to the Ohio Supreme Court, the Clinic argued that it should be treated as exempt from Ohio property taxes.  The Clinic argued first that Ohio should take into account the fact that the Clinic was recognized as an exempt charity under Internal Revenue Code Section 501(c)(3) as a factor supporting exemption in Ohio.  Like Illinois and other state courts, however, the Ohio Supreme Court rejected any link between federal tax exemption and state property tax exemption.  Instead, the Ohio Supreme Court noted that the Ohio test for exemption was narrower than the “community benefit” test of federal law: in Ohio, exemption would be granted if services were provided “on a nonprofit basis to those in need, without regard to race, creed, or ability to pay.” 

The clinic, however, failed this latter test, primarily because the Clinic’s own indigency policy stated that treatment was “not a charity or gift to patients” and that “DCI retains all rights to refuse to admit and treat a patenit who has no ability to pay.”   This statement, according to the court, expressly contradicted the requirement of Ohio state law that a charity offer services to all-comers, without regard to ability to pay. 

Unlike the Illinois Supreme Court plurality in Provena, however, the Ohio Supreme Court explicitly rejected the notion that some minimum level of charity care was necessary for a health-care provider to secure state property tax exemption.  “A threshold amount of unreimbursed care is not required, and the commissioner’s contrary assertion is unfounded.”   In short, Ohio law requires only that an institution have an “open-door” policy – that is, that it treat any indigent patients that show up, and if no indigent patients show up, that would not bar exemption.  Ohio, therefore, appears to adopt the same approach as the majority of states in not requiring any specific amount of charity care for exemption, as long as the institution in question in fact serves all indigents seeking services.

With state budgets still a mess, I doubt that we have seen the end of state litigation over tax exemption for hospitals. But in Ohio, at least, it appears that nonprofit hospitals will have a much easier time holding on to property tax exemption than those in its nearby neighbor, Illinois.


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John: You say that "the Ohio Supreme Court last June rejected a strict charity care test," but from your description of the case it was mere dictum, wasn't it? I like it nevertheless! Best, Harvey

Posted by: Harvey Dale | Mar 1, 2011 7:32:45 AM

The property tax exemption is a touchy issue as the government really doesn't like to give the non-profit too much leeway on what they could possibly have in their pockets even though they are exempt.

Posted by: michael | Jun 1, 2011 8:03:43 PM

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