Tuesday, August 16, 2011

Illinois Department of Revenue Denies Property Tax Exemption to Three More Hospitals

On the heels of the 2010 decision by the Illinois Supreme Court in the Provena Covenant hospital tax exemption case (see prior posts here and here), today the Illinois Department of Revenue denied exempt status to three Illinois hospitals:  Northwestern Memorial Hospital (Prentice Women's Hospital), a newly-constructed hospital in the wealthier Chicago suburbs; Edward Hospital in Naperville; and Decatur Memorial Hospital in Decatur.  The reported charity care amounts ranged from 1.85% of patient revenues in the case of Prentice Women's Hospital to .96% in the case of Decatur Memorial - all in excess of the .07% determined by the court in Provena to be "de minimis," but not strikingly larger than the Provena number.  And in each case, the hospitals in question reported substantial net patient revenue (from $1.18 billion in the case of Northwestern's overall system to $252 million for Decatur) and had for-profit entities in the ownership chain.

So what does this mean?  Well, first it is clear that, to its credit, the Department of Revenue has ignored the tired "community benefit" arguments made by Illinois hospitals even after the Provena decision made clear that "community benefit" wasn't going to carry the day in Illinois.  But at least at this particular time, I have no information on the internal metrics being applied or developed by the Department in order to reach these decisions.  Has the Department settled on a "number" for charity care?  The cases denied today indicate that 1.85% of patient revenues won't be enough when the hospital is part of system that generates over a billion dollars in profit.  But what if the hospital barely breaks even?  What if the charity care percentage at Prentice Women's Hospital had been 5% instead of 1.85%?  Is 5% "de minimis" (some federal tax precedents would argue not). 

Until we get specific official guidance from the Department of Revenue, these questions are still just that - questions.  But, in the mode of Johnny Carson's "The Great Karnak," I will go out on a limb here and make a prophecy:

More litigation is coming in Illinois on the issue of property tax exemptions for nonprofit hospitals.

JDC

http://lawprofessors.typepad.com/nonprofit/2011/08/illinois-department-of-revenue-denies-property-tax-exemption-to-three-more-hospitals.html

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