Tax Breaks for Non-profit Health Facilities

“How much charity care must a hospital provide to get tax breaks?”  This was the question asked by the Chicago Tribune on Monday, September 21, 2009.  The question comes in anticipation of today’s examination by the Illinois Supreme Court of a case raising just that issue.  The case pits Provena Covenant, a Catholic-run hospital, against the Illinois Department of Revenue.  The high court’s answer may affect nonprofit health service providers outside Illinois, health service consumers and taxpayers in general.

The Tribune goes on to identify a key issue: “The state has no clear definition of how much charity care should be provided or whether unpaid medical bills and services that are offered for free, among other practices, should be included to determine whether a hospital receives a property tax exemption.”

While the Illinois Supreme Court does not have jurisdiction outside its state, many hospitals across the country are concerned about the impact of the court’s decision on legislators and courts nationwide.  Nonprofit hospitals account for the majority of health facilities in the U.S. 

Nonprofit hospitals provide services at no cost to patients without the ability to pay for services and those costs are passed on to the consumer.  If nonprofit hospitals are stripped of their tax exempt status, consumers could face higher medical bills or see a reduction in health services.

The case arose in 2003 when the local tax review board stripped the hospital of its tax exemption because of concerns that the hospital was not providing enough free care.  In response, Provena argues, as other hospitals do, that its resource expenditure in making up for shortfalls from government health programs like Medicaid and Medicare, as well as investments in education, research, and loss-generating trauma units more than justify its charitable status. 

SS