What began as an obscure case in central Illinois has transformed into a closely watched test for nonprofit hospitals throughout the state because it asks a basic yet potent question: How much charity care must a hospital provide to land millions in tax subsidies?
Provena Covenant Medical Center, a nonprofit hospital in Champaign, lost its tax-exempt status five years ago when local officials determined it was not providing enough charity care for needy patients.
Late last year, the state Supreme Court agreed to review an August state Appellate Court ruling that dealt a huge setback to nonprofit hospitals. Provena’s attorneys argued that free care should not be the sole criteria when deciding whether a hospital is a charitable institution. But the appeals court rejected that position in a firmly worded decision that appeared to throw down the gauntlet.
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“To be charitable, an institution must give liberally,” they wrote. “Removing giving from charity would debase the meaning of charity, and we resist such an assault upon language.”
The decision sent shock waves through the boardrooms of Illinois nonprofit hospitals, which account for roughly three out of every four hospitals in the state and more than half of all hospitals in the country.
“The Appellate Court’s ruling couldn’t have been more wrongly decided,” said Ken Robbins, head of the Illinois Hospital Association.
Others believe the Appellate Court simply pointed out the obvious.
“Tax breaks are a trade-off with the community,” said Claudia Lennhoff, a health-care advocate in Champaign County who helped push for the repeal of Provena’s tax-exempt status. “All along, through the good years and the bad years, patients’ tax dollars have been subsidizing these hospitals.”
Those subsidies, according to one group, are hefty. The Chicago-based Center for Tax and Budget Accountability is releasing a report Friday that found 47 of Cook County’s 72 nonprofit hospitals landed nearly $500 million in federal, state and local tax breaks while providing $175 million in free or reduced care to the uninsured in 2007.
The hospital association says the CTBA exaggerates the tax benefits nonprofit hospitals by hundreds of millions of dollars while underestimating the amount of charity care.
“They are masquerading the report as fact when most of it is opinion,” Robbins said.
Heather O’Donnell, the report’s co-author, stands behind the numbers. “Tax benefits are an expense of public funds,” she said, “and hospitals are getting far more in public dollars than what they are providing in charity care.”
CBTA’s report follows up a 2006 study, which mirrored similar estimates from a report by the Cook County tax assessor’s office.
Hospital officials also point to investments in education, research, money-losing trauma units and other “community benefits” that justify the tax breaks, and they believe their care for Medicaid and Medicare patients should count as charity because they lost nearly $1 billion caring for them in 2007.
But some question whether all of the items included in those benefits legitimately help the community. Unpaid medical bills, for example, make up roughly a quarter of the benefits even though hospitals often pursue them with collection agencies and other tactics.
Charity care, on the other hand, accounted for less than 10 percent of the benefits reported by nonprofit hospitals.
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See also related story “Are hospitals passing off their low-profit patients? Stroger pays for transfers from nonprofit hospitals getting tax breaks” News section, Page 1