Tax Breaks for Non-profit Health Facilities

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

The Tribune goes on to identify a key issue: “The state hasno clear definition of how much charity care should be provided or whetherunpaid medical bills and services that are offered for free, among otherpractices, should be included to determine whether a hospital receives aproperty tax exemption.”

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

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

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

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