Illinois denies property tax exemptions to three hospitals

Topics: Uncompensated Care, Revenue Cycle, Finance, Recession/Downturn, Market Trends, Strategy

August 17, 2011

The Illinois Department of Revenue on Tuesday denied property tax exemptions to three hospitals based on their charity care levels, highlighting concerns that states may crack down on not-for-profit hospitals' tax status as they search for additional revenue.

The decision
The Illinois Supreme Court in 1968 outlined five criteria hospitals must meet to qualify as charities. Last year, the court used that criteria to uphold a state decision that stripped Urbana-based Provena Covenant Medical Center of its property tax exemption for failing "to show by clear and convincing evidence" that it dispensed charity care to "all who needed it and applied for [it]" in 2002.

Based on those cases, the Revenue Department—which reviews hospital tax exemptions when a part of a hospital changes use or ownership—denied requests for tax exemption from Northwestern Memorial's Prentice Women's Hospital in Chicago, Edward Hospital in Naperville, and Decatur Memorial Hospital.

According to the AP/Chicago Tribune:

  • The Northwestern decision was based on an application for its new women's hospital filed in 2007, when the health system reported charity care totaling 1.85% of its $1.17 billion net patient revenue.
  • The Edward Hospital decision was based on a 2007 application submitted after its property was subdivided. That year, the Naperville hospital reported charity care totaling 1.04% of its $448 million net patient revenue.
  • The Decatur Memorial decision was based on a 2006 application filed because of an ownership change. That year, the hospital reported charity care totaling 0.96% of its $252 million net patient revenue.


Mike Klemens, the Revenue Department's manager of policy and communication, said the three hospitals are part of ownership chains that include for-profit entities, charge fees for care provided, and did not document any charity care on their financial statements. However, hospital officials say the facilities provide more in community benefits than simply no-cost health care and note that Medicare and Medicaid payments often are too low to cover costs.

It remains unclear how much the three hospitals will be required to pay in property taxes because the property has not been assessed, according to the AP/Tribune.

Response to the decision
The Revenue Department's decision may reflect the cash-strapped state's plan to limit tax-exempt statuses for more hospitals, the AP/Tribune reports. Klemens notes that the Revenue Department has yet to issue tax exemption decisions for about 15 more health care systems across the state.

In a statement, the president of the Illinois Hospital Association (IHA) said the organization is "disappointed and deeply concerned" by the decision, adding, "While it is important to note that these rulings are only the first step in the process, IHA feels that this is tantamount to taxing Illinois hospitals and is very concerned that hospitals will have to devote precious time and resources in responding to these challenges." She also expressed concern that the hospitals would have to reduce services and increase costs.

Officials at Edward Hospital and Decatur Memorial said they will appeal the decision. Edward Hospital noted that it provided $77 million in community benefits last year, while Decatur Memorial said that its current level of charity care would meet the state's criteria for an exemption. Meanwhile, Northwestern Memorial officials said they are reviewing their options, but noted that the hospital spent $277 million in 2010 on community benefits, including $44 million on uncompensated care (IHA release, 8/16; AP/Chicago Tribune [1], 8/16; Brandel, WBEZ, 8/16; Bergen, Chicago Tribune, 8/17; AP/Chicago Tribune [2], 8/16; Schorsch, Crain’s Chicago Business, 8/17).