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CHICAGO (Reuters) –
An Illinois hospital lost its property tax exemption on Thursday, ending a long-fought battle watched by nonprofit hospitals concerned about greater scrutiny of their charity care.
The Illinois Supreme Court ruled that Provena Covenant's medical center in Urbana, Illinois, was not entitled to religious or charitable property tax exemptions.
"With very little exception, the property was devoted to the care and treatment of patients in exchange for compensation through private insurance, Medicare and Medicaid, or direct payment from the patient or the patient's family," the ruling stated.
Nonprofit hospitals in the United States have been under pressure to justify the breaks they get, including property tax exemptions and the ability to issue tax-free bonds. Greater scrutiny of the breaks has been undertaken by state officials, federal regulators and lawmakers, and by labor unions.
Provena's property tax exemption was initially yanked by the Champaign County Board of Review in 2003, forcing the Catholic hospital to pay property taxes. In 2006, the Illinois Department of Revenue concluded the hospital did not qualify for the tax break because its charitable activity costs were lower than the value of the property tax exemption.
Provena sued the Department of Revenue, leading to a ruling in its favor by a Sangamon County Circuit Court in 2007, which subsequently was overturned by a state appellate court.
Provena Covenant released a statement noting it provided more than $38 million in free care and other community benefits in 2008 and that the ruling will restrict its ability to do so in the future.
"We can only hope this troubling ruling prompts a dialogue among hospitals and elected officials to dialogue about not only how we define charity care but also how we better ensure that the people who need financial assistance get it," said David Bertauski, Provena Covenant's president and chief executive officer.
Suzie Desai, an analyst at Standard & Poor's Ratings Services, said the rating agency will have to see how Provena manages with the extra expense of property taxes.
Provena Health System, which includes the Urbana medical center, is rated BBB-plus with a stable outlook by S&P.
(Reporting by Karen Pierog; Editing by James Dalgleish)
