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Treat the poor or lose tax-exempt status, landmark case states

Guest Blog by Holly Lang, Georgia Watch

In a March ruling that could hold implications for all nonprofit hospitals, the Illinois Supreme Court stripped not-for-profit Provena Covenant Medical Center of its exemption from property tax, stating that the hospital did not provide enough charity care to justify that exemption.

 

A hospital earns its tax-exempt status through the benefits it provides to the community, the most of which being the free or reduced-cost care for those eligible for such assistance. Such care is deemed indigent or charity care.

 

 

As it stands, IRS regulations for providing this care are vague; there are no specific guidelines as to what a hospital is to provide in terms of community benefits, nor is there a specification that this should include free care.

 

But through its denial of Provena’s property tax exemption, the Illinois Supreme Court reasoned that providing free care is a key component of a nonprofit hospital’s obligation to earn its tax-exempt status, as is the hospital’s obligation to make clear to the public that financial assistance exists.

 

“The record showed that during the period in question here, Provena did not advertise the availability of charity care,” Justice Lloyd Karmeier wrote for the majority. “Patients were billed as a matter of course and unpaid bills were automatically referred to collection agencies.”

 

By definition, a nonprofit hospital is not only to have a charitable mission that benefits its community but to also render itself transparent and accountable to that community. Noting Provena’s failure to provide not only an adequate amount of charity care but also insufficient information this care even exists, the Court effectively gave legal backbone to  a sentiment that is growing throughout the US – are our nonprofit hospitals earning their right to a tax-exempt status?

 

As it stands, Georgia does not set forth any minimum percentage for charity care, except as established through our Certificate of Need, or CON, program, which applies to both nonprofit and for profit hospitals. Hospitals with an active CON are required to provide a set percentage of their annual adjusted gross revenue, or AGR, as uncompensated care to eligible patients – generally between 3 percent and 3.5 percent.

 

But some hospitals barely hit that required amount, much less surpass it. For example, in 2008, one of the state’s largest hospitals held a CON that required 3.15 percent of its AGR as uncompensated care. It provided only 3.2 percent – just one twentieth of a percentage point above its required amount.

 

But outside of CON regulations, there are no minimum free care requirements for tax-exempt hospitals, nor are there any efforts to even establish the value of a hospital’s tax-exempt status so that we are able to receive the accountability and transparency promised through their nonprofit designation. With that information, we would be better able to understand exactly how much money we’re forgoing in needed tax revenue to help pay for our schools and our police forces, and to see if we’re receiving back the proper benefit.

 

In a time when our communities are in serious fiscal distress, it seems only fair we are able to carefully examine the return on tax breaks given to nonprofit hospitals. Successful businesses keep a close eye on yields on investment, and so should Georgia. Perhaps our lawmakers, hospital administrators, and community leaders should consider ways to help ensure we’re getting the biggest bang for our buck.

 


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