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Illinois Court Case Spotlights Hospital Tax Exemptions

John Commins, for HealthLeaders Media, September 24, 2009

Provena Covenant Medical Center took its seven-year fight over its tax-exempt status to the Illinois Supreme Court on Wednesday.

The Illinois state's attorneys' office, acting on behalf of the Champagne County Board of Review and the Illinois Department of Revenue, claims that the Catholic-run hospital in Urbana did not provide enough charity care to warrant its requested property tax exemptions of about $5 million in 2002. The state wants the high court to uphold an appellate court's Oct. 3, 2008 ruling denying the exemption.

In a brief filed with the court, state officials say Covenant reported revenues exceeded $113 million, and charitable activities were valued at $831,724, about 0.7% of total revenues.

"Today we asked the court to affirm the appellate court's ruling," said Scott Mulford, spokesman Illinois attorney general. "We argued to the court that Provena's charity care was just a pretense—0.7 % of revenue is an insufficient level of charity care."

"The hospital billed virtually every one of its patients in a way that concealed the availability of charity care and set the eligibility for charity care at an impossible level while sending its poorest patients to debt collectors after they were billed," Mulford added.

At the same time, the state said parent company Provena Covenant paid more than $3 million in compensation for its top 10 executives, including $609,413 in salary and benefits for its CEO.

A circuit court allowed Provena Covenant to keep its tax-exempt status, but the 4th District Appellate Court reversed the decision after the state appealed. Provena, in turn, appealed that ruling to the high court.

In a brief filed with the Illinois Supreme Court, Provena asked if there is "a threshold amount or percentage of free care that an institution must give away in order to qualify for a charitable exemption from property taxes?"

"Thus the law on charitable property tax exemptions in Illinois is hopelessly fractured. Nonprofit and charitable hospitals in Illinois are left groping for guidance on how to order their affairs to ensure that they qualify for a charitable exemption," Provena wrote it its brief. Provena is also asking the high court to clarify the standards for a religious institution's property tax exemption, which the health system claims is being arbitrarily applied by in the state's lower courts.

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