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.
Howard Peters, senior vice president of government relations with the Illinois Hospital Association, which filed a friend of the court brief on behalf of Provena, says the state is incorrectly arguing that the level of charity care is a mathematical issue.
"It's really the question of what is required of a hospital to be tax exempt," he says. "We believe it is when a hospital is providing free and discounted care for people who are eligible and who apply for that care. We believe it is a function of hospitals providing a benefit to their communities that otherwise would not be available in terms of the health and well being of the community."
"Some others apparently think there is a mathematical number that hospitals have to meet each year in terms of how much free stuff they give away as a percentage of their revenues to be tax exempt," Peters says. "But as one of the justices asked today, 'if a hospital is providing charity for all who apply and need it, what difference does the number matter?' That is our position."
The tax-exempt status of not-for-profit healthcare systems has come under a lot of state and federal scrutiny. Peters says it's not clear what impact the high court's ruling will have on the 180 or so not-for-profit hospitals in Illinois or else in the nation. "Keep in mind it's a question of how the court rules," he says. "They are looking at a set of facts that took place in 2002. And that ruling could be sufficiently narrow to only cover the facts and circumstances that occurred in Urbana, IL, in 2002. It may have little implications for 2003 or any other year or any other location or any other hospital."
"On the other hand, they could rule much broader than that where it could have implications for at least other hospitals in Illinois," he says.