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The Mechanics
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Health Care Tue Sep 13 2011

Illinois to Hospitals: Justify Your Breaks

The state of Illinois has been increasing pressure on not-for-profit hospitals to justify the consider tax breaks they enjoy. Specifically, in order to qualify for the property tax exemptions enjoyed by not-for-profits under the state tax code, hospitals have to provide a certain amount of so-called "charity care," or care provided to low-income patients. If hospitals cannot show that they have provided sufficient charity care, the state can move to revoke their tax exemptions. For small community hospitals, losing such exemptions could be devastating, leading to closure or absorption by larger, for-profit chains (which could limit or eliminate certain services).

Bruce Japsen of the Chicago News Cooperative reports on the results of this policy, and looks at increasing efforts by the Illinois Hospital Association to change the charity care standards:

The Illinois Department of Revenue moved last month to strip property tax exemptions from Prentice Women's Hospital, a sparkling new medical center in Chicago's tony Streeterville neighborhood; Edward Hospital, a rapidly expanding medical center in the western suburb of Naperville, and Decatur Memorial Hospital in central Illinois.

....

In anticipation of new tax challenges, hospitals in Illinois are preparing a lobbying push that would seek to redefine the qualifications for tax exemptions. The new definition would go beyond just charity care and expand to include patients' unpaid debts, costs of medical care not covered by Medicare health insurance for the elderly, Medicaid coverage for the poor, as well as direct costs that teaching hospitals pay to train doctors and conduct research.

It is a difficult policy area. Surely, since for-profit hospitals pay property taxes, not-for-profits should do something that differentiates them--they should, in a sense, compensate the public for their exclusion from property tax requirements. But these hospitals don't exist in a vacuum--they have built their business model and services around the assumption that they would be able to operate without paying the significant tax, and a sudden revocation could result in closure of these hospitals or elimination of non-profitable services (such as primary care, which is notoriously underfunded in health care, but critical to controlling long-term costs).

If these hospitals are forced to close or are absorbed into larger systems which then cut non-profitable services, the community not only doesn't get any charity care, it doesn't get care of any kind. Hampering not-for-profits from hampering and watching for-profit chains move into those markets could be disastrous for those communities.

Notably, the hospitals Japsen cites as being the most recent targets of the Department of Revenue are not in seriously under-resourced areas.

 
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