Illinois hospital denied property tax exemption

Some observers believe the case could have nationwide implications.

By Katherine Vogt — Posted Nov. 6, 2006

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In a case hospitals across the country closely watched, the Illinois Dept. of Revenue has ruled that a nonprofit hospital is ineligible for a property tax exemption because it doesn't provide enough charitable care.

Brian Hamer, the department's director, rejected an appeal by Provena Covenant Medical Center, a 240-bed acute care hospital in Urbana, Ill., that sought to have its exemption reinstated after a three-year legal battle.

The money at stake is significant. Provena said it has paid about $4.8 million in property taxes since it lost the exemption.

The ruling comes at a time when nonprofit hospitals have been under increasing scrutiny about whether they are fulfilling their charitable missions. Lawyers have filed scores of lawsuits on behalf of uninsured patients. And the Internal Revenue Service has examined some hospitals' compensation and business practices.

The Illinois Hospital Assn. said the ruling could call into question the tax-exempt status of all nonprofit organizations in the state and may drive up the costs of health care for patients and employers if other hospitals are stripped of their tax exemptions.

Alicia Mitchell, a spokeswoman for the American Hospital Assn., which filed a friend-of-the-court brief supporting Provena, said the new ruling offered a "narrow and antiquated view that was likely to be confined to Illinois."

But Cynthia Reaves, a Detroit-based health care attorney with Honigman Miller Schwartz and Cohn, said other states or taxing authorities may take a cue from Illinois and start looking at their own hospital exemptions.

Provena said it would appeal the ruling, calling it outrageous and legally unsupported. Patrick S. Coffey, a Chicago attorney who represented the hospital, said that under the law, there was no specific amount of charity care required, and the judges' analysis failed to take into account all of Provena's charitable activities.

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