Provena's Denial of Exemption Case Heard at Illinois Supreme Court

States more and more frequently are seeking to revoke ad valorem tax exemptions for hospitals that fail to provide sufficient charitable care. For example, the Illinois Department of Revenue ruled in 2006 that Provena Covenant Medical Center failed to prove that it provided enough free medical care to the needy to qualify for a tax exemption and revoked its ad valorem tax exemption. Initially, the Illinois Circuit Court of Sangamon County reversed the Illinois Department of Revenue decision and restored the ad valorem exemption. The Illinois 4th District Appellate Court, on appeal, ruled that Provena was not entitled to its tax exemption. For a discussion of this decision, see the September 4, 2008, issue of the Health Law Update. After the appellate court’s adverse decision, Provena appealed to the Illinois Supreme Court.

In the recent oral argument involving the denial of Provena’s ad valorem tax exemption, the Illinois Attorney General’s office argued that a hospital that provides less than one percent of its revenues on charity care does not deserve a property tax exemption. The attorney general argued that it doesn’t matter whether the organization itself is of a charitable nature, rather what matters is whether it is using the property it is seeking to exempt for a charitable purpose during the applicable tax year. The attorney general would not specify how much charity care a hospital must provide. “All the court needs to do is decide that 0.7 percent of revenue and only 302 people is not” sufficient to warrant an exemption from property taxes.

Provena argued that the legislature, not the court, should decide whether there should be a minimum acceptable level of charity care and what it should be. The Illinois legislature has not established a minimum level of charitable care that must be provided by an exempt hospital. The state of Illinois has no clear definition of how much charity care must be provided, nor is there any clear statement of what is included within the definition of charity care. Provena also argued that a nonprofit’s community benefit is broader than simply the provision of free care.

While the Provena case has not yet reached its destination, the state’s objective may have been served in large part because Provena and other Illinois nonprofit hospitals have expanded their charity care guidelines to provide more uncompensated care. In addition, health reform efforts may overtake state efforts to determine minimum charitable care levels.