• Illinois Supreme Court Strips Non-Profit, Faith-Based Hospital of State Property Tax Exemption
  • April 6, 2010 | Authors: Roger P. Gilson; Michael J. Passarella; Jonathan J. Spitz
  • Law Firms: Jackson Lewis LLP - Stamford Office ; Jackson Lewis LLP - Atlanta Office
  • Over the past decade, non-profit hospitals have come under increasing scrutiny from politicians, unions and community groups, complaining that they have not justified their tax-exempt status based on charitable service to the community.  Unions have made such attacks as part of “corporate campaigns,” in which unions attempt to put pressure on employers through legal challenges, adverse publicity and operational interruptions.  Their goal is to exact concessions from the employer to make it easier for the union to organize.  For example, a union may try to pressure an employer to remain neutral in the face of union activity and to recognize the union through a process called “card check” rather than a National Labor Relations Board election.

    Nearly all hospitals that have been so attacked have retained their tax-exempt status.  However, in a closely watched case, the Illinois Supreme Court has agreed with the Illinois Department of Revenue and a lower court that Provena Covenant Medical Center in Urbana, Illinois, was not entitled to a property tax exemption for 2002 because, as a result of failing to provide a sufficient volume of care to poor and uninsured patients, it did not fit the state law definition of a “charitable institution.”  The March 18, 2010 decision applies only to tax-exempt status under state law and does not have any bearing on the institution’s continuing tax-exempt status under federal law. 


    Provena is part of a Catholic health system.  Its professed commitment to the community is “to reach out to those in need,” which “flows directly from our Catholic identity and the heritage of our founding congregations.” The Hospital maintains that it provided $38 million in free care and community benefits in 2008 and $121 million in community benefit initiatives system-wide. 

    More than six years ago, however, Provena, like other Illinois non-profit, faith-based hospitals, became of the target of union and community activists. Provena’s pricing and debt collection practices with respect to the poor and uninsured were attacked. Allegations resulted in an investigation by the State Attorney General and the revocation of Provena’s property tax exemption by the Illinois Department of Revenue. Thus, the Illinois Supreme Court’s decision is the culmination of a six-year court battle and has significant ramifications for other non-profits.

    Supreme Court Held No Blanket Exemption

    The Court held there is no blanket property tax exemption for hospitals and other health providers.  Significantly, disregarding the federal government’s grant of tax exempt status, the Court held federal tax exempt status does not establish that a hospital’s real property is exempt from property tax under Illinois law.  Federal law requires that non-profit hospitals provide a “community benefit,” but Illinois awards a property tax exemption only if the particular hospital qualifies as a “charitable institution.”

    While the Court found Provena offered treatment to all who requested it, regardless of ability to pay, the Court found “both the number of uninsured patients receiving free or discounted care and the dollar value of the care they received were de minimus.”  It also noted Provena did not provide any “information as to [its] charitable expenditures in 2002.”

    Looking at Provena’s billing and pricing practices, the Court took issue with the automatic referral of unpaid bills to collection agencies rather than determining whether a patient was eligible for charitable assistance. The Court also noted Provena’s lack of advertisement of the availability of charitable care at its hospitals. 

    Finally, the Court reviewed Provena’s pricing and discount structure.  It concluded that claims of charitable discounts were “illusory” because uninsured patients were charged the Hospital’s “established” rates, which were more than double the actual costs of care.  Discounting those rates to levels that were still higher than the actual cost of care, therefore, still allowed Provena a surplus. 

    While the Court’s decision is precedent under only Illinois law, hospitals and policymakers have been eagerly waiting for the decision.  Many observers believe other states will follow the lead of Illinois in taking a more rigid approach when reviewing a non-profit hospital’s tax exempt status.    

    What Your Hospital Can Do

    Employers’ reaction to the Court’s decision should include a review of the pricing, billing, and other business practices which may raise issues with respect to non-profit or charitable institution status.  This would consist of:

    • communicating and advertising charity care and financial assistance policies in order to increase access to the uninsured of limited means and educating patients and their families,
    • assisting patients to qualify for financial assistance (including contracts with bilingual and other advocates to assist persons through the process),
    • ensuring fair and transparent billing practices,
    • promoting community health, and
    • reporting and tracking the actual community benefits rendered on hospital property.

    In addition, healthcare employers are well-advised to take steps to preempt attacks on other fronts. Complaints by employees, external organizations, patients, vendors, and contractors should be considered carefully to assess potential exposure.  Employers should review present and future property development and construction projects to identify the risks and likelihood of potential disruption. 

    Finally, employers should conduct a corporate campaign vulnerability assessment to ensure compliance with corporate governance, local, state, and federal employment and labor laws, and wage and hour laws (including overtime pay, meal and rest breaks, exempt/non-exempt employee status).