Catholic Hospital in Illinois Loses Tax-Exempt Status

Hospital industry concerned that other charitable hospitals will face same challenge

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HOW HOSPITALS BILL and collect from uninsured patients is becoming a national issue.

The latest shot fired is a ruling by the Illinois Department of Revenue revoking the state property tax exemption of Provena Covenant Medical Center, located in Urbana, Illinois. The hospital site and another 20 parcels of land owned by the hospital were declared “not in exempt use.”

The Champaign County Board of Review had earlier determined that the 199-bed hospital was not a charitable institution. This was based, in part, on its policies toward needy patients. The hospital was filing lawsuits and taking other aggressive actions to collect debts owed by patients.

Charities Do Not Sue

“Based on the fact that they sue people—and we had been told by the Department of Revenue that if you sue people you are not charitable—there was not a lot of room for ambiguity [in our decision],” observed Stan Jenkins, member of the Champaign Board of Review.

Another dimension in the Board’s ruling was the fact that Provena Covenant Hospital facilities were using external, for-profit entities to provide key hospital functions (outsourcing of services).

The ruling means Provena Covenant Hospital, subject to appeal, will need to pay $1 million in back property taxes, as well as future taxes. The hospital lost $700,000 in 2003.

As many lab directors and pathologists know, the entire hospital industry is coming under attack for charging uninsured patients “full price” for services, then filing collection lawsuits and attaching assets to get at the money. Consumer advocates argue that uninsured patients should be charged no more than hospitals are willing to accept from managed care plans and Medicare.

Because many hospital laboratory outreach programs have their hospital do the billing and collections, this trend will likely have direct impact at some future point. Watch for these two key points. First, will hospitals adopt a policy to bill uninsured patients at discounted rates which are comparable to those paid by managed care plans?

Second, as in the case of Provena Covenant Hospital, will for-profit activities, including laboratory outreach programs and laboratory joint ventures, be viewed by tax authorities as signs of non-charitable business practices when they include not-for-profit hospital settings?

Provena Covenant Hospital is appealing, so the end to this story is still unknown. Hospital industry observers predict that scrutiny of not-for-profit hospital billing practices will increase.

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