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April 30, 2010

UCMC says it still qualifies for nonprofit tax exemption under new ruling

State hospitals are reconsidering their charity practices following a significant Illinois Supreme Court ruling against the Provena Covenant Medical Center. Though it is unlikely, the case could affect the University of Chicago Medical Center (UCMC)’s application for property tax exemption after it recently broke ground on a $700-million hospital pavilion slated for 2012.

Hospitals across Illinois could lose property tax exemptions typically awarded to nonprofit medical care centers in light of the March ruling, which said Provena did not provide sufficient charity in 2002 and could not now be considered a nonprofit hospital.

The new pavilion at the UCMC would require the hospital to renew its property tax exemption; any major change in facilities, including construction, requires a new application to, and assessment by, the State.

UCMC spokesman John Easton said the medical center, which currently qualifies as a nonprofit, does not plan to change operations or procedures in light of the court decision. “This ruling, because of its narrow focus, should not have any direct impact,” Easton said.

Local hospitals now must carefully consider charity operations in order to maintain a nonprofit status. “Are hospitals nervous? Absolutely,” said Elizabeth Mills, a health care attorney specializing in tax exemptions, in a Monday article in Crain’s Chicago Business.

As of the 2009 fiscal year, Northwestern Memorial’s charity care equals 2.5 percent of the hospital’s revenue, Easton said, while charity provisions are equal to almost 20 percent of the UCMC’s operating revenue. The court ruled on a specific year in which Provena Hospital’s charity care equaled less than one percent of the entire operating budget.

Crain’s estimates placed the UCMC among the top five most charitable hospitals.

“The University of Chicago Medical Center is one of the largest providers of unreimbursed care for patients with limited or no health insurance in the entire State of Illinois,” Easton said.

“At the Medical Center, charitable provision of medical services to the poor—including ‘pure’ charity care, losses due to unpaid hospital bills, and underpayment by Medicaid and Medicare—adds up to about $200 million each year,” Easton said. He noted that those numbers do not include an annual $70 million spent for medical education and research and more devoted to the UCMC’s Urban Health Initiative, a network of South Side health clinics administered by the UCMC.

“We sink a lot of effort into helping patients who come to us with no insurance whatsoever get coverage by the state; which is good for them, because they have insurance from then on,” said Easton, who explained that for a patient that obtains coverage from the state, a hospital might be paid $8,000 by state insurance for a $10,000 procedure, leaving $2,000 for the hospital to cover instead of the full bill. “It’s good for us because we can then take care of them and four or five other patients,” Easton added.

Easton said the Supreme Court ruling signaled “that tax-exempt, not-for-profit organizations should take a careful look at their contributions to the community, make certain they have reason to feel confident about the benefits they provide, and are prepared to justify their tax exemption.” He also said that the ruling comes at a time when many of the state government may be searching for new sources of revenue.

According to Easton, there are a number of significant differences between the Provena Covenant Medical Center and the UCMC that ruled out court action against the South Side hospital. The court failed to define specifically how much charity care would be necessary for state hospitals to continue to receive tax exemptions. No standard or percentage has been offered as a benchmark for an acceptable level of charity care.

It’s also not clear what constitutes charity care. ”The state did not rule on how charity care should be defined or how much should be provided,” Easton said, describing the definition of charity care as an “ongoing source of confusion.”

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