Illinois Declares Not-for-Profit Hospital ‘Not Charitable,’ Revokes Tax-Exempt Status

The Illinois Department of Revenue this week revoked the tax-exempt status of Provena Covenant Medical Center, a Catholic-affiliated not-for-profit hospital in Urbana, because local tax authorities determined that it was not a charitable institution -- an "unusual move that is sending shock waves across the hospital industry," the Wall Street Journal reports. Based on the ruling, the 270-bed hospital will have to pay $1 million in property taxes. According to the Journal, the decision was made after the Champaign County Board of Review, a panel that oversees property-tax assessments, documented that the hospital had filed lawsuits and "used other aggressive debt-collection tactics" to pressure patients to pay their medical bills. Board member Stan Jenkins said that because the hospital "sue[s] people -- and we had been told by the Department of Revenue if you sue people you are not charitable -- there was not a lot of room for ambiguity." The Champaign board also cited the fact that Provena had used a range of external for-profit organizations to fulfill hospital functions. Last year, the revenue department declined the Champaign board's recommendation to withdraw the tax exempt status of Urbana's Carle Foundation Hospital based on procedural grounds. However, department spokesperson Michael Klemens said that in the Feb. 13 decision on Provena, "[W]e made a determination that administratively, we did not believe they were operating with a charitable purpose." Provena officials said they will appeal the department's decision.

Reaction
Provena Covenant President and CEO Mark Wiener said that the department did not offer the rationale behind its decision, adding that the implications of the move "could fundamentally wipe out many not-for-profit charitable organizations or significantly compromise their ability to fulfill their charitable missions." Wiener said he was "particularly disappointed" because the hospital in 2003 increased charity care provided to low-income patients to $2.9 million, adding that he had overseen changes including emphasizing free and low-cost care and eliminating the use of civil arrests. Claudia Lennhoff, the head of patient advocacy group Champaign County Health Care Consumers, which waged a campaign against debt-collection techniques used by Carle and Provena, said that while Provena had "turned around and become a 'model' for the way hospitals should treat the uninsured" in recent months, she hopes that the decision "will send an important signal to the hospital industry and force a necessary reexamination" of hospitals' charitable status, the Journal reports. American Hospital Association spokesperson Rick Wade said, "A third of the nation's hospitals are operating in the red. Suppose that all of a sudden local government started to tax their buildings," adding that the decision "could turn the hospital system upside down" (Lagnado, Wall Street Journal, 2/19).