Hospital Found 'Not Charitable'
Loses Its Status as Tax Exempt
By LUCETTE LAGNADO
Staff Reporter of THE WALL STREET JOURNAL
February 19, 2004; Page B1
In an unusual move that is sending shock waves across the hospital industry, Illinois authorities have revoked the tax-exempt status of a prominent Catholic hospital. Their decision follows a determination by local tax authorities that the hospital wasn't a charitable institution, in part because of the way it treated needy patients.
As a result, Provena Covenant Medical Center, a hospital in Urbana with 270 licensed beds, will have to pay $1 million in property taxes, though the hospital says it plans to appeal. More worrisome to hospital-industry officials is the possibility that not-for-profit hospitals nationwide could find their tax-free status as charitable institutions challenged on similar grounds.
"That could turn the hospital system upside down," Rick Wade, the American Hospital Association spokesman, said in response to the Illinois decision. "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," he said, adding, "I can't believe the [Department] of Revenue understood where it was going."
The Illinois decision, dated Feb. 13 but communicated to Provena Covenant executives earlier this week, comes at a sensitive juncture for the hospital industry, which has been criticized over the past year for widespread, draconian methods of collecting bills from poor and uninsured patients. In October, The Wall Street Journal reported on the aggressive collection tactics used by Provena Covenant and Carle Foundation Hospital, Champaign-Urbana's other main hospital, including collection agencies, lawsuits and even "body attachments," the legal term for the arrest of debtors who fail to show up in court.
Illinois has emerged as a flashpoint in the battle over how hospitals treat the uninsured. The legislature has held hearings on the issue, and the state hospital association has urged its members to adopt more compassionate billing and collection methods. Meanwhile, last week, the California Healthcare Association issued significant guidelines for price breaks for low-income uninsured patients. That action followed a similar move by New York hospitals.
Hospitals must be held accountable for the substantial tax benefits they enjoy as not-for-profit institutions, said E. Richard Brown, a professor at the University of California in Los Angeles and an expert on the uninsured. "If they are going to receive this tax subsidy," then they have to give back to the community in the form of charity care.
The decision by the Illinois Department of Revenue in Springfield came after the Champaign County Board of Review, a three-member panel that reviews property-tax assessments, questioned the tax-exempt status of both major hospitals in Champaign-Urbana over the past two years. The Champaign board documented that the hospitals filed lawsuits and used other aggressive debt-collection tactics against patients who didn't pay their bills. "Based upon the fact that they sue 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," said Stan Jenkins, a longtime member of the Champaign board.
In its challenge to Provena Covenant's tax-free status, the Champaign board also argued that Provena had allowed a host of external for-profit entities to fulfill key hospital functions. The use of outside, for-profit companies has become fairly common across the not-for-profit hospital industry.
Last year, the state Department of Revenue rejected the Champaign board's recommendation to withdraw the tax exemption of Carle Foundation Hospital on procedural grounds, saying the local board's approach was flawed.
But last week, in the case of Provena Covenant, "we made a determination that administratively, we did not believe they were operating with a charitable purpose," said Michael Klemens, a spokesman for the Department of Revenue. He added that it is within the purview of his agency to explore "what is the charitable policy of any given hospital and when it offers charity." He wouldn't say, though, what precisely led to the state agency's decision. If the decision stands, Provena Covenant will need to pay property taxes on multiple parcels -- essentially every bit of property the institution owns, including the main hospital grounds.
For his part, the president and CEO of Provena Covenant, Mark Wiener, expressed bewilderment at the decision, saying the Department of Revenue hadn't offered him a rationale for its actions. Provena Covenant, he said, lost $700,000 in 2003, and the hospital can't afford the new tax burden.
"I think this has very broad-based implications," Mr. Wiener added. "It could fundamentally wipe out many not-for-profit charitable organizations or significantly compromise their ability to fulfill their charitable missions."
Mr. Wiener said he was particularly disappointed by the decision because Provena Covenant increased to $2.9 million the charity care it provided to the poor last year and he personally has overseen dramatic changes in the way the hospital handles and treats the poor, including stressing the availability of discounted or free care and eliminating the use of civil arrests. Even before his arrival last May, hospital officials said, the hospital had reduced its use of lawsuits.
Indeed, Provena Covenant has received high marks for its changed approach from the leading grass-roots health-care group, the Champaign County Health Care Consumers, which had waged a campaign against both local hospitals to protest their debt-collection methods. Claudia Lennhoff, who heads the group, said that Provena Covenant in recent months had turned around and become a "model" for the way hospitals should treat the uninsured.
Even so, Ms. Lennhoff said that the decision on tax exemption will send an important signal to the hospital community and force a necessary re-examination of what hospitals do to earn their tax exemptions and charitable status.
Dan Stebbins, another member of the Champaign board, said the group would consider mounting a new challenge to Carle Foundation, based on the Provena Covenant decision. He seemed pleased that his panel might spark a nationwide movement to scrutinize hospitals' tax exemptions. "A lot of these Catholic and other nonprofit hospitals started" in a different era, when the goal was improving health care, not the bottom line, he said.
"We're not surprised" by the renewed challenge, a Carle Foundation spokeswoman said. "It's a sad day for health care in Urbana."
Write to Lucette Lagnado at
[email protected]
