Hospital Loses Property-Tax Exemption; Court Has Strong Words About "Charity"

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Provena Covenant Medical Center, a Catholic hospital in Urbana, Ill., has lost its property tax exemption after the Illinois 4th District Appellate Court agreed with the state Department of Revenue that Covenant's commitment to charitable care was insufficient. More worryingly, the court decried what it believes is hospitals' misuse of the term charity to "sanctify any socially beneficial use of property that a court deems worthy of subsidy."

The full-service, general acute-care hospital applied with its county board of review for exemption from property taxes for 2002 claiming that, as a healthcare ministry of the Roman Catholic Church it was used primarily for religious and charitable purposes. As a non-corporate subdivision of Provena, "Covenant has no separate legal identity of its own. Covenant is the property, and Provena is the owner," making Provena the real applicant, says the court.

The director of the state Department of revenue denied the charitable-use exemption citing that, in 2002, "Covenant devoted only 0.7% of its total revenue to charity care," writes the court. "Of 110,000 admissions in 2002, Covenant gave free care to only 196 patients and discounted care to only 106 patients; and Covenant hired collection agencies to recovery the remaining balances from 64 of the patients to whom it had given discounts." The director also denied the religious-use exemption, though he did not provide an explanation for this, say court documents.

In its complaint for administrative review, Covenant argued that its charity-care policy was based on federal poverty guidelines; that it advertised the availability of financial assistance; that it assisted every patient who asked about and needed financial help; that those who "availed themselves of the charity-care policy [were] beyond Covenant's control"; that, "considering the meager rates of reimbursement the government paid, treating Medicare and Medicaid patients was itself an act of charity"; and that Covenant was a "faith-based institution founded, organized, owned, and operated as an apostolic mission and health-care ministry of the Catholic Church."

While the circuit court concluded that Covenant was entitled to both charitable and religious exemptions on these grounds, the appellate court reversed this decision with the issuance of its opinion Aug. 26.

In rejecting Covenant's arguments for exemption, the court noted that "in addition to the constitutional requirement that the property be used exclusively for charitable purposes, the General Assembly has set down a further requirement for the exemption: the property must be owned by an 'institution of public charity,'" which Provena is not. Further, says the court, regardless of non-profit status, the hospital fails to meet several of the six "distinctive characteristics" of a charitable institution, a test articulated in the state Supreme Court's decision in Methodist Old Peoples Home v. Korzen.

Finally, the court strongly hits out at what it appears to believe is Covenant's and other hospitals misuse of the term "charity":

"The slippage of the meaning of 'charity' began long ago … [T]he concept … has become so amorphous and so tractable as to be virtually devoid of meaning. The term 'charity' has become magical gibberish to sanctify any socially beneficial use of property that a court deems worthy of subsidy. But our constitution already enumerates the uses of property that a court deems worthy of exemption — e.g., schools, cemeteries, agricultural and horticultural societies — and hospitals are not among them.

… It is obvious that such language may be difficult to apply to the modern face of our nation's healthcare delivery systems. … It is of obvious public benefit for any community to have available one or more modern hospitals, but until such time as the legislature sees fit to either change or make definite the formula for the determination of the medical/charitable use of real property, Provena cannot, on the record before us here, prevail in its attempt to exempt itself from real estate taxation."

Provena is expected to appeal the decision, according to published reports. Download Provena Covenant Medical Center v. Illinois Department of Revenue. (PDF)

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