ILLINOIS GOVERNOR DRAWS LINE ON PROPERTY TAX-EXEMPT HOSPITALS CHARITY CARE REQUIREMENT

Gov. Pat Quinn on Thursday drew a hard line on negotiations with hospitals about how much free care they must provide to qualify for tax breaks, a contentious issue that has the state’s nonprofit hospitals on edge.

After talks between hospital and Illinois officials reached an impasse Wednesday, the governor lifted a moratorium on the state’s review of property tax exemptions sought by nonprofit hospitals for providing charity care.

The move clears the way for the Department of Revenue to resume conducting reviews on pending applications filed by as many as 18 nonprofit hospitals seeking property tax exemptions, a process Quinn halted in October after hospital groups complained that the process was flawed.

The governor’s decision comes after a group of hospitals and government administrators failed by his March 1 deadline to come to terms on new rules that determine how the state weighs whether nonprofit hospitals should pay property taxes.

For some nonprofit hospitals, the move raises the specter that they could be on the hook for millions of dollars in unpaid property taxes that stretch back several years.

Quinn’s directive also appeared to catch the Illinois Hospital Association off guard. The trade group, which represents about 200 of the state’s hospitals, had said negotiations were productive and progressing, and warned against reading too much into Thursday’s deadline.

After Quinn set the property tax reviews back in motion, the association issued an immediate rebuke. In a statement, its president, Maryjane Wurth, said the hospital community is “extremely concerned” and cautioned that new rulings “would be a distraction from the work that needs to be accomplished in developing a legislative solution over the next three months of the General Assembly’s spring session.”

Representatives of the hospital association, the governor’s office, the Department of Revenue and the state attorney general’s office had been meeting since early January in an attempt to cobble together consensus legislation that would more clearly define what constitutes charity care, a measure by which the state determines whether nonprofit hospitals should qualify for exemptions.

The hospital association, along with selected hospital officials and other groups, argue that the definition is too narrow and does not give hospitals enough credit for providing other community benefits, including donations to charitable community health care organizations, education, research and outreach programs.

But under the Illinois Constitution, tax exemptions are allowed only for property that is “used exclusively for … charitable purposes.”

Before 2004, though, that provision was rarely, if ever, enforced.

That year, the state withdrew Provena Covenant Medical Center’s property tax exemption because it said the Urbana hospital’s charity care was insufficient to justify the exemption.

Provena appealed, setting off a lengthy battle that ended up in the Illinois Supreme Court, which ruled in 2010 that the department was justified in revoking the hospital’s tax-exempt status.

After that ruling, the Department of Revenue in August denied property tax exemptions for three additional hospitals, contending that they did not provide enough charity care to qualify. Those hospitals — Northwestern Memorial Hospital’s Prentice Women’s Hospital, Edward Hospital in Naperville and Decatur Memorial Hospital — disputed the assessment.

Those decisions unleashed a barrage of criticism from hospitals and other groups, eventually leading the governor to halt further reviews until the group of stakeholders had a chance to develop a new formula for the state to judge hospital charity care.

But after the sides were unable to forge an agreement by Quinn’s deadline, the governor raised the stakes, lifting the moratorium in a move that added urgency to the discussions, which are scheduled to continue early next week.

After Quinn’s announcement, the Department of Revenue said it resumed the reviews Thursday and expects to begin issuing rulings this month on hospital tax-exemption requests.

“While the department expects to move promptly on pending applications, it will continue to support the governor’s efforts to work with hospitals, patient and community advocates and local governments to find a long-term meaningful solution that meets Illinois’ Constitutional mandate,” the department said in a statement.

The hospital association said the threat of a requirement that some nonprofit hospitals pay property taxes “would undermine patients’ access to care, increase health care costs and damage an already fragile health care system.”

Quinn’s decision drew applause from the Chicago-based Fair Care Coalition, a patient advocacy group, and Cook County Board President Toni Preckwinkle, each of whom favors a more limited definition of charity care.

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