Chicago hospitals battle tax-exempt change

Chicago hospitals battle tax-exempt change
Northwestern Memorial Hospital of Chicago

Northwestern Memorial Hospital of Chicago

Even with health insurance, Chicago Angie’s List member Johonna McHenry anticipated a struggle paying the roughly $1,400 she owed out-of-pocket for her portion of a $40,000-plus hysterectomy bill from highly rated Prentice Women’s Hospital on the north side.

“I’m a secretary and those monthly payments were going to make things tight for awhile,” she says.

She never intended to ask the nonprofit hospital for a bill reduction, McHenry says, but she felt grateful and relieved when a representative in the hospital’s billing office determined she qualified for financial assistance and knocked about $800 off her bill.

“I was lucky,” she says. “I think of other families who are [also] considered middle class, who are wiped out by huge medical bills.”

Citing privacy laws, Prentice hospital officials declined to speak specifically about McHenry’s case, but say the hospital strives to make patients aware of financial aid options in person and in print, and  provide charity care to those who need it.

But critics say Prentice, located in Chicago’s prosperous Streeterville neighborhood, as well as two other Illinois hospitals, isn’t doing enough to provide charity care. In August, the Illinois Department of Revenue ruled that Prentice, Edward Hospital in Naperville, Ill., and Decatur Memorial Hospital in central Illinois, operated as for-profit businesses, and denied their tax-exempt status.

“The amount of charity care they provided was negligible, based on their total revenues,” says Susan Hofer, spokeswoman for the department of revenue. The state’s denial means the hospitals would pay millions in annual property taxes.

Using numbers reported in 2007, Hofer says charity care provided by Northwestern Memorial HealthCare, the parent company of Prentice, amounted to 1.85 percent of about $1.2 billion in net patient revenues. She says the state requested charity care information specifically for Prentice because it’s a new facility, but Northwestern Memorial only provided system-wide accounting.

In the same year, Edward Hospital showed charity care at 1.04 percent of $448 million in net patient revenues. Decatur reported charity care at 0.96 percent out of $252 million in net patient revenue for 2006.

“In Illinois, a plot of land has to be assessed for exempt status when it’s sold, when its use changes or when its owner changes,” Hofer says. The use change applied to Prentice and Edward, and Decatur changed ownership. All three hospitals appealed the state’s decision, and Hofer says hearings may begin later this month.

Hofer says the denials follow a 2010 Illinois Supreme Court ruling that upheld the department’s decision to withdraw tax-exempt status from Provena Covenant Medical Center in Urbana, Ill. The court determined Provena didn’t provide enough charity care, which was at less than 1 percent of its revenue.

But state law remains mute on what percentage of charity nonprofit hospitals should dole out to remain exempt, prompting calls for more clarity.

In September, Gov. Pat Quinn asked the department of revenue to delay any further hospital tax-exempt decisions until the law is clarified. Quinn asked the state, hospitals, the attorney general’s office and other stakeholders to submit recommendations for legislation to more clearly define the law by March 1.

The state’s currently reviewing parcels owned by at least 15 health systems statewide.

“A lot has to do with how the law is interpreted,” says Sen. Iris Martinez, D-Chicago, who last year proposed that nonprofit hospitals provide at least 3.5 percent of total revenue in charity care.

She’s attending the stakeholder meetings and plans to introduce new legislation or propose amendments to existing laws before the state legislative session ends May 31.

“Our intent is not to put everyone back on the tax rolls,” says Martinez, who seems to be moving away from a one-size-fits-all charity care requirement. “Every hospital is different,” she says.

But she contends tax-exempt decisions need to hold wealthier hospitals in more affluent areas accountable for providing their share of charity care, while protecting financially contributions to medical education and research.

“Between Medicaid and Medicare alone in 2010, we did $117 million in unreimbursed care,” says Rob Christie, spokesman for Northwestern Memorial, which reported about $1.5 billion in net patient revenue in 2010. “If we don’t [get a tax exemption], we’re going to have to curtail some of the services we provide.”

He declined to detail what might be cut, but says Northwestern provides a full range of services, even unprofitable ones.

Nonprofit hospitals often provide services at a loss, from trauma centers to neonatal intensive care and burn units, says Danny Chun, spokesman for the Illinois Hospital Association.

“There’s a whole range of services that a for-profit hospital can decide don’t make money and [decline to] provide,” he says. Nonprofits operate differently, he adds, and tax-exempt decisions should take that into account.

Ralph Martire, executive director of the Center for Tax and Budget Accountability, a bipartisan think tank in Chicago, says nonprofit hospitals could increase charity care without raising costs by doing more to determine which patients need financial aid upfront.

That would also help reduce bad debt and the need for legal action when patients don’t pay. “That would make hospitals look better and everybody wins,” he says.

Recent figures seem to indicate that Prentice and Edward are providing a larger percentage of charity care. Keith Hartenberger, Edward’s spokesman, says charity care in 2011 amounted to 2.4 percent of $565 million in patient revenues.

Northwestern’s figures from 2010 show that system-wide, it provided 2.9 percent in charity care, out of about 1.5 million in net patient revenue.

“We’re the second largest provider of charity care in the state of Illinois on a dollar/ cents [basis],” Christie says.

With possible legislation pending, Hofer declined to speculate on whether those increases would be enough to regain tax exemption in the future. But Diane Limas of Chicago’s Fair Care Coalition, a patient advocacy group, says Prentice and Edward still have much to prove.

“They’re not providing enough charity care as it compares to the huge amount of property tax exemption that they’re getting,” she says.

Regardless of income level, Limas says all patients should inquire about a hospital’s financial assistance program to see if they qualify. Huge medical bills can impact anyone’s budget.

“It isn’t just for poor people because now more and more middle class people are losing their jobs and automatically becoming uninsured,” she says.”

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