Publications: Charity Care Seminar Summary

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Charity Care Update

Last month, Ungaretti & Harris LLP hosted its second annual charitable care seminar. The seminar addressed the recent challenges to the property and sales tax exemptions of hospitals and other healthcare facilities in Illinois. The following is a summary of the seminar.

Seminar Overview

Cook County Assessor James M. Houlihan discussed the tests his office uses to assess whether property is exempt. Assessor Houlihan first looks at whether the organization that owns the property is charitable and then determines whether the use of the property is charitable. He mentioned that his office looks at the Community Benefits Plan Annual Report that hospitals submit to the Attorney General as part of the exemption analysis. Assessor Houlihan and his colleagues also walked through how they assess properties in Cook County.

Anne M. Murphy, Senior Counsel to the Illinois Attorney General, discussed Attorney General Lisa Madigan’s ongoing investigations into the charitable practices of Illinois hospitals. Ms. Murphy emphasized the need for a measurable standard for the amount of financial charity provided by a healthcare facility. She mentioned that the Attorney General is currently investigating 25 percent of not-for-profit hospitals to determine the validity of their state tax exemptions. Ms. Murphy also referenced the consumer fraud case currently pending in the U.S. District Court for the Northern District of Illinois alleging that a hospital failed to offer charity care to an uninsured patient and alleging that the facility charged the patient an unreasonable amount for services.

Ungaretti & Harris attorneys provided an overview of the statutes and case law governing the area of property tax exemption and the regulatory environment in Illinois. Speakers discussed pending healthcare legislation, including bills to extend and repeal the Health Facilities Planning Act, and analyzed the impact such legislation would have on Illinois healthcare facilities.

Several speakers emphasized that the definition of charity under Illinois law is not limited to financial charity. Illinois courts have looked at the overall mission of not-forprofit healthcare organizations, not just the discounts or free care these facilities provide. Speakers emphasized that healthcare facilities must investigate every avenue of exemption available to them, including exemption based on religious use of the property.

Attendees also learned that the Department of Revenue is currently drafting new guidance on sales tax exemptions for hospitals in light of the standards articulated by the Department in the Provena Covenant Medical Center decision.

What You Can Do

Given the tumultuous environment regarding property and sales tax exemption in Illinois, and in anticipation of future legal and administrative guidance, we strongly recommend that charitable and religious not-for-profit hospitals and healthcare facilities review their charitable care policies and revise them as necessary. Further, as the Attorney General’s Community Benefits Plan Annual Report may be analyzed by your local assessor, we recommend adequately tracking your community benefit activities and ensuring that your Annual Report represents complete documentation of these activities.

Recent Developments

Tax Exemption

• The Illinois Department of Revenue continues to draft updated sales tax exemption guidance. This guidance is expected to apply the Department’s recent property tax exemption stance (as articulated in the Provena decision) to sales tax exemptions.
• The Department denied property tax exemption applications from Richland Memorial Hospital and Carle Foundation Hospital.
• Provena Covenant Medical Center filed its brief in its property tax exemption appeal. The Illinois Hospital Association, the American Hospital Association, and the Catholic Health Association/Illinois Catholic Health Association/Illinois Catholic Conference filed amicus briefs in this case.

Certificate of Need

• The Illinois Senate passed SB611 on March 15 by a vote of 56 to 1. This bill would have extended the Illinois Health Facilities Planning Act until 2012. On March 27, SB611 was amended to change the sunset date to May 31, 2007. This proposed legislation could be further amended and must also be passed by the Illinois House and signed by the Governor. Other proposals to amend the Planning Act are pending in the Illinois legislature.