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Nonprofit hospitals forced to defend hundreds of millions in property tax breaks
Critics say they don't provide enough free care.

Friday, November 08, 2019
Crain's Chicago Business
by Stepanie Goldberg

Chicago's nonprofit hospitals face new pressure to justify property tax exemptions worth hundreds of millions of dollars.

Nonprofits in Illinois are exempt from property taxes, in return for providing free or discounted services to poor and underinsured people. But activists are alleging the hospitals don't provide enough free care to warrant the break.

Efforts to squeeze more charity care out of Chicago hospitals have stepped up as progressive aldermen push a program that would require so-called wealthy nonprofits to make payments—"in lieu of taxes"—to the city. Meanwhile, Cook County Health CEO John Jay Shannon recently called on his private-sector counterparts to offer more charity care. Shannon's two public hospitals provided more than half of all such care in the county last year, according to new data from the state.

The events have rekindled debates over property tax exemptions, which hospitals say they rely on to improve health care in their communities as private and government health insurers pay less and medical costs rise. With the exception of Cook County's Stroger Hospital, charity care represents less than 2 percent of net revenue for each of the area's 10 largest hospitals, the data shows.

With billions of dollars in investments, "it's a very fair question to ask, 'How are you justifying your tax-exempt status? What are you doing to make yourself worthy of that?' " says Larry Singer, director of the Beazley Institute for Health Law & Policy at Loyola University Chicago.

The hospitals won't say how much they're saving in property taxes. And tax experts say estimates are hard to calculate since—in most cases—they're computed by the hospitals themselves, using a statutory formula.

But it's clear some hospitals would face substantial tax bills without the exemption. Northwestern Memorial's Streeterville campus, for example, occupies a large swath of real estate in the swanky North Michigan Avenue area.

Using tax forms and hospital financial statements, United Working Families, an activist group, estimates that forgone property tax revenue from the 24 acute care nonprofit hospitals in the city of Chicago is roughly $200 million annually.

The Center for Tax & Budget Accountability in a 2009 report estimated that the local property tax exemption for 47 nonprofit hospitals in the metropolitan area totaled nearly $280 million annually, making it "by far the most valuable tax benefit nonprofit hospitals receive."

Illinois requires hospitals to spend at least as much on charitable services for low-income people as they would otherwise pay in property taxes. "That's a somewhat low bar if you think about it," Singer says.


SHARE OF THE CARE

All but one Cook County hospital with more than $500 million in net revenue spent less than 2 percent of net revenue providing free care to low-income patients last year. Meanwhile, Cook County Health’s flagship hospital spent $324.6 million, or 54 percent of net revenue, on so-called charity care.

Source: Illinois Health Facilities & Services Review Board


According to the Illinois Health Facilities & Services Review Board, the largest hospitals in the county by net revenue spend a minuscule portion of that money on free care—not including bad debt, which is billed but not recovered in full.

Advocate Christ Medical Center in Oak Lawn last year spent $16.7 million on charity care, or 1.5 percent of net revenue; Rush University Medical Center spent $18 million, or 1.4 percent; Northwestern Memorial Hospital spent $23.2 million, or 1.2 percent; University of Chicago Medical Center spent $18.2 million, or 1 percent; and Loyola University Medical Center in Maywood spent $6.8 million, or 0.6 percent. Meanwhile, Stroger spent $324.6 million, or 54 percent of its revenue and more than twice the amount spent by the nine largest private nonprofits.

In addition to charity care, some local hospital chains say they're spending hundreds of millions of dollars to improve health in their communities.

COMMUNITY SERVICE

NorthShore University Health System says it provided $235 million last year in "charitable care and services," including helping patients cover prescription drug costs, providing interpretive services and offering health screenings.

University of Chicago Medicine says it provided more than $477 million in "benefits and services" to the South Side last year, including supporting medical research, donating to community groups and educating health care professionals.

Advocate Aurora Health says charity care, as well as losses it says it incurs treating Medicare and Medicaid patients, continues to increase and "far exceed the value of our property tax exemption."

Loyola Medicine, Northwestern Medicine, the University of Illinois Hospital and Rush University Medical Center decline to comment. Amita Health and Lurie Children's Hospital of Chicago did not respond to requests for comment.

"Hospitals earn their exemptions every day," Illinois Health & Hospital System spokesman Danny Chun says, noting that they provide care "outside the traditional four walls of the hospital" through housing and violence prevention initiatives, for example.

But hospital workers, who've been fighting for higher wages and changes in scheduling practices, aren't satisfied.

"So-called nonprofit hospitals have been driving up medical costs, shortchanging workers and communities . . . reaping rewards from their property tax exempt status," Anne Igoe, director of SEIU Healthcare Illinois' health systems division, said during an Oct. 31 press conference called to support the payment in lieu of taxes, or PILOT, program Ald. Jeanette Taylor, 20th, proposed in September.

DETAILS PENDING

Details of the proposed PILOT ordinance are still being worked out. Under a PILOT program in Boston, nonprofit institutions in the educational, medical and cultural sectors contribute money to services like police and fire protection, as well as snow removal. As of Aug. 28, medical institutions—including Massachusetts General Hospital and Dana Farber Cancer Institute—contributed $455,493 to the program for fiscal year 2019.

At an Oct. 28 City Club of Chicago event, Shannon chided private hospitals for skimping on charity care and regularly "dumping" uninsured or underinsured patients on the county's hospitals, which treat all patients regardless of their ability to pay. Shannon said patients in need of expensive care show up at his hospitals daily, after being stabilized and discharged by private, nonprofit hospitals.

"It does seem that we carry a uniquely high and growing proportional burden of proving charity care," Shannon says in an interview. "There's an assumption that everybody does their part, but the reality is we're way disproportionately carrying this burden."

 

 



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