In a closely watched challenge to a not-for-profit hospital’s tax-exempt status, the Illinois Department of Revenue on Friday affirmed its 2004 decision to deny a property tax exemption to Provena Covenant Medical Center in Urbana, Ill. Friday’s decision overruled a recommendation by the department’s administrative law judge to grant the exemption after Covenant, a Catholic-affiliated hospital, appealed the revocation of its property tax exemption.
The director of the Illinois Department of Revenue, who issued the final ruling, based his decision on 2002 financial figures that showed that Covenant’s revenues exceeded $113 million, yet its charitable activities amounted to $831,724--only .7% of total revenue. “This small amount of charitable care is so seriously insufficient that it simply cannot withstand the constitutional scrutiny required to justify a property tax exemption,” he wrote. And since 97.7% of Covenant’s revenue “was generated from the exchange of services for payment,” the hospital’s property could not have been considered used exclusively for charitable purposes. Also rejected was Covenant’s argument that nonreimbursed costs of Medicare and Medicaid be counted as charitable care.
Covenant parent Provena Health said it would quickly appeal the ruling, claiming that no hospital in Illinois could be considered a charitable institution under the ruling’s requirements. “This is a crisis for Provena Covenant and a national crisis for non-profit hospitals,” said William Foley, president and CEO, in a statement. The decision, said Foley, is “unsupported by legal precedent.” Kenneth Robbins, president of the Illinois Hospital Association, agreed that the decision is “so broadly written that we are confident it will be overturned on appeal.”
