Illinois Supreme Court rules Provena must pay tax

Posted March 18, 2010 at 12:59 p.m.

Provena.jpgA patient at Provena Covenant Medical Center in Urbana in September. (David Pierini/Chicago Tribune)

By Bruce Japsen | The Illinois Supreme Court ruled this morning that Provena Covenant Medical Center in Urbana did not provide enough charity care to qualify for a property tax exemption.

The widely watched ruling, which rejected the Catholic hospital’s appeal of a tax review board decision to take away its tax exempt status in 2003, could set the stage for charity care expectations at hospitals around the country.

The ruling — supported by three judges, supported in part by two and not voted on by two others — means the hospital will have to begin paying property taxes. It has been considered a nonprofit hospital like most hospitals in the U.S. that are exempt from state property taxes

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• Read the summary and full decision

The Illinois Supreme Court upheld a lower court’s decision in the landmark case that pitted Provena Covenant Medical Center against the Illinois Department of Revenue. The revenue department argued Provena should not be exempt from paying property taxes in 2002 when the state said the medical center’s charity care was less than 1 percent of revenue. The court also upheld the revenue department’s denial of Provena’s religious tax exemption, which analysts say is unusual.

The state had no clear definition of how much charity care should be provided or whether unpaid medical bills and services that are offered for free, among other practices, should be included to determine whether a nonprofit hospital receives a property-tax exemption. State lawmakers have debated a level in the past but have not followed through on passing such legislation.

But the ruling clearly puts nonprofit hospitals on notice that aggressive business practices put tax exemptions at risk and the hospital industry worried about a precedent.

“The record showed that during the period in question here, Provena did not advertise the availability of charity care,” Justice Lloyd Karmeier wrote for the majority. “Patients were billed as a matter of course and unpaid bills were automatically referred to collection agencies.”

The ruling against Provena adds momentum to legislative initiatives at the state and federal level for establishing laws on charity care. The case of the Urbana hospital is being watched closely by hospitals statewide as the high court tries clarify what medical facilities in Illinois need to do to qualify for tax breaks.

The Illinois Hospital Association, which represents 200 hospitals in the state and most of them are tax-exempt nonprofits, described the ruling as “disturbing.”

“The court’s decision ignores legal precedents and public policy in Illinois that confirms non-profit hospitals are tax-exempt, charitable organizations,” said Illinois Hospital Association President Maryjane Wurth.

 ”For more than a century, the Illinois Supreme Court has recognized a simple, but critical reality:  a hospital that treats patients regardless of their ability to pay and that does not provide profits to private individuals is charitable and merits an exemption from property taxes, without regard to the specific amount of free care it provides,” she added. “This sudden, about-face by the Court also ignores the findings of an administrative law judge in the Department of Revenue who originally ruled in favor of Provena after hearing considerable testimony and the actual facts of the case.”

But Illinois Atty. Gen. Lisa Madigan, whose office argued the case before the court last September, said the ruling is critical for patients. Madigan’s office would not comment when asked whether it would introduce legislation calling for hospitals to provide a certain level of charity care.

“Today, the Illinois Supreme Court upheld over a century of Illinois law that requires tax exempt hospitals to provide free health care in exchange for the enormous tax breaks they choose to receive from the people of the state of Illinois,” Madigan said in a statement. “This decision is good news for the nearly two million uninsured Illinoisans who lack access to affordable health care.”

Justices agreed with Illinois Asst. Atty. Gen. Evan Siegel’s argument that  0.7 percent of revenue and only 302 people receiving free care “is not substantial,” Siegel told justices when the case was argued before the court last September.

In 2002, Siegel said, 302 patients were given free or discounted care out of more than 100,000 admissions at a cost to the hospital of $831,724, or about 0.7 percent of its $113 million in 2002 revenue. Siegel did not specify where the charity care bar should be set.

Justices last fall pressed Siegel and Provena Covenant’s attorneys on their definition of adequate charity care.

For its part, Provena Covenant Medical Center said it is indeed charitable, saying it provided “more than $38 million in free care and other community benefits.”

Provena executives also encouraged state lawmakers to examine how charity care is defined but did not advocate a specific level.

“We can only hope this troubling ruling prompts a dialogue among hospitals and elected officials to dialogue about not only how we define charity care but also how we better ensure that the people who need financial assistance get it,” Provena Covenant President and Chief Executive David Bertauski said. “We will work to lead the way.”

Provena faced tougher odds in part because two justices declared conflicts and could not be a part of the decision.

Provena Covenant is one of six Catholic hospitals owned by Mokena-based Provena Health, which also has facilities in Aurora, Danville, Elgin, Joliet and Kankakee. It is sponsored by three religious orders.



  1. zach22 March 18, 2010 at 1:21 pm

    The formula to determine what percentage of revenue a hospital has to be spend on charity should be: The total Illinois budget deficit divided by the number of years Madigan has been the democrat house leader times the square root of the number of Illinois governors who went to jail plus the percentage amount of the state income tax raise Madigan and the democrats will vote in minus the number of Illinois democrats who will vote against a tax increase.

  2. Innocent III March 18, 2010 at 1:30 pm

    “The state had no clear definition of how much charity care should be provided or whether unpaid medical bills and services that are offered for free, among other practices, should be included…”
    and then they wonder why nobody wants to invest private funds in anything around here– not when the law comes down to little more than “da law is what I say it is! (until/uness I say something different)”.

  3. Arnie March 18, 2010 at 1:44 pm

    I don’t understand. If it’s a not for profit hospital, and assuming there is no profit, what are you going to tax? If a hospital is operating at a loss, I don’t think I want to go there.

  4. Fabe March 18, 2010 at 1:53 pm

    The are also exempt from paying property tax, not just income tax

  5. Patrick March 18, 2010 at 3:00 pm

    The first victory in the Illinois Democrats’ Jihad against Catholic hospitals. In fact, for the Madigans and Siegels, the real problem is that these hospitals don’t do abortions. The long term plan is to shut them down, with the property and facilities transferred to the hooked up and connected.

  6. Steve March 18, 2010 at 3:23 pm

    Give a Democrat a free dollar & they’ll ask, demand & take a hundred more. The hospitals should give up their ‘tax-free’ status. Then should all close, have a wrecking ball flatten them & sell the property. Then what?

  7. KC March 18, 2010 at 3:49 pm

    You can’t be classified as a charity if less than 1% of your operations are given charitably. Pay property taxes like everyone else or start doing more charity. Religion has no bearing here.

  8. cadman March 18, 2010 at 3:51 pm

    let them and churches start paying taxes!!!!

  9. jack (the real one) March 18, 2010 at 4:06 pm

    It is a little to late to say that a ruling is disturbing, when it seems that the Appellate Court first made it and after the Supreme Court affirmed it. The Hospital Association should have made that argument beforehand.
    The comment “a hospital that treats patients regardless of their ability to pay and that does not provide profits to private individuals is charitable and merits an exemption from property taxes, without regard to the specific amount of free care it provides” is nonsensical, because it isn’t treating patients regardless of their ability to pay, if the number is infinitesimal, as the court found.
    The hospitals are nonprofits only in the sense that they do not pay dividends to private shareholders, but they apparently certainly rake in money to pay officers bonuses, or accumulate billions either to acquire others or establish building funds. Hence they should pay property taxes.
    If Houlihan wants to accomplish something before he leaves, he should proceed against the hospitals in Cook County. Some, such as NWMH, NSUHC, and U of C certainly meet the standard I described in the preceding paragraph, although I don’t know how much charitable care they give, compared to the uninsured they refer to collection agencies. Remember, there was Michelle Obama’s project of diverting neighborhood cases away from the U of C hospitals.

  10. jack (the real one) March 18, 2010 at 4:12 pm

    Anne: Some hospitals, such as Mt. Sinai, provide charity care and meet the conventional definition of nonprofit as not being profitable. The ones I listed in my prior post certainly are making money, even if it is not called “profit.”

  11. martin March 18, 2010 at 4:33 pm

    Steve and Patrick,
    A republican judge wrote this opinion.

  12. Robin Byrd March 18, 2010 at 4:33 pm

    I am very glad that the Illinois Supreme Court has made a ruling in this case that is favorable to the people. I went through a major illness and my insurance company failed to pay the hospital bills. To further compound the siituation, I was forced to have to make payments to various doctors and other medical providers out the little money that I had. The hospitals, especially U of C and Northwestern Memorial are very quick to send people into collections, even though they have multi-million dollar war chests for building other facilities. Maybe now, they will be forced to treat patients with dignity and respect.

  13. gracie2 March 18, 2010 at 5:26 pm

    Ms. Madigan, before going after Catholic hospitals, why not address the State’s failure in not paying medicaid reimbursement to hospitals througout the State? Why give the hospitals’ money to government that doesn’t care about the programs for the poor anyway?
    Perhaps this could be the solution. Determine what property taxes would be if they were taxed and then use that figure or a portion of that figure as the target for charitable cases. Unreimbursed care (as well as from the State) should be considered charitable care –it’s care they are providing that is not being paid for.

  14. William March 18, 2010 at 5:50 pm

    WRONG JUDGMENT. Not because of Catholic Healthcare issue. Not because of a tax-exempt issue. The answer to this incorrect ruling lies in the law, public opinion, and a lack of documentation. First, there is no law on the Illinois books that sets specific amounts of charity care to qualify a healthcare entity as tax-exempt. It is a detailed applications process and can unfortunately be somewhat subjective. Second, Provena Covenent Medical Center did what every other business does when bills are not paid; refer these to a collection agency. However, when the court ruled against people and assigned “body attachments,” Covenant Medical Center, Provena Health, and by association, all of Catholic Healthcare came under intense fire from the court of public opinion. Third, Covenant Medical Center, under the mistaken impression that they would be treated as tax-exempt based on their “Catholic Ministry” status (same for almost all Catholic healthcare organizations in the U.S.), did not document all charity care provided in the past. Had they known what the future held, they would have documented each and every case where care was provided and no bill was issued or collected.
    GOING FORWARD the state should decide how they want to deal with this, pass appropriate legislation, and enforce the legislation universally. Should they fail to do so, logic would dictate that Provena Health was treated unfairly and could rightly ask for a refund of every tax dollar paid.
    It is not a matter of religion. It’s not a matter of public opinion. It’s a matter of fair treatment under the law.

  15. RFW March 18, 2010 at 7:39 pm

    This kind of decision is absolutely nothing new. There was a case in, iirc, Pennsylvania about 15 years ago that was virtually identical, and was decided in the same way.
    Those aghast that a religiously-run hospital should be denied a tax exemption are reminded that there is a clear distinction in law between “non-profit” and “charitable”.
    There is also a distinction between a church or other building used more or less exclusively for religious purposes and property that is simply owned by a religious body.
    PS: Betcha the chief executive and his immediate underlings have fancy salaries and perks, and get bigger bonuses the more money they squeeze out of the indigent.

  16. RegularGuy March 18, 2010 at 7:49 pm

    “Anne” – ‘Not for profit’ doesn’t mean they lose money. All that it means is that any money left after all the bills are paid is NOT distributed to owners or stock shareholders.
    To distinguish the money ‘non-profits’ make from the money ‘for-profits’ make, a ‘non-profit’ which makes money is said to have a ’surplus’ while a ‘for-profit’ which makes money is said to have produced a ‘profit.’
    The only difference is who gets the extra money they make. Because ‘non-profits’ are not making money to be distributed, they get tax breaks. Their property is not taxed, and usually neither is their income (surplus). Many states also exempt non-profits from paying sales taxes.

  17. Wise One March 18, 2010 at 8:59 pm

    Here is the solution. The hospitals will pay in property tax half the amount that the State of Illinois owes most hospitals to cover payments that the State owes the hospitals.
    What is wild about this is that the State does owe almost every hospital in this state hundreds of thousands of dollars, and is late or not paying at all, but they take the hospital to court when the hospital is not paying property taxes.
    Must be part of Governor Jello’s fast and fancy budget.

  18. Phil March 18, 2010 at 9:48 pm

    As a family who has used the services at Provena and was pleased with the service. Based on Supreme Court decision,I suggest they build a collection desk at the front door. If you have insurance or cash you enter. If not you are referred to the Illinois Supreme Court for service. We are tired of being overcharged because some people didn’t prepare for the possibility of needing hospital services. Oh by the way, I owe Provena for a bill my Medicare insurance denied after they approved seven treatments for exactly the same charges. I’ll pay my bill if Medicare denies my appeal.