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Non-Profit Jeopardy?
Story Number is : 033004108
By THOMAS M. REARDON
Columnist
Hospital Newspaper

The state of Illinois recently revoked the tax exempt status of Provena Covenant Medical Center in Urbana. In doing so, Illinois fired a shot heard around the country.
Revoking the tax exempt status of a non-profit hospital is such a draconian measure that it is almost never done. In fact, so-called “intermediate sanctions” for private inurnment were promulgated not too long ago because everyone recognized that revocation of tax exempt status is the atomic bomb of sanctions.
What did Provena do to warrant this revocation? Although Illinois did not publish an opinion, the decision apparently rested on three principal grounds. The first is that Provena aggressively pursued collections on unpaid medical bills for low-income families. Until recently, however, most hospitals were aggressive in this regard. In fact, it was thought by many to be required by Medicare in order for a hospital to recoup a portion of so-called “bad debt expenses”.
Secondly, Illinois apparently concluded that the level of charity care provided by the hospital was unacceptably low. And yet Provena, a Catholic hospital, counts charity care as core to its mission. Furthermore, the benchmark used by Illinois is undefined.
Thirdly, Provena had agreements with for-profit physician groups, lab companies, food service companies and the like. Not only is it the norm in the industry, it is hard to fathom how a hospital can function efficiently in the current environment without outsourcing certain non-core activities.
Is something more going on than meets the eye?
U.S. Rep. William Thomas, chairman of the House Ways and Means Committee has recently questioned whether the basis on which the government first granted tax exempt status to non-profit hospitals still exists. Thomas suggested that tax exempt hospitals should provide uncompensated care to the uninsured population is an amount equal to the tax benefits received, and implied that such a circumstance does not currently exist.
Additionally, the US Treasury Department recently proposed rules that could increase the cost of tax exempt bonds. Industry observers have warned that proposed changes will increase costs, possibly drive up yields, and almost certainly increase a non-profit hospital’s cost of capital.
Is this all about tax revenue? Wherever there are local, state and federal tax shortfalls, government officials cast around for new revenue sources. Everyone would concede that tax exempt status imposes an obligation to provide charity care. However, shouldn’t there be a defined standard before using the death penalty?




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