Better Solutions for Healthcare

Crain’s Chicago Business: Nonprofit hospitals forced to defend hundreds of millions in property tax breaks

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.

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

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.