SPRINGFIELD -- Illinois hospitals aren’t happy that most of them will see their Medicaid rates cut by 3.5 percent beginning July 1.

SPRINGFIELD -- Illinois hospitals aren’t happy that most of them will see their Medicaid rates cut by 3.5 percent beginning July 1.

But the legislative package that emerged from the General Assembly last week after months of talks between the hospital industry and the governor’s office virtually guarantees that not-for-profit hospitals will not lose their coveted tax-exempt status.

“We strongly believe rate cuts weren’t necessary, but we supported the overall approach,” Illinois Hospital Association spokesman Danny Chun said last week. “We believe hospitals are doing an outstanding job every day in serving their communities and deserve tax exemptions.”

The legislation — a series of bills expected to be signed into law by Gov. Pat Quinn — sets standards by which nonprofit hospitals can qualify for continued property tax exemptions.

St. John’s Hospital officials believe the Springfield hospital will satisfy the requirements. Officials from Memorial Medical Center wouldn’t comment on the legislation until it is signed.

And while the legislation may conflict with the Illinois Supreme Court’s interpretation of the state Constitution in the landmark 2010 Provena Covenant Medical Center case, a University of Illinois law professor said the legislation may deflect any future challenges to Illinois hospitals’ tax exemptions.

“I tend to think that the Illinois Hospital Association got a pretty good deal here,” said John Colombo, a nationwide authority on tax-exemption issues.

Won’t land in court

But he added, “I see very little likelihood that this will end up in the courts — which solves the issue.”

The Medicaid rate cuts total $108 million in the fiscal year that begins July 1, as well as other cuts in Medicaid services, but the overall reductions are lower than the $350 million in cuts hospitals initially feared.

The legislation for the first time sets minimum standards under which uninsured and underinsured patients can get entire hospital bills forgiven. Most of the state’s approximately 200 hospitals already meet those standards, Chun said.

Overall hospitals appear to be winners, but municipal governments and school districts likely won’t see more hospital property placed on the property tax rolls. The new rules also appear unlikely to result in hospitals providing much more free and reduced-price care.

“The hospitals definitely got what they wanted with this piece of legislation,” said Janna Stansell, senior policy analyst at the Chicago-based Health & Medicine Policy Research Group and a spokeswoman for the Fair Care Coalition.

Advocates such as Stansell wanted Illinois hospitals to be forced to provide more charity care to qualify for exemptions. And hospitals wanted clarity on how to qualify for tax-exempt status after the Supreme Court ruled that Urbana’s Provena Covenant Medical Center didn’t provide enough charity care to deserve a property-tax exemption in 2002.

The legislation — contained in Senate Bill 2194 — creates a new process for Illinois hospitals to qualify for exemptions. There’s an annual requirement that each not-for-profit hospital estimate the dollar value of its property tax exemption and then document to county tax officials how various services the hospital provides equals or exceeds the exemption amount.

Services that qualify include free or reduced-price care provided through a hospital’s charity-care program. The list also includes the difference between what it costs a hospital to treat Medicaid patients and what the hospital is paid by Medicaid.

Also included are financial or in-kind subsidies to other state or local government health-care programs and disease-management and prevention services for low-income residents.

‘Kitchen sink’

“They threw in everything but the kitchen sink to count toward the tax-exempt status,” Stansell said.

Though some critics have said most hospitals can afford to pay property taxes, IHA president Maryjane Wurth said in a statement that the legislation’s “sound tax-exemption policy … is critical to supporting our health-care delivery system.”

She said hospitals provide almost 425,000 direct and indirect jobs to Illinoisans and have an economic impact of about $79 billion a year for the state and local economies.

Colombo said he suspects the legislation won’t put any hospital’s property tax exemption in jeopardy.

If signed into law by Quinn, the new rules would apply to 20 hospitals with pending requests for property tax exemptions. In addition, a handful of hospitals that have had their tax exemptions yanked could reapply for exemptions under the new rules.

Colombo said individual taxpayers don’t have legal standing to take the issue to court. And the Illinois Department of Revenue and local taxing boards, all of which have legal standing, are unlikely to reject a tax-exemption request when the hospital involved appears to satisfy a list of requirements that never existed before, Colombo said.

St. John’s officials believe that the hospital’s $26 million in annual services to the poor, including the St. John’s charity-care program, support of Capitol Community Health Center and $17.8 million in unfunded costs of serving Medicaid patients in fiscal 2011, would count against any property-tax estimate for the hospital.

“At this point, we can’t provide an accurate number of what we might pay in property taxes,” St. John’s spokesman Brian Reardon said Friday. But he said the $26 million in community benefits would “exceed any measure of property taxes we could be assessed. The bottom line is St. John’s Hospital would qualify for continued tax exemption under the legislation.”

Dean Olsen can be reached at (217) 788-1543. Follow him at twitter.com/deanolsen.

 

Other parts of the health-care package

*The legislative package on its way to Gov. Pat Quinn’s desk includes $190 million in new federal funding for Illinois hospitals — as well as an additional $100 million in federal funds to the state for other Medicaid providers — through an hanced hospital provider assessment program.

*20 “safety-net” hospitals and all 51 “critical-access” hospitals would be spared any Medicaid rate cuts. The safety-net hospitals are in Chicago, East St. Louis, Glendale Heights and Aurora. Springfield’s hospitals aren’t among those spared from cuts. Among critical-access hospitals are those in Lincoln, Carlinville, Staunton, Hillsboro, Hopedale, Pittsfield, Pana, Litchfield, Rushville, Taylorville and Carrollton.

*St. John’s Hospital would experience a $2.5 million cut in Medicaid rates. But when new funding from the enhanced hospital assessment program is included, there would be a net $1.5 million increase in revenues.

*Doctors, dentists and federally qualified health centers such as Springfield’s Capitol Community Health Center would not see Medicaid rate cuts.

Source: Illinois Department of Healthcare and Family Services and St. John’s Hospital.

Charity plans

St. John’s Hospital’s charity-care plan

Memorial Medical Center’s charity-care plan