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The state of Illinois stripped three major
hospitals of their tax exemption last week,
the latest salvo in what has turned into a
protracted conict between the taxing
authorities and the not-for-prot hospital
industry in the state.
The three hospitals are
Decatur Memorial Hospital, in
downstate Decatur; Edward
Hospital in west suburban
Naperville; and Prentice
Womens Hospital, the maternity
division at Northwestern
Memorial Hospital in Chicago.
Each is a major institution in its
market. The state signaled that it
is reviewing the tax-exempt
status of another 15 hospitals.
The move occurs a year
after the Illinois Supreme
Court ruled that the
Department of Revenue
acted within the law when
it removed the tax
exemption from Provena
Covenant Medical Center in Urbana in 2002.
The court agreed with the department when it
said the hospitals charity care, at 0.7% of
revenue, was insufcient to justify the tax
exemption. The 254-bed Roman Catholic
institution now pays $1.2 million a year in
property taxes.
The fundamental question is whether
hospitals operate as businesses or as charities,
said the Department of Revenue in a
statement. The Illinois Supreme Court
provided guidance in the Provena case, the
latest in a series of consistent rulings. We are
applying that interpretation of the
law.
The Illinois Hospital
Association said it was
disappointed and deeply
concerned by the states
decision. Taxing hospitals will
force them to reduce services
and increase healthcare costs for
patients and employers
jeopardizing access to quality
hospital services as well as the
nancial survival of some
hospitals, said President
Maryjane A. Wurth in a
statement.
The tax exemption of
certain hospitals has long
been a question among
activists pushing for more
charity care by hospitals that consider
themselves not-for-prot. The denition of
charity care has been hard to nail down,
and how much is enough to justify not paying
taxes has never been a topic the hospital
industry wanted to hear discussed in public.
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October 5
September 14-16
Calendar
23 August 2011
September 8
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E-Mail
info@payersandproviders.com with
the details of your event, or call
(877) 248-2360, ext. 3. It will be
published in the Calendar section,
space permitting.
www.lakesidecommunityhealthcare.com
3 Illinois Hospitals Lose Tax Status
Dept. of Revenue Finds Not Enough Charity Care
Continued on Next Page
Maryjane A. Wurth
President
Illinois Hospital Association
www.healthexecstore.com
Midwest Edition
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Payers & Providers Page 2
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In Brief
Michigan A.G. Looks
Into Blues Purchase
of AmeriHealth Mercy

Michigan Attorney General Bill
Schuette is reviewing a proposal by
the states leading health plan to invest
$215 million in a Pennsylvania health
plan.
Blue Cross Blue Shield of Michigan
announced it planned to join
Independence Blue Cross, based in
Philadelphia, to purchase a 50%
interest in AmeriHealth Mercy Family
of Companies, which serves about
800,000 Medicaid recipients in three
states. Mercy Health System is selling
its stake in the Medicaid payer.
The Michigan Blues would receive
a 40% interest in the organization.
Medicaid enrollments are expected to
grow after the national health reform
law goes fully into effect in 2014.
The attorney general is reviewing
the investment because the states
Nonprot Health Care Corporation
Reform Act gives him oversight over
certain of the Blues decisions. The
Blues are non-prot in Michigan.
Andrew Hetzel, spokesman for the
Blues, said the insurer would work
collaboratively to answer Schuettes
questions. The health plan would use
money in its investment portfolio to
nance the purchase.
Illinois Physician Faces
12 Counts for Tax
and Healthcare Fraud
A physician in Aurora, Ill., was
indicted for federal tax fraud and
healthcare fraud, the U.S. Attorneys
Ofce in Chicago announced.
Joseph M. Tages, 65, of Plaineld,
was indicted for allegedly diverting
$765,593 in cash receipts from a clinic
he operated, Aurora Health Center,
and failing to pay $267,956 in
Continued on Page 3
NEWS
Illinois tax exemptions (Continued from Page One)
been a topic the hospital industry wanted to
hear discussed in public.
A group called the Fair Care Coalition in
Illinois has been agitating for the state to set a
minimum level of charity care required to
earn a property tax exemption, with the goal
of fairly distributing the cost of caring for the
uninsured among all non-prot hospitals.
Some not-for-prot hospitals are serving
the poor; others are raking in the bucks, said
Shannon Brownlee, acting director of the
New America Foundation health policy
program in Washington.
If you count the lost revenue from taxes,
both from income taxes and the land that
hospitals occupy, its pretty signicant for
states, she said.
The Internal Revenue Service is
starting to look into the matter. They are
casting a pretty hard look at the question of
community service and what constitutes
community service, Brownless said.
The Illinois Department of Revenue
released a series of bullet points describing its
reasoning in each instance.
For Decatur, it said the review was
triggered by a 2006 change in ownership. The
hospital had $252 million in net patient
revenue but reported spending only 0.96% of
that on charity care.
For Edward, the state said the hospital
showed no charity care on its 2007 nancial
statement, only a provision for doubtful
accounts. The unreimbursed cost of charity
care was given as 1.04% of net patient
revenues of $448 million.
And for Prentice, the tax review was
initiated after Northwestern constructed a
new $450 million replacement hospital on
Chicagos lakefront in 2007. The
Northwestern system showed net patient
revenue of $1.18 billion yet listed no charity
care on its nancial statement. Charity care
was separately reported as 1.85% of
revenues.
The department said there was no state
money at issue in the denials. Any increase in
tax receipts would ow to localities where the
hospitals operate. Nobody knows how much
the hospitals would pay in taxes if the
decision stands, because the properties have
never been assessed.
Edward Hospital said in response that it
would mount a vigorous defense and that it
had one of the most generous charity care
policies in Illinois, contributing $77 million
in charity care and community benets last
year.
Northwestern Memorial said it disagreed
with the ruling. It said its community benet
contributions totaled $276.7 million in 2010,
of which $44 million was for charity care. The
land on which the hospital sits has not been
taxed for almost a century, it said.
Decatur Memorial Hospital declined to
make a statement or give an interview.
The three hospitals may appeal the revenue
departments decision within 60 days. If those
appeals fail, they could le a lawsuit to
overturn the rulings.
Prentice is one of the highest volume
maternity hospitals in the country and delivers
more babies covered by Medicaid than any
other hospital in Illinois. The entire
Northwestern Memorial has 854 beds.
According to Payers & Providers recent
survey of chief executive compensation as
reported to the IRS (Aug. 9 edition), CEO Dean
Harrison earned $972,167 in base salary plus
$2,427,718 in additional compensation in
2008. The hospital reported $4.5 million in
net income.
At 334-bed Decatur Memorial, CEO
Kenneth Smithmier earned $554,458 in base
salary and $673,567 in additional
compensation in 2008. The hospital had $17.8
million that year in net income.
Edward Hospital President Pam Davis
earned $649,168 in base salary, plus
$894,145 in additional compensation in
2008. The 320-bed hospital reported $22.2
million in net income that year.
As part of its explanation, the Department
of Revenue said the Illinois Constitution
allows the General Assembly to exempt
property from taxation only if it is used
exclusively for charitable purposes. The
department then listed ve distinctive
characteristics of a charitable institution, citing
a 1968 court case, Methodist Old Peoples
Home v. Korzen.
Every state has its own rules about what
property may be exempt, said Mary Gallagher,
senior vice president of the Ohio Hospital
Association. In Ohio, the law is pretty clear
that free care alone is not the basis of your
property tax exemption.
Hospitals are worried about efforts to force
states and localities to look for revenue
anywhere they can nd it.
As these cases hit the newspapers,
hospitals start to ask questions, Gallagher
said. Its unfortunate. It diverts attention from
patient care and the charitable mission that
hospitals are engaged in.
!!!"#$$!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Page 3
Payers & Providers
Longer ALOS!*
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*For our ads, not your hospital
NEWS
In Brief
corporate income taxes. He also didnt
pay $282,787 in personal income
taxes to the IRS.
Tages was also charged with falsely
claiming reimbursement from health
insurance companies for services not
given. He diagnosed genital
condyloma on male patients at his
Latino Institute of Surgery and billed
incorrectly for it. He also diagnosed
GERD, or gastroesophogeal reux
disease and performed a procedure,
while ling false claims, the
government asserts.
All together Tages faces six counts
of ling false income tax returns, two
counts of mail fraud, and four counts
of making false statements regarding a
health benet program.
Michigan Hospital
Workers Change Their
Commuting Styles
Employees at Charlevoix Area
Hospital in Michigan stepped out of
their cars and into a healthier lifestyle
the rst week of August by
participating in the Smart Commute
Week. They had the option to walk,
bike or carpool to work as an effort to
cut their carbon footprint, reduce
trafc on the roads, and improve their
cardiac health.
When the 63 participants arrived at
work, they got a fresh gourmet
breakfast. They also entered a
Commuter Cup Challenge, where they
could win prizes from local
merchants.
The Charlevoix project is part of an
effort by many hospitals to encourage
better health habits by their
employees. Workers in hospitals quite
often have below average health
habits, and higher-than-average
medical expenses as a result.
Six health services organizations in
Midwestern states received shares of a $40
million grant awarded by the Department of
Health and Human Services to identify and
enroll children eligible for Medicaid and the
Childrens Health Insurance Program.
The grants range from $200,000 to $2.5
million. Much of the money is going toward
introduction of more sophisticated use of
information technology in enrollment.
Grants were awarded to these groups:
* Iowa: Iowa Department of Public Health
($681,773) to reach teens and families through
creative activities that teenagers enjoy.
* Illinois: Sinai Health System ($341,490)
to work with Hispanic and Asian communities
that have high rates of eligible but unenrolled
children in Chicago.
* Illinois: Beacon Therapeutic Schools
($409,958) to enroll uninsured and homeless
youth in Cook County.
* Michigan: Michigan Primary Care
Association ($814,801) to use text messaging
and voice message broadcasting to remind
families that they are due for renewal in CHIP
and Medicaid.
* Ohio: Legal Aid Society of Cincinnati
($360,000) to work with two school districts to
identify children likely to be eligible.
* Ohio: Economic and Community
Development Institute ($200,000) to target
children of low-income micro-entrepreneurs.
"Keeping Americans healthy from a young
age is the right thing to do, and it saves money
by avoiding preventable diseases and
conditions as they get older, said HHS
Secretary Kathleen Sebelius.
The Illinois certicate of need panel on Aug.
16 approved Cook Countys application to
turn Oak Forest Hospital into an outpatient
clinic with an urgent care center.
The 7-1 vote reversed the denial last May of
the countys proposal, which has been in the
works for more than a year. Oak Forest is one
of three acute-care hospitals operated by the
public health system in Cook County, which
includes Chicago.
As part of an overhaul and rebalancing of
county health services, the system had
intended to close inpatient units at Oak Forest
on June 1 and consolidate services at the new
John Stroger Hospital. But that plan was
derailed when the Illinois Health Facilities
and Services Review Board refused to go
along, even though a majority of the members
voted in favor. Keeping the hospital open in
the intervening months cost the county $2
million a month in unbudgeted funds.
This time, to sweeten the pot, Cook County
ofcials included a 24-hour urgent care
facility to their closure proposal, in hopes of
allaying opposition from labor unions and
patient advocates.
The county will invest $19 million to
modernize the facility.
It will allow for better and more
responsible use of resources to dramatically
improve health access for medically
underserved residents in the Southland, said
Cook County Board President Toni
Preckwinkle.
CON Finally OKs Oak Forest Closure
State Panel Allows Transformation to Urgent Care
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HHS Awards CHIP Grants in Midwest
New Enrollment Technologies are Highlighted
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Payers & Providers Page 4
For local communities, particularly those hit
hardest by the Great Recession, expanding the
healthcare sector may look like an attractive
avenue to creating good jobs that can jumpstart
a return to prosperity. From the perspective of
local leaders, healthcare expansions are a
potential economic boon.
Yet from the perspective of federal policy
makers, growth in healthcare spending is the
nations greatest long-term scal challenge.
Understanding the difference between those
perspectives, and how it is that they can both
be true, is critical to identifying alternative
health-nancing arrangements that better align
local interests with those of the nation.
Increasing spending on healthcare is not
necessarily a problemadvances in medical
capabilities have produced tremendous
benets. But the U.S. health system is clearly
not at the frontier of efciency. This raises the
possibility that additional spending has less
value than the resources sacriced to pay for it.
For an economically
distressed community,
expanding the healthcare sector
can be appealing on several
levels: healthcare is relatively
recession-proof; jobs in health
care are relatively high paying;! and
demographic and technological trends make it
likely that the industry will continue to expand
for the foreseeable future.
In sharp contrast to the rest of the economy,
employment in healthcare grew steadily
throughout the downturn. Some cite Pittsburgh
as a successful model of a city that transformed
its economic base from heavy industry to
medical care. And, there are signs other local
ofcials see health care investments as a way to
resuscitate depressed communities.
Another factor that makes healthcare
expansion an attractive way to restore
prosperity to a local community is that a
signicant portionroughly 60% to 70%of
the spending for additional services will come
from outside the community because of the
way healthcare is nanced.
If all of the costs of increased health
spending were nanced by local residents, the
attractiveness of strategies to expand the health
care sector would be diminished. But given the
way health spending is nanced in the United
States, much of the burden of increased
spending on health care will, in fact, be borne
outside of the community.
In essence, expanding health care services
locally results in higher spending nationally,
particularly through Medicare and Medicaid, but
also because of revenue losses through the
favorable tax treatment of employer-sponsored
health insurance. In turn, higher healthcare
spending contributes to higher federal decits.!
So communities have incentives to expand
healthcare capacity to generate local economic
benet, but when many do this, the nation as a
whole falls behind as healthcare spending
continues to grow at a much faster pace than the
economy.
How might state and local ofcials goals be
better aligned with the national interests? Some
possibilities include:
* Limit the tax exclusion for employer-sponsored
insurance soonerbefore 2018and on a
much broader scale than was done in the Patient
Protection and Affordable Care Act. The
unlimited nature of the tax
exclusion for employment-based
coverage means that the federal
and state governments are silent
partners to various aspects of
healthcare that increase costs.
* Create incentives to motivate localities to focus
on Medicaid cost containment. The federal-state
nancing of Medicaid diffuses incentives for
localities to limit the costs of the program
* Make structural changes to Medicare benets
and beneciary premiums to engage
beneciaries in the cost of their care
* Reform provider payment to reduce the role
of fee-for-service and to put providers at nancial
risk for more of the costs of patient care. This
would limit the local nancial gains from
boosting the volume of care through local
capacity expansions.
OPINION
More Local Jobs, More U.S. Debt?
Boosting the Local Healthcare Sector Has Its Costs
By Chapin White
and Paul B. Ginsburg
Chapin White is a senior researcher and Paul
B. Ginsburg is the president of the Center for
Studying Health System Change in
Washington.
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>1)+0(&6!=2)(+)!A(22!EOPPH"FOI"Q<#? Op-ed submissions of up to 600 words are
welcomed. Please e-mail proposals to
dmoore@payersandproviders.com,
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MARKETPLACE/EMPLOYMENT
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luyors & lrovdors und MCCL prosont koundtubo lntoructvo. lt dobuts Murch 20|| n tho luyors & lrovdors Nutonu odton.
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