In 2002, I was living in Champaign Illinois, which had 2 large hospital. Well, one was technically in Champaign's twin city, Urbana, but I always thought of the two cities as one in spite of the fact that there were two large hospitals, two public libraries, etc. The University was partly in Champaign and partly in Urbana. Most of the faculty lived on the "state" streets in Urbana, but I lived just a mile from the campus on the west side.
A few years ago, Provena Hospital petitioned, as usual for its tax-exempt status. This time, it was refused. That made the news. John Colombo, the prof at Illinois Law who specializes in the law of tax exempt organizations, has written about the background of the case on the nonprofit prof blog, here. As Colombo notes, troubling aspects of Provena's operation included its outsourcing of much of its operations to for-profit siblings and its dividending of substantial revenues to its parent corporation, as well as its hounding poor patients with collectors, including putting them in jail for unpaid debts.
My view was fairly straigh forward. Maybe it was the Dickensian nature of the debtors' prison idea that got me, but I think it was the idea that any hospital operating as a tax exempt should not be turning over profits to a parent corporation. That tax exemption is supposed to permit the hospital to do good things that it wouldn't do if it were a for-profit. In other words, tax exempt organizations should really be charities, and not just businesses doing the same thing that for-profit businesses (hospitals) do. That means they should lose money serving charity patients, and they should provide a public service that aounts to more than just offering health care as usual at the usual fees. I didn't think Provena did that, so I wasn't very surprised at the ruling.
Of course, the hospital appealed. It won in the Sangamon County court. But now the Illinois appellate court has rendered its opinion on further appeal, and the hospital's tax exempt status in the state is gone again. The opinion is making the news, since other tax exempt organizations are fearful that they may also have to show that they are actually engaged in charitable activities to earn the tax exemption. Here's an excerpt from the opinion in answer to Provena's claim that just being a hospital itself was a charitable function.
By holding medical care to be, in and of itself, charity, we effectively would excuse charitable hospitals from their ongoing mission of giving. We would hold that a hospital is being charitable, for instance, when it sends an impoverished patient a bill that the patient could never hope to pay. That holding not only would create a deafening cognitive dissonance, but it would ignore the [Illinois] supreme court's repeated rationale in cases involving charitable hospitals . . . There is nothing particularly kind or benevolent about selling somebody something . . . To be charitable, an institution must give liberally. Removing giving from charity would debase the meaning of charity and we resist such an assault upon language.
That excerpt, and a lot more about the case (as well as a link to the opinion) is available at this link. Perhaps this opinion will be influential, at least at the state level, in terms of requiring organizations that receive tax exempt status to provide true public services. Then perhaps there will be a real possibility of requiring more at the federal level as well.