Hospitals throughout the United States generally are accorded the benefits of a charitable exemption from various state and local ad valorem property taxes. The Provena Covenant Medical Center case, which currently is pending before the Illinois Supreme Court, has attracted national attention due to the denial of real estate tax exemption in large measure because of an inadequate demonstration of a certain level of free or discounted medical care. A paper authored by Ted Bernert and Chris Swift and presented last week by Ted Bernert to the State & Local Tax Committee of the ABA Section of Taxation examined the role of a "charity case" requirement, meaning a certain level of "free or discounted medical care" as a condition to hospitals obtaining charitable exemptions from property taxes.
The paper concluded that cases and statutes in the states surveyed show that a nonprofit institution involved in the prevention and treatment of illness does not necessarily qualify as a charitable organization for property tax purposes. Some additional element of benefit to the community is required. Some courts have applied a court-imposed limitation on the charitable exemption solely by reference to a quantified charity care requirement (i.e., a percentage of charity care patients compared to the total population of patients that must be served or a percentage of free care to total revenue). Several state supreme courts, however, rejected the narrow focus on free care in favor of an examination of the totality of the circumstances. At least two states, Pennsylvania and Texas, incorporate quantified free or indigent care standards into the statutes, but those statutes also include consideration of potential benefits for the community that are not limited to providing free services. The litigation currently pending in Illinois, Ohio and other states will determine if court-imposed quantified levels of charity care may be applied in the absence of statutory enactments.