In Provena Covenant Medical Center, et al. v. The Dept. of Revenue, et al., Docket No. 107328 (Mar. 18, 2010), a very divided Illinois Supreme Court held that Provena Hospitals was not entitled to tax exemption on property it used to operate a hospital located in Urbana, Illinois. Provena Hospitals claimed that the hospital, called Provena Covenant Medical Center ("PCMC"), was exempt under Illinois law as (i) property owned by a charitable institution and used exclusively for charitable purposes and/or (ii) property used for religious purposes. PCMC was an approximately 260-bed hospital with approximately 10,000 inpatient and 100,000 outpatient admissions in the year at issue, 2002. While Provena Hospitals had an established charity care program, the cost of charity care only amounted to 0.723 percent of PCMC's revenues in 2002 and only .27 percent of the hospital's total patient census received discounts under the program in that year.
At the outset, the court noted the conjunctive test for charitable exemptions and found that Provena Hospitals easily did not satisfy the ownership test. Part of the problem for Provena Hospitals in that regard was that the application was initially filed in the name of the hospital, not the entity owning it. It was not until the case proceeded to the courts from the Illinois Department of Revenue that Provena Hospitals (rather than PCMC) was considered the owner and applicant. The Supreme Court noted that the record was devoid of information regarding Provena Hospital's charitable expenditures for 2002 and held that the ownership test was not met. The court went on, however, to discuss the charitable use prong and made two very significant holdings. First, the court held that to establish charitable use, a property owner must prove a direct benefit to the taxing jurisdictions burdened by the exemption. The court listed the ten taxing bodies that would be affected by the exemption (including, for example, the Urbana-Champaign Sanitary District) and found no direct benefit to any by PCMC's charity care program. Thus, the court concluded PCMC failed to establish charitable use. The court went on, however, to hold additionally that the level of charity care provided by PCMC did not meet the charitable use test. The court dismissed the level of charity care as "de minimis" but did not establish a minimum standard. The court also determined that Provena Hospitals did not meet the religious exemption, finding that the principal use of the property was as a fee-based hospital.
Notably, two of the court's seven justices recused themselves from the case completely. Two others concurred in part and dissented in part, and the dissent deprives the decision of much precedential significance. These two justices concurred with the plurality opinion's decision regarding the ownership prong of the charitable exemption analysis and also the religious use analysis. They dissented, however, to the plurality's analysis of the use prong of the charitable exemption analysis. First, the dissent concluded that while the general purpose behind the charitable exemption is the relief of government, it is not appropriate to have to prove a direct connection between the charitable use and the affected taxing bodies. The dissent also disagreed that any minimum level of charity care is required. Imposing such a floor for exemption is the role of the legislature, according to the dissent. Because the portion of the opinion dealing with charitable use did not have a majority, it is not binding under the doctrine of stare decisis.
Unfortunately, this decision does not resolve the key issue of how much charity care is necessary to qualify for Illinois real estate tax exemption. In a footnote, the plurality opinion states that Illinois (unlike the IRS) did not adopt the "community benefit" standard after the Medicare and Medicaid programs were established, leaving the amount of charity care provided as the key determinant in deciding whether a hospital qualifies for Illinois real estate tax exemption. The dissenting opinion asserts that setting a monetary or quantum standard for charity care is a complex decision that should be left to the legislature. The dissenting opinion then concludes that because the plurality has set such a standard without any guidelines, the result will be confusion, speculation and uncertainty for everyone: institutions, taxing bodies and the courts. This conclusion describes the current state of the law in Illinois. Legislative action now seems to be the next step.