Health Law

ANOTHER STATE TAX EXEMPTION DECISIONS SEPARATES FROM ?LIBERAL? FEDERAL DEFINITION OF CHARITABLE PURPOSE.

By Greg Piche'

With perhaps some eye toward the Illinois decision in Provena Covenant Medical Center et al. v. Department of Revenue, 2010 WL 9668858 (2010), an Ohio appellate court affirmed the denial of property tax exemption to a dialysis company that had been granted a federal Section 501(C)(3) tax exemption, finding that the liberal standard adopted by the IRS had no impact on Ohio tax exempt statutes and precedent.    The case, Dialysis Clinic, Inc v. Levin, Slip Op. Ohio 5071 is a direct appeal from the Ohio Board of tax appeals.  The case is of interest because it reflects the direction in which Sen. Grassley and others have been pushing nonprofit hospitals in the Patient Protection and Accountable Care Act enacted into law in March of this year.

The appellant in this case is a part of a 195 facility federal tax exempt chain of dialysis units providing end stage dialysis services in Chester County, Ohio.  This is a 9846 square foot facility that has never made a profit and is subsidized by the national chain. The chain itself invests half of its net earnings in kidney research and half to subsidizing its own services.  65 to 75 percent of its patients are Medicare and about 10% are Medicaid. Although the system provides 6.7 Million dollars a year in uncompensated care and it says that it never turns any patient away, it has a written indigency  policy that provides its services are ? not a charity or gift to patients. DCI retains the right to refuse to admit or treat a patient who has no ability to pay.?

The court noted that the IRS in 69 Rev. Rule 545 abandoned the ?charity case? requirement to obtain federal tax exempt status, by adopting a ?per se? rule, that an entity engaged in the promotion of health for the general benefit of the community is pursuing a charitable purpose even though a portion of the community, such as indigents, are excluded from participation.

The court determined that the Chester County facility failed to show that its core activity was the provision of charitable care on a non-discriminatory basis. It noted that company?s 6.7 million dollars of uncompensated care only represented 1.27 percent of its total revenues. It is likely that there will be increasing pressure on the IRS to look beyond ?bad debt? write off numbers to find distinctions between for profit and non-profit facilities to justify the federal tax exemption.

Full post as published by Healthcare Law Blog on November 03, 2010 (boomark / email).