Many community hospitals in the United States are not-for-profit, tax-exempt organizations. As such, they have a serious obligation to provide community benefits in the public interest.
But recently there has been some talk in Ohio of imposing stricter property tax exemption requirements for nonprofit hospitals or eliminating them completely.
It’s a move that hospital administrators feel would be detrimental to those hospitals and the communities they serve.
“Most of the hospitals [in Northeast Ohio] are not-for-profit and provide a huge amount of free care and other services to their local communities,” says Daniel P. Cunningham, senior vice president of legal services for Akron General Health System. “If the state of Ohio is going to use a different measuring stick than we’ve become accustomed to, that is going to have an impact on our costs.”
Smart Business spoke with Cunningham about the benefits nonprofit hospitals provide their communities, how they qualify for the benefits of tax exemption and the changes being proposed.
What kind of benefit does this tax-exempt status provide?
Part of what we’ve been able to do over all these years … [is we take] everyone that comes in the door. Nobody gets asked if they can pay. They all get to come in to our facilities and be treated.
Part of the benefit of tax-exempt status is that it helps us keep our costs down for all patients. So our tax exemption really goes back to benefit the citizens in the community and the patients we treat.
What are some of the requirements to receive tax exemption?
Only those hospitals that are regarded as charitable, nonprofit hospitals are eligible to get tax-exempt status, whether it’s federal or state. The federal government looks very closely at certain aspects of our business for us to enjoy that privilege. For example, we have to have an emergency room that’s open to all people regardless of ability to pay, and we have to take Medicare and Medicaid patients.
The federal government looks at it from the standpoint of, ‘What is the benefit you give to the community?’ They don’t look quite as closely at how much charity care you do, although that’s a piece of it. The government at the federal level recognizes that you’re expected to take charity care, but it can’t be all you do.
What possible changes is the state of Ohio looking to make?
It appears now that the state is looking for more in the way of actual charity care being delivered at every site that is asking for property tax exemption, which is a relatively new emphasis. Clearly, some medical facilities may provide more charity care than others, just based on their geographic location.
Most not-for-profit hospitals are very prudent about asking for property tax exemptions for a particular facility. We need to remember that whether a certain location is rendering direct treatment or performing support services, all that activity contributes to the hospital’s overall mission.
I’ll give you an example. If we have an office building that carries on administrative functions for the hospital — billing and things — those contribute to the overall operations. Not every square foot (at a hospital) is dedicated to treatment. It can’t be.
You have to take a look at the business as a whole and say, ‘Okay, does that function … contribute to the overall mission of the hospital and the community benefits that it gives?’
How would losing tax-exempt status affect hospitals and the communities they serve?
If a state decides that a hospital or group of hospitals should pay property taxes, then it will have a negative impact on costs. And today, more than ever, people don’t want to see those costs go up.
If we’re going to pay more … that takes away from revenues. You have to at least make enough in your revenues to keep going. And if you’re running red ink you either have to charge people more, or ultimately, you can’t keep the doors open.
It’s very probable that (hospitals) have not done a good enough job in letting our constituents know about all the good work that we do for our communities. That’s why you’re starting to see more hospitals publishing information on their community benefit.
Daniel P. Cunningham has been the senior vice president of legal services for Akron General Health System since 1985. The System is the parent company of three acute care hospitals, a rehab hospital, a home health care company, a long-term care facility and many outpatient centers. Cunningham can be reached at mailto:[email protected] or (330) 344-7626.
