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Ill. hospitals avoid taxes after strong lobbying

Governor Pat Quinn had ordered the revenue department to reconsider the tax-exempt status of several hospitals.

CHICAGO - The Illinois Hospital Association took no chances as state lawmakers debated in recent weeks whether nonprofit hospitals should pay property taxes. It unleashed a self-described media blitz.

“My baby is sick - anyone help, please!’’ screamed an actress portraying a mother in radio ads aired in Chicago and 41 other markets starting in early May. A baby wailed, an ambulance siren blared, and a voiceover asked what the terrified parent would do if no hospital were around.

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The blitz worked. The Illinois General Assembly handed hospitals a long-sought victory: a sweeping legislative antidote to a recent state Supreme Court decision that threatened to slap many hospitals with potentially millions of dollars in tax liabilities just as they say they’re struggling to survive.

The victory in Illinois is significant because the state had become the most dramatic example of courts and regulators challenging the tax-exempt status of nonprofit hospitals. They’re doing so as local governments hunt for revenue to help plug budget gaps in a sputtering economy.

The Legislature preserved nonprofit hospitals’ tax-exempt status while expanding the official definition of the charity care they must provide to qualify for that exemption. Instead of just counting what they spend covering the bills of patients who can’t pay, hospitals could include such things as preventive- care community outreach and a portion of the costs of medical research, professional training, and psychiatric care.

The office of Governor Pat Quinn, a Democrat, has said he will sign the bill. Quinn had earlier ordered his revenue department to reconsider the tax-exempt status of several hospitals. Under the legislation, hospitals must annually show that they would pay the same or less in property taxes than they donate to the community as charity.

Community and consumer advocacy groups are reeling from the Illinois vote, which they said will remove hospitals’ motivation to increase free care for the poor.

“They kowtowed to the IHA,’’ said Diane Limas, a spokeswoman for the Albany Park Neighborhood Council, a citizens organization on Chicago’s north side. “I don’t understand the horse trading that goes on in Springfield. But it’s clear that the legislators don’t know what happens when a patient is smacked with a $100,000 hospital bill and is already struggling to make ends meet.’’

The association, representing about 200 hospitals and health systems, urged Illinoisans to write to state officials. By early June, the IHA reported, more than 12,000 people had signed an online petition.

The group created templates for member hospitals to customize antitax e-mails to legislators and letters to local newspaper editors. And it suggested members provide kiosks or special computers for workers to send notes condemning property taxes for hospitals and Quinn’s proposed $2.7 billion in reductions to projected Medicaid payments.

The governor had previously ordered his revenue department to review hospitals’ tax-exempt status. He is expected to sign the legislation, though, because it includes a $1-a-pack boost in the cigarette tax that will help rescue the state’s Medicaid program by raising about $350 million a year.

Some consumer groups said the outcome, approved on a largely party-line vote by the Democratic-controlled legislature, reflected the money spent by the hospital association on advertising and campaign contributions.

For 2011 and the first quarter of 2012, the association contributed about $397,000 to state office holders, candidates and the state Democratic Party, according to the Illinois Campaign for Political Reform, a watchdog group. That included $143,000 to legislative leaders of both parties and $198,000 to other lawmakers in the General Assembly.

“They completely out-resourced us as patient advocates,’’ said Janna Stansell, senior policy analyst at the Health & Medicine Policy Research Group, an Illinois nonprofit agency that pushes for health-care equality.

The legislation followed an Illinois Supreme Court decision in 2010 that ruled tax exemptions can be handed out to hospitals solely if their property is used for narrowly defined “charitable purposes’’ - essentially free or reduced-rate care to the poor. In that case, the court ruled that Provena Covenant Medical Center in Urbana failed to merit an exemption because just 302 of Provena’s 110,000 patients had received such care in 2002.

In August, the state revenue department denied the tax exemptions of three other hospitals on similar grounds. Quinn later suspended the granting of exemptions and asked lawmakers to spell out what counts as charity.

“I think we got what we were aiming for, which is clear criteria,’’ Danny Chun, the hospital association’s spokesman, said in a telephone interview. The group had argued that some hospitals might reduce services, or even close, if they had to pay property taxes.

Patient groups such as the Fair Care Coalition generally had supported requiring hospitals to pay 6 percent of their revenues toward public benefits as a threshold to avoid taxes. Eighty percent of that would have had to be discounted or free care to the indigent.

The Legislature approved one concession to patients: a measure requiring urban hospitals to give medically necessary care without charge to patients whose incomes are less than 200 percent of the federal poverty level. Rural hospitals would have to pay the bill for basic care of those below 125 percent.

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