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The Big Story: Illinois General Assembly Bill SB2955

“Provides that general services, such as health fairs or the preparation and distribution of marketing materials, shall not qualify as a reimbursable cost when determining whether property qualifies for the hospital exemption…Makes changes to the definition of “charity care.”

How one senator wants to clarify the tax exemption equation

By Allie Gross & Michael Hildebrand
A 3.5-minute read

If you’re paying $28 billion for something, it’s natural to want bang for your buck.

That’s the value of the tax exemptions granted to non-profit hospitals each year, according to the Kaiser Family Foundation. And it’s the whopping figure that’s driving increasing scrutiny from the media, watchdog groups and lawmakers about what communities get in exchange for hospitals not paying taxes.

Hospitals are under the microscope over community benefit spending and tax exemptions everywhere – red states, blue states, rural areas, big cities.

To learn more about what’s driving this trend, we called one state senator who’s sponsoring a bill about hospital tax exemptions to get her perspective.

Senator Ann Gillespie (D) of Arlington Heights, Ill., was elected to the Illinois General Assembly in 2018 after a career that touched nearly every sector of the healthcare landscape – from hospitals to health plans to PBMs. She gets the complexity and nuance of America’s byzantine healthcare system. And her bill would set new limits on how hospitals account for the community benefit they provide in exchange for exemption from state taxes.

Gillespie made one thing clear to us:

“I have no intent of going after anyone’s tax-exempt status. This is about making sure the calculations that count as community benefit are calculations that truly and directly benefit the community. That’s all I’m after.”

Many non-profit hospitals count the “underpayments” of delivering care below cost for Medicare and Medicaid patients as a major chunk of their community benefit. At academic medical centers, graduate medical education and medical research often make up another sizable portion.

Under Gillespie’s bill, care provided below cost for Medicare and Medicaid couldn’t account for more than 50 percent of a hospital’s total community benefit. Meanwhile, physician residency programs and medical research couldn’t account for more than 30 percent of a hospital’s calculated community benefit.

From her perspective, the promise of community benefit through training the next generation of doctors is too far removed from the community’s needs today. And she believes it’s unreasonable to count providing care below cost for Medicaid patients as community benefit when the state is picking up the tab through Medicaid expansion.

The bill also says services like “health fairs” should not count as community benefit because they really serve as marketing for the hospitals.

“Those really benefit the institution more than they benefit the community,” Gillespie said.

What should be the focus of community benefit?

First and foremost, Gillespie said community benefit should be about delivering patient care to people who don’t have coverage.

She also believes a more appropriate accounting of community benefit dollars would focus on social determinants of health – like supporting affordable housing or food banks.

“If we’re going to give you this really big benefit, then we need you to help us keep the population healthier,” Gillespie said. “The standard that makes sense to me is that you’re giving back to the community an equal value of what the community is giving you by relieving you of your tax burden.”

Another part of Gillespie’s legislation requires that counties complete property value assessments for hospitals, rather than allowing the organizations to complete their own valuations. Today, she said, hospitals are calculating what their tax break should be themselves.

“We need more transparency and independence,” she said.

It’s Gillespie’s second session sponsoring this legislation, which she revised for this session following conversations with hospital advocates like the Illinois Health and Hospital Association (IHA).

A potentially stressful change…

Dave Gross, the IHA’s senior vice president of government relations (no relation to the author), told us he’s not sure it makes sense to weigh spending on community programs more heavily than dollars that go toward covering the Medicaid reimbursement shortfall, which falls under hospitals’ core mission to treat low-income populations. This change in the equation could put hospitals in a stressful position, he said.

Gross also highlighted that Illinois hospitals are doing impactful work outside of their walls to improve social determinants of health and address health disparities. But he acknowledged they have an opportunity to do a better job of communicating about that work.

“There are some great stories,” Gross said. “But whether they’re being told or whether they’re just being put up on the website…”

As for the future of the bill, Gross is confident that Illinois lawmakers and hospital advocates can work together to reach the right solution for hospitals and communities. And for Gillespie, she said her goal right now “is to get the issue out there and start the discussion,” even if a resolution takes more than a year.

“I’m just trying to make sure the community that’s picking up the tab for the levy you’re not paying is getting the benefit of that,” she said. “I’m trying to balance the scale.”

While the bill’s future in Illinois is unclear, what is certain is that healthcare leaders in all communities need to expect these questions about community benefit and tax exemptions to come your way.

They can come from your statehouse, a reporter or member of your community. Take stock of how you are proactively telling the story of the positive impact your hospital is having on the community to your stakeholders that matter most. Ask your organization’s leaders the tough questions and align on the answers. Back your data with stories. Get the word out.

Image Credit: Drew Do