Monday, July 06, 2015
A court’s ruling that a New Jersey nonprofit hospital essentially functioned as a for-profit business, and therefore owed property taxes, could have implications for hospitals and nonprofit organizations across the state.
The opinion issued late last month was the result of a lawsuit filed against Morristown by Atlantic Health System Hospital Corp., parent company of Morristown Medical Center, after the town denied the hospital’s property-tax exemptions in the years 2006 through 2008.
The town said the 687-bed hospital shouldn’t receive the exemptions because it didn’t operate like a nonprofit.
“If it is true that all non-profit hospitals operate like the Hospital in this case, as was the testimony here, then for purposes of the property tax exemption, modern non-profit hospitals are essentially legal fictions,” wrote Judge Vito Bianco , of the Tax Court of New Jersey.
Atlantic Health System spokesman Rob Seman said the hospital was deciding on its next steps. “The decision by Judge Bianco regarding property taxes is disappointing, and has serious consequences for both Morristown Medical Center as well as other health-care systems in the state,” he said in a prepared statement.
He noted the decision was limited to the property-tax issue, not the hospital’s overall tax-exempt status. The amount of tax the hospital owes is scheduled to be discussed at a conference with the judge this week, said Vijayant Pawar, Morristown town attorney.
In an emailed statement, Morristown Mayor Timothy P. Dougherty praised the judge’s opinion: “The Court agreed with substantially all of the arguments made by the Town...”
Judge Bianco found the hospital “operated and used its property for a profit-making purpose,” and provided substantial loans, capital and subsidies to for-profit entities, including physician groups.
Hospital executives were involved in both nonprofit and for-profit affiliated companies, and the only areas that functioned as nonprofits were the auditorium, fitness center, and the visitors’ garage, he wrote.
Elizabeth Ryan, president and chief executive of the trade group New Jersey Hospital Association, said the case would resonate beyond Morristown. The group’s members “are most concerned with anything that creates additional obstacles to our mission of providing high-quality medical care to our communities in a cost-effective manner,” she said in a statement.
The tax exemptions of nonprofit hospitals have come under increasing scrutiny in the past decade. Cases around the University of Pittsburgh Medical Center in Pennsylvania and Provena Covenant Medical Center in Illinois, among others, have examined property-tax exemptions in relation to the level of community benefits, or charity care, hospitals provide.
But the Morristown case was unusual in that it focused on the hospital’s operating structure, not community benefits.
“This is the first time a judge has been willing to come straight out and say the modern nonprofit hospital is not a charity,” said John Colombo, a law professor at the University of Illinois at Urbana-Champaign. “I’ll bet you that every hospital executive across the United States is aware of this opinion and they are probably not very happy about it.”
The lawsuit is, in many ways, the product of a changing health system, where distinctions between insurance companies, labs, physicians and others have become increasingly murky, said Michael Sparer, chair of health policy and management at Columbia’s Mailman School of Public Health.
“In a changing health-care system, tax rules around nonprofits that were written in a different time for a different kind of system are being challenged and rethought,” he said. “How that plays out long term will depend on a combination of politics, economics and legal rulings.”
wsj.com
