Senator Iris Y. Martinez continues to be at the forefront of ensuring hospitals aren't getting unfair tax breaks.

Sale of medical facility could cost taxing bodies

Posted Mar 27, 2011 @ 11:00 PM
   

Local taxing bodies could lose up to $65,000 in annual property taxes if state officials grant St. John’s Hospital’s request to buy out the remaining partners of Prairie Diagnostic Center.

 

St. John’s, which owns a 25 percent share in Prairie Diagnostic, a for-profit outpatient facility at 401 E. Carpenter St., has asked the Illinois Health Facilities and Services Review Board for approval to acquire the remaining 75 percent.

The proposal has the support of the Prairie doctors who own 50 percent of the center and Memorial Medical Center, which owns the remaining 25 percent.

St. John’s wants to better coordinate services at the diagnostic center and at Prairie Heart Institute, St. John’s chief executive officer Bob Ritz said last week.

If the state board, approves the proposed $9.16 million acquisition in May, the center would become part of St. John’s, a not-for-profit institution.

The possibility that the center’s property tax bills would drop or be eliminated wasn’t a factor in St. John’s decision, hospital officials said. Still, St. John’s chief financial officer Larry Ragel said the hospital will ask the Illinois Department of Revenue to declare the property tax-exempt if the ownership change is allowed.

Ragel said it’s unknown when St. John’s might receive a ruling.

The revenue department has a backlog of about 90 tax-exemption requests for various hospital properties that it hasn’t acted on since the Illinois Supreme Court a year ago upheld the agency’s decision to remove tax-exempt status from Provena Covenant Medical Center in Urbana.

No opposition

No one has publicly opposed the proposed ownership change. The public has until March 31 to ask the state board for a public hearing on the case. Written comments will be accepted until April 20.

The proposal could lead to a loss of up to $63,000 in annual property tax revenues from the center to a tax increment financing district that benefits the Enos Park neighborhood.

Steve Combs, president of the Enos Park Neighborhood Association, said property taxes funneled to the Enos Park TIF district, which was formed in 1997, totaled about $400,000 over the past year.

The association hopes to work with the Springfield City Council and use the TIF fund to help pay for a $45 million improvement project in the neighborhood over the next 10 to 20 years, Combs said.

The potential loss of property tax revenue from Prairie Diagnostic “would not be in our best interest,” he said, but the neighborhood association hasn’t discussed whether to oppose the plan. He said St. John’s “has been a really great neighbor for us.”

Sole owner

The diagnostic center, which opened in 2006, was designed to offer more convenient scheduling options for patients than they typically receive at a hospital.

The center provides outpatient services in cardiac catheterization labs on the first floor. Outpatient visits with Prairie Cardiovascular doctors are available on the second floor.

Prairie Heart, which is part of St. John’s, also provides outpatient diagnostic services, as well as inpatient services, such as angioplasty and open-heart surgery.

The Prairie Cardiovascular group, headquartered at Prairie Heart Institute, established financial ties with St. John’s parent organization, Hospital Sisters Health System, when the group became an affiliate of HSHS in 2008. A spokesman for the system wouldn’t give details of that financial relationship.

Despite the existing ties between St. John’s and Prairie Cardiovascular, St. John’s would benefit from being the center’s sole owner and not having to deal with the separate board that now governs Prairie Diagnostic Center, Ritz said.

Moreover, easier access to the center’s space and equipment could help St. John’s provide cardiovascular services without disruption during a multi-year, $172.4 million renovation project that is getting under way on the hospital’s main campus a few blocks away, Ritz said.

‘Seamless flow’

As the sole owner, St. John’s also could realize a 35 percent increase in payment rates from the federal government when serving Medicare patients, Ragel said. Medicare pays higher rates for cardiovascular services to not-for-profit hospitals compared with investor-owned facilities, he said.

“It’s becoming increasingly difficult for freestanding centers like these to be able to provide the service they need to provide in the future if they’re not somehow more directly linked to a hospital,” Ritz said.

But the potential for higher reimbursements from Medicare isn’t the main reason to change the ownership model, Ritz said.

“It’s important for us to offer a seamless flow of cardiovascular care,” Ritz said. “All three parties thought we should look at the future of the Prairie Diagnostic Center and decide what would be best for the long term.”

Memorial spokesman Michael Leathers said in a statement that the center “provides an important service to the community. However, the joint-venture model for this freestanding facility is not financially sustainable for the long term.”

According to Leathers’ statement, Memorial has agreed to relinquish its ownership share “to preserve access at this facility by the community.” Memorial will continue to provide diagnostic cardiovascular services, he said.

Unrealized profits

St. John’s believes at least part of the Prairie Diagnostic would qualify for tax-exempt status, Ragel said. Office space in the center that is rented to doctors may not qualify for the status, he said.

The hospital would need to prove that the center provides enough of a charitable service to the poor to deserve the exemption.

The center, which performs an average of seven to eight cardiac-cath procedures per day, hasn’t been as profitable as originally projected.

Documents Prairie Cardiovascular filed with the state before the state board originally approved the project in 2005 estimated the center’s annual net operating revenues would be $9 million a year, with $4.8 million in profits.

Documents recently filed by St. John’s indicate the center’s annual revenues have ranged from $3.6 million to $4.5 million. Net income has ranged from a loss of $464,000 to a profit of $939,000.

Medicare, the public health-insurance program for the elderly, has been reducing what it pays for many cardiac procedures nationwide since the mid-2000s, Ragel said.

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Senator says hospitals fall short in charity care

A state senator from Chicago says many Illinois hospitals receiving millions of dollars in property tax exemptions aren’t giving patients enough financial assistance to justify those tax breaks.

Sen. Iris Martinez, a Democrat, last month introduced Senate Bill 1881, which would fine not-for-profit hospitals if they provide charity care that amounts to less than 3.5 percent of their revenue.

Most hospitals in Illinois fail to provide that much charity care, she said.

Hospitals need to do more to publicize their charity-care programs and make them easier to use, Martinez said.

According to the Illinois Health Facilities and Services Review Board, charity care provided by Illinois hospitals in 2009 averaged 2.57 percent of patient-care revenues.

At St. John’s Hospital, the $10 million cost of its charity-care program in 2009 equaled 2.6 percent of revenues. At Memorial Medical Center, the $15.2 million cost of its charity care equaled 3.3 percent of revenues.

Martinez said she introduced SB 1881 in response to a March 2010 ruling by the Illinois Supreme Court that upheld the Illinois Department of Revenue’s decision to remove tax-exempt status for Urbana’s Provena Covenant Medical Center.

The department’s director, Brian Hamer, has said Provena’s 2002 charity care cost the hospital $832,000, or 0.7 percent of total revenues that year — too small, in his opinion, to justify a property-tax exemption.

In 2009, Provena’s $4.6 million in charity care equaled 2.8 percent of revenues.

The revenue department also has revoked the tax-exempt status of Urbana’s Carle Foundation Hospital, where $7.8 million in charity care equaled 2.4 percent of revenues in 2009.

Martinez’s legislation, which is opposed by the Illinois Hospital Association, failed to gain enough votes to pass the Senate Public Health Committee on March 15. Martinez said she will keep pushing for the bill.

Howard Peters, executive vice president of the hospital association, said Martinez’s bill is unfair.

“Most hospitals in the state are losing money on patient care,” Peters said.
 

Copyright 2011 The State Journal-Register. Some rights reserved

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