Illinois Considering New Guidelines for Tax-Exempt Hospitals

The extent to which not-for-profit health insurers and health systems reinvest in the communities they serve is an emerging issue for states. Non-profit providers and health insurance plans are expected to provide benefits to their community in return for being exempt from most taxes. In 2004, however, many lawsuits challenged non-profit hospitals on their provision of charity care.[1] Two years later, the issue remains a concern, in part because the level and the impact of community benefit activities are still largely undocumented.[2]

In January 2006, Illinois Attorney General Lisa Madigan (D) proposed new guidelines for charity hospitals in the state. According to the Attorney General’s office, in 2003, the average, non-government tax-exempt hospital in Illinois spent less than 1 percent of hospital charges on charity care.

The “Tax-Exempt Hospital Responsibility Act” sets a minimum percentage of free services that hospitals will have to meet in order to maintain their not-for-profit status. The bill requires that not-for-profit hospitals spend at least 8 percent of their operating costs on charity care. Additionally, if the legislation is enacted, care provided by these hospitals to uninsured individuals whose family income is below 150 percent of the federal poverty level (FPL) will be free and uninsured individuals with income between 150 and 250 percent FPL will have access to discounted care provided on a sliding scale. Critical access hospitals in rural areas would be exempt from the law.

“It is clear that we must create standards and hold hospitals accountable to fulfill their charity care responsibilities,” Madigan said.[3]

Madigan also introduced companion legislation, the Hospital Fair Billing and Collection Practices Act, which will require both tax-exempt and for-profit Illinois hospitals to avoid unfairly aggressive and harassing tactics when seeking payment from patients.