The Charity Care Requirement for Hospital Property Tax Exemptions

care that would be sufficient. Moreover, according to Provena and the Illinois Hospital
Association as amicus, the amount of charity care depends on the economic status of the
patients that happen to come to the hospital.
The appellate court concluded that the quantity of charity care was important and
that the 0.7% charity care found by the Director was insufficient to qualify for the
charitable exemption. The court refused to overturn the inference by the Director that the
“small” amount of charity care showed that Provena had not been dispensing charity care
to all who needed it. While Provena had a charity care policy based on the income
thresholds for the patients, the Director criticized the policy because the policy was said
to ignore the size of the bill for medical services while focusing solely on the income
status of the patient. Thus, the policy failed to distinguish between a patient with a
$1,000 bill and a second patient with a $100,000 bill.
The appellate court agreed with the Director that the use of collection agencies,
for patients who qualified for charity care, presented a barrier to claiming charitable
exemption. The court seemed concerned that the use of collection agencies for charity
patients would deter those patients by the “prospects of crushing financial liability.”
The appellate court then addressed the issue of determining how to calculate the
amount of charity care in the case of the hospital receiving only partial payment for its
services. The first question must be whether the reduction is measured by reference to
(1) the patient charges made by the hospital or (2) its costs. The measure of donated care
would of course be much greater if comparing the amount billed to the announced
charges for that service in contrast to comparing the amount billed to the costs incurred
by the hospital. The court chose to employ cost as the comparison. Using costs, the
court then considered the measure to be used: either marginal costs for an additional
patient or the average costs. The marginal costs for an additional patient may be small
but Provena argued, and the court agreed, that the average cost is a better indicator than
marginal costs.
Using costs to compare, the appellate court expressed concern that the discounted
charges were not charity care because Provena continued to make a profit albeit at a
lower margin. The court referenced the Director’s argument as follows:
In 2002, pursuant to its charity care policy, [Provena]
treated some patients for free and discounted its bills for
other patients. Apparently, in calculating the amount of its
charity care, [Provena] used the average cost of the
discounted portions of the bills. The Director stated:
"The applicant has asserted in several different
contexts that the cost of waiving charges pursuant to
its charity care policy in 2002 was $831,724 …
while the revenue it waived amounted to
$1,758,940 …. To obtain the cost figure, the
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