Long Island hospitals brace for nonprofit status challenges
Long Island Business News, May 7, 2010 by Claude Solnik
The North Shore-Long Island Jewish Health System is looking forward to the day when thousands of once-indigent patients show up with insurance coverage, thanks to just-passed federal regulations.
But as the uninsured become paying customers, North Shore-LIJ and other hospitals are bracing for potential challenges to their tax- exempt status, which is based in part on their mission of serving those without coverage.
Providers’ concerns are being fueled by a recent court verdict stripping one Chicago hospital of tax exemptions and an ongoing Internal Revenue Service study on the future tax status of hospitals.
While hospitals in many states are for-profit, New York is home to mostly non-profit facilities, making possible challenges a state- wide concern.
Long Island’s for-profit hospitals have closed or been reborn as non-profits. The last, Massapequa General and Lydia Hall in Freeport, ceased operations, while Mid Island Hospital has been retooled into the non-profit New Island Hospital.
Not-for-profit hospitals’ federal tax-exempt status, which typically leads to state and local tax exemptions, is based on what’s known as “community benefit,” relying mostly on care provided to the uninsured.
“Charity represents a significant part of a not-for-profit’s community benefit in respect to its tax exemption,” said North Shore- LIJ Chief Financial Officer Robert Shapiro. “Patients will now be insured. Will we have significant community benefits to warrant a tax exemption?”
Robert Wild, chairman of the Garfunkel Wild law firm in Great Neck, said local hospitals will be able to argue that they earn their tax exempt status regardless of how many uninsured are covered, because suburban hospitals tend to have extensive educational and scientific missions.
“The maintenance of tax-exempt status depends on fulfilling the mission, which is not just charity care,” Wild said. “It also includes teaching. How many poor people you treat is not the only barometer.”
And hospital groups point out that even if 32 million Americans are newly covered, another 12 million will remain uninsured if and when the new federal legislation takes effect.
“There will always be a percentage of uninsured Americans seeking care at hospitals,” said Janine Logan, a spokeswoman for the Hauppauge-based Nassau-Suffolk Hospital Council. “In addition, hospitals are granted tax-exempt status because they give back to the communities they serve through free health screenings, health education and information in a variety of ways.”
Andrew Mitchell, chairman of the East End Alliance’s Council of CEOS, thinks East End hospitals in particular, with a large number of undocumented immigrant patients, will continue to serve many uninsured.
He said the amount of Alliance’s uncompensated and under- compensated care ranges from $15 million to $20 million annually, making it unlikely that provisions of the federal legislation will pose a threat to his hospitals’ non-profit status.
North Shore-LIJ’s concerns come from uncertainty over new formulas devised to determine community impact, even though the system currently calculates a $400 million annual local benefit.
“In general, I’m concerned about how they interpret it,” Shapiro said. “The IRS can target hospitals by how they define community benefit. They could use high percentages or say you have to serve many Medicaid patients.”
In March, the Illinois Supreme Court upheld the removal of the tax exemption for Downstate Provena Covenant Medical Center for not providing sufficient charity care compared to the tax benefit.
Provena, which is affiliated with the Catholic Church, argued that it performed more than $38 million in free care and community benefits in 2008
non profits insurance