103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5274

 

Introduced 2/9/2024, by Rep. Dagmara Avelar

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 200/15-86

    Amends the Property Tax Code. Provides that, in order for free and discounted services to be credited as charity care for a hospital entity, the hospital entity's financial assistance policy shall require: (i) a patient whose income is less than or equal to 300% of the federal poverty level to receive 100% coverage of all care charges; (ii) a patient whose income is greater than 300% but less than or equal to 350% of the federal poverty level to receive at least 75% coverage of all care charges; and (iii) a patient whose income is greater than 350% but less than or equal to 400% of the federal poverty level to receive at least 50% coverage of all care charges.


LRB103 36999 CES 67114 b

 

 

A BILL FOR

 

HB5274LRB103 36999 CES 67114 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Property Tax Code is amended by changing
5Section 15-86 as follows:
 
6    (35 ILCS 200/15-86)
7    Sec. 15-86. Exemptions related to access to hospital and
8health care services by low-income and underserved
9individuals.
10    (a) The General Assembly finds:
11        (1) Despite the Supreme Court's decision in Provena
12    Covenant Medical Center v. Dept. of Revenue, 236 Ill.2d
13    368, there is considerable uncertainty surrounding the
14    test for charitable property tax exemption, especially
15    regarding the application of a quantitative or monetary
16    threshold. In Provena, the Department stated that the
17    primary basis for its decision was the hospital's
18    inadequate amount of charitable activity, but the
19    Department has not articulated what constitutes an
20    adequate amount of charitable activity. After Provena, the
21    Department denied property tax exemption applications of 3
22    more hospitals, and, on the effective date of this
23    amendatory Act of the 97th General Assembly, at least 20

 

 

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1    other hospitals are awaiting rulings on applications for
2    property tax exemption.
3        (2) In Provena, two Illinois Supreme Court justices
4    opined that "setting a monetary or quantum standard is a
5    complex decision which should be left to our legislature,
6    should it so choose". The Appellate Court in Provena
7    stated: "The language we use in the State of Illinois to
8    determine whether real property is used for a charitable
9    purpose has its genesis in our 1870 Constitution. It is
10    obvious that such language may be difficult to apply to
11    the modern face of our nation's health care delivery
12    systems". The court noted the many significant changes in
13    the health care system since that time, but concluded that
14    taking these changes into account is a matter of public
15    policy, and "it is the legislature's job, not ours, to
16    make public policy".
17        (3) It is essential to ensure that tax exemption law
18    relating to hospitals accounts for the complexities of the
19    modern health care delivery system. Health care is moving
20    beyond the walls of the hospital. In addition to treating
21    individual patients, hospitals are assuming responsibility
22    for improving the health status of communities and
23    populations. Low-income and underserved communities
24    benefit disproportionately by these activities.
25        (4) The Supreme Court has explained that: "the
26    fundamental ground upon which all exemptions in favor of

 

 

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1    charitable institutions are based is the benefit conferred
2    upon the public by them, and a consequent relief, to some
3    extent, of the burden upon the state to care for and
4    advance the interests of its citizens". Hospitals relieve
5    the burden of government in many ways, but most
6    significantly through their participation in and
7    substantial financial subsidization of the Illinois
8    Medicaid program, which could not operate without the
9    participation and partnership of Illinois hospitals.
10        (5) Working with the Illinois hospital community and
11    other interested parties, the General Assembly has
12    developed a comprehensive combination of related
13    legislation that addresses hospital property tax
14    exemption, significantly increases access to free health
15    care for indigent persons, and strengthens the Medical
16    Assistance program. It is the intent of the General
17    Assembly to establish a new category of ownership for
18    charitable property tax exemption to be applied to
19    not-for-profit hospitals and hospital affiliates in lieu
20    of the existing ownership category of "institutions of
21    public charity". It is also the intent of the General
22    Assembly to establish quantifiable standards for the
23    issuance of charitable exemptions for such property. It is
24    not the intent of the General Assembly to declare any
25    property exempt ipso facto, but rather to establish
26    criteria to be applied to the facts on a case-by-case

 

 

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1    basis.
2    (b) For the purpose of this Section and Section 15-10, the
3following terms shall have the meanings set forth below:
4        (1) "Hospital" means any institution, place, building,
5    buildings on a campus, or other health care facility
6    located in Illinois that is licensed under the Hospital
7    Licensing Act and has a hospital owner.
8        (2) "Hospital owner" means a not-for-profit
9    corporation that is the titleholder of a hospital, or the
10    owner of the beneficial interest in an Illinois land trust
11    that is the titleholder of a hospital.
12        (3) "Hospital affiliate" means any corporation,
13    partnership, limited partnership, joint venture, limited
14    liability company, association or other organization,
15    other than a hospital owner, that directly or indirectly
16    controls, is controlled by, or is under common control
17    with one or more hospital owners and that supports, is
18    supported by, or acts in furtherance of the exempt health
19    care purposes of at least one of those hospital owners'
20    hospitals.
21        (4) "Hospital system" means a hospital and one or more
22    other hospitals or hospital affiliates related by common
23    control or ownership.
24        (5) "Control" relating to hospital owners, hospital
25    affiliates, or hospital systems means possession, direct
26    or indirect, of the power to direct or cause the direction

 

 

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1    of the management and policies of the entity, whether
2    through ownership of assets, membership interest, other
3    voting or governance rights, by contract or otherwise.
4        (6) "Hospital applicant" means a hospital owner, or
5    hospital affiliate, or a clinic affiliated with a hospital
6    or hospital system that files an application for a
7    property tax exemption pursuant to Section 15-5 and this
8    Section.
9        (7) "Relevant hospital entity" means (A) the hospital
10    owner, in the case of a hospital applicant that is a
11    hospital owner, and (B) at the election of a hospital
12    applicant that is a hospital affiliate, either (i) the
13    hospital affiliate or (ii) the hospital system to which
14    the hospital applicant belongs, including any hospitals or
15    hospital affiliates that are related by common control or
16    ownership.
17        (8) "Subject property" means property for which a
18    hospital applicant files an application for an exemption
19    pursuant to Section 15-5 and this Section.
20        (9) "Hospital year" means the fiscal year of the
21    relevant hospital entity, or the fiscal year of one of the
22    hospital owners in the hospital system if the relevant
23    hospital entity is a hospital system with members with
24    different fiscal years, that ends in the year for which
25    the exemption is sought.
26    (c) A hospital applicant satisfies the conditions for an

 

 

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1exemption under this Section with respect to the subject
2property, and shall be issued a charitable exemption for that
3property, if the value of services or activities listed in
4subsection (e) for the hospital year equals or exceeds the
5relevant hospital entity's estimated property tax liability,
6as determined under subsection (g), for the year for which
7exemption is sought. For purposes of making the calculations
8required by this subsection (c), if the relevant hospital
9entity is a hospital owner that owns more than one hospital,
10the value of the services or activities listed in subsection
11(e) shall be calculated on the basis of only those services and
12activities relating to the hospital that includes the subject
13property, and the relevant hospital entity's estimated
14property tax liability shall be calculated only with respect
15to the properties comprising that hospital. In the case of a
16multi-state hospital system or hospital affiliate, the value
17of the services or activities listed in subsection (e) shall
18be calculated on the basis of only those services and
19activities that occur in Illinois and the relevant hospital
20entity's estimated property tax liability shall be calculated
21only with respect to its property located in Illinois.
22    Notwithstanding any other provisions of this Act, any
23parcel or portion thereof, that is owned by a for-profit
24entity whether part of the hospital system or not, or that is
25leased, licensed or operated by a for-profit entity regardless
26of whether healthcare services are provided on that parcel

 

 

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1shall not qualify for exemption. If a parcel has both exempt
2and non-exempt uses, an exemption may be granted for the
3qualifying portion of that parcel. In the case of parking lots
4and common areas serving both exempt and non-exempt uses those
5parcels or portions thereof may qualify for an exemption in
6proportion to the amount of qualifying use.
7    (d) The hospital applicant shall include information in
8its exemption application establishing that it satisfies the
9requirements of subsection (c). For purposes of making the
10calculations required by subsection (c), the hospital
11applicant may for each year elect to use either (1) the value
12of the services or activities listed in subsection (e) for the
13hospital year or (2) the average value of those services or
14activities for the 3 fiscal years ending with the hospital
15year. If the relevant hospital entity has been in operation
16for less than 3 completed fiscal years, then the latter
17calculation, if elected, shall be performed on a pro rata
18basis.
19    (e) Services that address the health care needs of
20low-income or underserved individuals or relieve the burden of
21government with regard to health care services. The following
22services and activities shall be considered for purposes of
23making the calculations required by subsection (c):
24        (1) Charity care. Free or discounted services provided
25    pursuant to the relevant hospital entity's financial
26    assistance policy, measured at cost, including discounts

 

 

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1    provided under the Hospital Uninsured Patient Discount
2    Act, except that, in order for free and discounted
3    services to be credited under this paragraph (1), the
4    hospital entity's financial assistance policy shall
5    provide that: .
6            (A) patients whose income is less than or equal to
7        300% of the federal poverty level shall receive
8        assistance for the full amount of care charges;
9            (B) patients whose income is greater than 300% but
10        less than or equal to 350% of the federal poverty level
11        shall receive assistance for at least 75% of care
12        charges; and
13            (C) patients whose income is greater than 350% but
14        less than or equal to 400% of the federal poverty level
15        shall receive assistance for at least 50% of care
16        charges.
17        (2) Health services to low-income and underserved
18    individuals. Other unreimbursed costs of the relevant
19    hospital entity for providing without charge, paying for,
20    or subsidizing goods, activities, or services for the
21    purpose of addressing the health of low-income or
22    underserved individuals. Those activities or services may
23    include, but are not limited to: financial or in-kind
24    support to affiliated or unaffiliated hospitals, hospital
25    affiliates, community clinics, or programs that treat
26    low-income or underserved individuals; paying for or

 

 

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1    subsidizing health care professionals who care for
2    low-income or underserved individuals; providing or
3    subsidizing outreach or educational services to low-income
4    or underserved individuals for disease management and
5    prevention; free or subsidized goods, supplies, or
6    services needed by low-income or underserved individuals
7    because of their medical condition; and prenatal or
8    childbirth outreach to low-income or underserved persons.
9        (3) Subsidy of State or local governments. Direct or
10    indirect financial or in-kind subsidies of State or local
11    governments by the relevant hospital entity that pay for
12    or subsidize activities or programs related to health care
13    for low-income or underserved individuals.
14        (4) Support for State health care programs for
15    low-income individuals. At the election of the hospital
16    applicant for each applicable year, either (A) 10% of
17    payments to the relevant hospital entity and any hospital
18    affiliate designated by the relevant hospital entity
19    (provided that such hospital affiliate's operations
20    provide financial or operational support for or receive
21    financial or operational support from the relevant
22    hospital entity) under Medicaid or other means-tested
23    programs, including, but not limited to, General
24    Assistance, the Covering ALL KIDS Health Insurance Act,
25    and the State Children's Health Insurance Program or (B)
26    the amount of subsidy provided by the relevant hospital

 

 

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1    entity and any hospital affiliate designated by the
2    relevant hospital entity (provided that such hospital
3    affiliate's operations provide financial or operational
4    support for or receive financial or operational support
5    from the relevant hospital entity) to State or local
6    government in treating Medicaid recipients and recipients
7    of means-tested programs, including but not limited to
8    General Assistance, the Covering ALL KIDS Health Insurance
9    Act, and the State Children's Health Insurance Program.
10    The amount of subsidy for purposes of this item (4) is
11    calculated in the same manner as unreimbursed costs are
12    calculated for Medicaid and other means-tested government
13    programs in the Schedule H of IRS Form 990 in effect on the
14    effective date of this amendatory Act of the 97th General
15    Assembly; provided, however, that in any event
16    unreimbursed costs shall be net of fee-for-services
17    payments, payments pursuant to an assessment, quarterly
18    payments, and all other payments included on the schedule
19    H of the IRS form 990.
20        (5) Dual-eligible subsidy. The amount of subsidy
21    provided to government by treating dual-eligible
22    Medicare/Medicaid patients. The amount of subsidy for
23    purposes of this item (5) is calculated by multiplying the
24    relevant hospital entity's unreimbursed costs for
25    Medicare, calculated in the same manner as determined in
26    the Schedule H of IRS Form 990 in effect on the effective

 

 

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1    date of this amendatory Act of the 97th General Assembly,
2    by the relevant hospital entity's ratio of dual-eligible
3    patients to total Medicare patients.
4        (6) Relief of the burden of government related to
5    health care of low-income individuals. Except to the
6    extent otherwise taken into account in this subsection,
7    the portion of unreimbursed costs of the relevant hospital
8    entity attributable to providing, paying for, or
9    subsidizing goods, activities, or services that relieve
10    the burden of government related to health care for
11    low-income individuals. Such activities or services shall
12    include, but are not limited to, providing emergency,
13    trauma, burn, neonatal, psychiatric, rehabilitation, or
14    other special services; providing medical education; and
15    conducting medical research or training of health care
16    professionals. The portion of those unreimbursed costs
17    attributable to benefiting low-income individuals shall be
18    determined using the ratio calculated by adding the
19    relevant hospital entity's costs attributable to charity
20    care, Medicaid, other means-tested government programs,
21    Medicare patients with disabilities under age 65, and
22    dual-eligible Medicare/Medicaid patients and dividing that
23    total by the relevant hospital entity's total costs. Such
24    costs for the numerator and denominator shall be
25    determined by multiplying gross charges by the cost to
26    charge ratio taken from the hospitals' most recently filed

 

 

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1    Medicare cost report (CMS 2252-10 Worksheet C, Part I). In
2    the case of emergency services, the ratio shall be
3    calculated using costs (gross charges multiplied by the
4    cost to charge ratio taken from the hospitals' most
5    recently filed Medicare cost report (CMS 2252-10 Worksheet
6    C, Part I)) of patients treated in the relevant hospital
7    entity's emergency department.
8        (7) Any other activity by the relevant hospital entity
9    that the Department determines relieves the burden of
10    government or addresses the health of low-income or
11    underserved individuals.
12    (f) For purposes of making the calculations required by
13subsections (c) and (e):
14        (1) particular services or activities eligible for
15    consideration under any of the paragraphs (1) through (7)
16    of subsection (e) may not be counted under more than one of
17    those paragraphs; and
18        (2) the amount of unreimbursed costs and the amount of
19    subsidy shall not be reduced by restricted or unrestricted
20    payments received by the relevant hospital entity as
21    contributions deductible under Section 170(a) of the
22    Internal Revenue Code.
23    (g) Estimation of Exempt Property Tax Liability. The
24estimated property tax liability used for the determination in
25subsection (c) shall be calculated as follows:
26        (1) "Estimated property tax liability" means the

 

 

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1    estimated dollar amount of property tax that would be
2    owed, with respect to the exempt portion of each of the
3    relevant hospital entity's properties that are already
4    fully or partially exempt, or for which an exemption in
5    whole or in part is currently being sought, and then
6    aggregated as applicable, as if the exempt portion of
7    those properties were subject to tax, calculated with
8    respect to each such property by multiplying:
9            (A) the lesser of (i) the actual assessed value,
10        if any, of the portion of the property for which an
11        exemption is sought or (ii) an estimated assessed
12        value of the exempt portion of such property as
13        determined in item (2) of this subsection (g), by:
14            (B) the applicable State equalization rate
15        (yielding the equalized assessed value), by
16            (C) the applicable tax rate.
17        (2) The estimated assessed value of the exempt portion
18    of the property equals the sum of (i) the estimated fair
19    market value of buildings on the property, as determined
20    in accordance with subparagraphs (A) and (B) of this item
21    (2), multiplied by the applicable assessment factor, and
22    (ii) the estimated assessed value of the land portion of
23    the property, as determined in accordance with
24    subparagraph (C).
25            (A) The "estimated fair market value of buildings
26        on the property" means the replacement value of any

 

 

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1        exempt portion of buildings on the property, minus
2        depreciation, determined utilizing the cost
3        replacement method whereby the exempt square footage
4        of all such buildings is multiplied by the replacement
5        cost per square foot for Class A Average building
6        found in the most recent edition of the Marshall &
7        Swift Valuation Services Manual, adjusted by any
8        appropriate current cost and local multipliers.
9            (B) Depreciation, for purposes of calculating the
10        estimated fair market value of buildings on the
11        property, is applied by utilizing a weighted mean life
12        for the buildings based on original construction and
13        assuming a 40-year life for hospital buildings and the
14        applicable life for other types of buildings as
15        specified in the American Hospital Association
16        publication "Estimated Useful Lives of Depreciable
17        Hospital Assets". In the case of hospital buildings,
18        the remaining life is divided by 40 and this ratio is
19        multiplied by the replacement cost of the buildings to
20        obtain an estimated fair market value of buildings. If
21        a hospital building is older than 35 years, a
22        remaining life of 5 years for residual value is
23        assumed; and if a building is less than 8 years old, a
24        remaining life of 32 years is assumed.
25            (C) The estimated assessed value of the land
26        portion of the property shall be determined by

 

 

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1        multiplying (i) the per square foot average of the
2        assessed values of three parcels of land (not
3        including farm land, and excluding the assessed value
4        of the improvements thereon) reasonably comparable to
5        the property, by (ii) the number of square feet
6        comprising the exempt portion of the property's land
7        square footage.
8        (3) The assessment factor, State equalization rate,
9    and tax rate (including any special factors such as
10    Enterprise Zones) used in calculating the estimated
11    property tax liability shall be for the most recent year
12    that is publicly available from the applicable chief
13    county assessment officer or officers at least 90 days
14    before the end of the hospital year.
15        (4) The method utilized to calculate estimated
16    property tax liability for purposes of this Section 15-86
17    shall not be utilized for the actual valuation,
18    assessment, or taxation of property pursuant to the
19    Property Tax Code.
20    (h) Application. Each hospital applicant applying for a
21property tax exemption pursuant to Section 15-5 and this
22Section shall use an application form provided by the
23Department. The application form shall specify the records
24required in support of the application and those records shall
25be submitted to the Department with the application form. Each
26application or affidavit shall contain a verification by the

 

 

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1Chief Executive Officer of the hospital applicant under oath
2or affirmation stating that each statement in the application
3or affidavit and each document submitted with the application
4or affidavit are true and correct. The records submitted with
5the application pursuant to this Section shall include an
6exhibit prepared by the relevant hospital entity showing (A)
7the value of the relevant hospital entity's services and
8activities, if any, under paragraphs (1) through (7) of
9subsection (e) of this Section stated separately for each
10paragraph, and (B) the value relating to the relevant hospital
11entity's estimated property tax liability under subsections
12(g)(1)(A), (B), and (C), subsections (g)(2)(A), (B), and (C),
13and subsection (g)(3) of this Section stated separately for
14each item. Such exhibit will be made available to the public by
15the chief county assessment officer. Nothing in this Section
16shall be construed as limiting the Attorney General's
17authority under the Illinois False Claims Act.
18    (i) Nothing in this Section shall be construed to limit
19the ability of otherwise eligible hospitals, hospital owners,
20hospital affiliates, or hospital systems to obtain or maintain
21property tax exemptions pursuant to a provision of the
22Property Tax Code other than this Section.
23(Source: P.A. 99-143, eff. 7-27-15.)