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Hospitals boost economy in ways other than tax revenue

DeKALB – Local officials say the more than $400 million that KishHealth System pumped into the local economy in 2012 far outweighs the roughly $2.8 million they did not have to pay in property taxes because of their tax exempt status. 

Kishwaukee Community Hospital and Valley West Community Hospital provided a $443 million boon to the DeKalb County economy in 2012, according to a new report issued by KishHealth System and the Illinois Hospital Association. The hospitals also provided $5.8 million in free care to people who couldn’t afford to pay for services in the fiscal year that ended in April 2013.

As a nonprofit organization, KishHealth does not pay property taxes, but it is required to estimate its annual tax liability. KishHealth’s CEO Kevin Poorten said the organization would have paid $2.8 million in property taxes last year if it didn’t have a property tax exemption, but it maintained its exemption by offering free care and other services known as charity care, exceeding the tax amount.

“We work in a significant, meaningful way with community organizations,” Poorten said. “If we had to pay taxes, we would have to take a step back and the programs we support become more vulnerable.”

Combine the economic impact and the services to DeKalb County’s low-income and uninsured residents, and local leaders say forgoing the $2.8 million is worth it.

Economic Impact

KishHealth System is the second-largest employer in DeKalb County, employing more than 2,000 full and part-time people between Kishwaukee Community Hospital and Valley West who earn an
average wage of $28 an hour, Poorten said. Only Northern Illinois University has more employees.

“I would never argue for anything about their property tax-exemption because it’s not an issue of dollars and cents,” Sandwich Mayor Rick Olson said. “Having [Valley West] here is a huge advantage and economic tool.”

Valley West has 185 full-time employees and a payroll of $14.7 million, which generates $35 million in economic activity and creates an additional 230 jobs, the report states. Olson said the hospital also falls among the top community amenities touted by leaders in trying to recruit people to the area.

In DeKalb, Kishwaukee has 726 full-time employees. The hospital’s $56 million payroll generates around $133 million in economic activity and creates another 905 jobs, according to the report.

“My general feeling is the advantages of what the hospital provides in the community outweighs the negative of not having them on our tax rolls,” DeKalb Mayor John Rey said.

Beyond payroll, the hospitals generated another $274 million in goods and services and capital spending, according to the report.

“I wouldn’t trade it for the world, or money,” Olson said.

The future of charity care

Nonprofit hospitals in Illinois are required to provide charity care in exchange for their tax exempt status, which Illinois hospitals have enjoyed for more than 100 years.

Under a law approved in 2012, the basic test for a hospital measures if the value of charity care and other specified services provided amount to more than what the hospital would owe in property taxes.

“The industry likes that there’s a process to follow,” Poorten said. “Because there is the bright line, we now know what we need to do.”

KishHealth System provided $5.8 million in charity care in the fiscal year that ended in April 2013, according to the recent report, more than double the $2.8 million it would have owed in property taxes during the same period.

Hospitals statewide provided $704 million in charity care in 2013, according to the Illinois Hospital Association report, but what hospitals do to earn their tax-exempt status is about much more than charity care, said Illinois Hospital Association spokesman Danny Chun.

“Charity care is kind of an anachronism for measuring what’s really going on,” Chun said. “The world is changing.”

Among the things changing is the reduction of reimbursements for Medicare and Medicaid. According to the report, KishHealth provided $29 million in unreimbursed services to Medicare and Medicaid patients.

Last fiscal year’s charity care was a $1.8 million increase over the previous year. Poorten said that was because of a program the hospital implemented that presumes some patients won’t be able to pay for health services based on other factors, such as a patient being eligible for federal housing assistance. Patients eligible for presumptive charity care are told the charges for care they receive, but the hospital doesn’t actively try to collect for those services.

The presumptive charity care program is mandated by the 2012 law, but KishHealth implemented it in fall 2011, according to chief information officer Heath Bell. As part of the law, rural hospitals must provide free care to patients without health insurance who earn up to 125 percent of the poverty level.

Hospital officials aren’t sure how much charity care their facilities will provide in the future with changes under the Affordable Care Act.

“It’s really too early to speculate,” Poorten said. “There are too many moving parts to even guess how it will be affected.”

About 500,000 Illinois residents are estimated to have signed up for health insurance either through the marketplace or under Medicaid expansion, Chun said, leaving 1.2 million state residents uninsured.

“Those people will still need charity care,” Chun said. “[The Affordable Care Act] was a grand experiment. It’s going to take several years to play out.”

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