Hospitals in Maine, NJ face tax exemption battles

Legislation pending in Maine and an ongoing legal battle in New Jersey could wind up undoing some tax exemptions for not-for-profit hospitals.

Maine Gov. Paul LePage's current budget proposal calls for property owned by not-for-profit organizations, including hospitals, to be taxed at half the current commercial property tax rates, the Bangor Daily News reported. The proposal is intended to shore up the loss of revenue projected when Maine eliminates revenue sharing from municipalities in 2017. LePage has argued that such institutions require more infrastructure to support, and therefore should be taxed at some level.

Not surprisingly, the state's hospitals have lined up against the proposal. "A tax on hospitals is a sick tax," Jeff Austin, vice president with Maine Hospital Association, told Bangor Daily News. He added that with the average non-profit's margin at around 1 percent, there are no additional funds available to pay such a tax.

Although LePage was able to engineer a one-time payment of nearly $750 million in Medicaid payments from the federal government, he has refused to expand Medicaid eligibility under the Affordable Care Act, putting a long-term squeeze on hospital revenue, according to the publication.

In New Jersey, a legal battle has been simmering over the tax exemption for Morristown Medical Center, which is owned by Atlantic Health System. Officials with the municipality of Morristown have argued that the way the hospital operates--such as leasing out medical offices to doctors through a for-profit subsidiary--should lead to a revocation of its not-for-profit status. A state tax court judge is expected to rule in the case shortly. A loss for the hospital could impact how not-for-profit hospitals throughout New Jersey conduct business and structure subsidiary ventures, according to NJ Spotlight.

The battles in Maine and New Jersey illustrate some of the controversies regarding not-for-profit hospitals throughout the country, many of which have healthy bottom lines and often pay their top executives well into the seven figures, even though many skimp on providing charity care. However, the only hospital system to lose any tax exemptions in recent years is the Provena Health system in Illinois. That led to a revamp of state law that makes it unlikely there will be more revocations in the future.

To learn more:
- read the Bangor Daily News article 
- check out the NJ Spotlight article

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