Fitch: IL Not-For-Profit Hospitals Face Increased Taxes

NEW YORK--(BUSINESS WIRE)-- Fitch believes the denial of the property tax exemption for not-for-profit hospitals in Illinois is an additional credit concern, which could further pressure the financial performance and credit profile of healthcare providers in the state. Combined with weaker inpatient volumes, tighter reimbursement, and delayed reimbursement from the state, the added expense of property taxes could pressure operating profitability and cause negative rating pressure for certain entities rated by Fitch.

Last year, the Illinois Department of Revenue (IDOR) ruled that three not-for-profit hospitals in Illinois did not provide enough charity care to qualify for the property tax exemption. IDOR also said it planned to review the property tax exemption granted to 15 other not-for-profit healthcare providers but did not make the process clear. The ensuing political discussion convinced Illinois Governor Pat Quinn to postpone the reviews until the state legislature could identify the qualifications for the exemption. In March, with the legislation deadlocked, Governor Quinn ordered IDOR to continue its reviews. The impact of this decision varies by care providers, but we estimate it to be approximately 1%-1.5% of operating revenues.

The challenge from IDOR comes at a difficult time for providers, as the sector is being pressured by declining inpatient utilization, increasing charity and self-pay volumes, and tighter reimbursement from commercial and governmental payors.

While Fitch believes it will be more difficult for lower rated borrowers to absorb the added expense of property tax payments, the credit impact will be reviewed on a case-by-case basis. Fitch will continue to monitor the developments of this issue both inside and outside the state of Illinois. For more details on the Illinois property tax exemption issue in Illinois, see "Illinois Property Tax Exemption Battle," dated April 13, 2012, available at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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KEYWORDS:   United States  North America  Illinois  New York

INDUSTRY KEYWORDS:   Health  Hospitals  Professional Services  Finance

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