Source: North Jersey.com
A ruling in state tax court that has taken away the property-tax exemption of a major medical center because it operates more like a for-profit business than a charitable institution could have implications for other non-profit hospitals around the state if the municipalities that host them seek to collect property taxes.
Judge Vito Bianco declared in a closely watched opinion that Morristown Medical Center failed “to qualify for property tax exemption” for three years beginning in 2006. The case has been in the court system for the better part of a decade. It is unclear how the ruling applies to later years.
Non-profit hospitals have changed a lot since their origins as “charitable alms houses providing free basic medical treatment to the infirm poor,” he said, likening Morristown’s business model to that of its “new for-profit competitors.” Eight hospitals statewide currently are owned by for-profit companies, with two more due to be acquired at the end of this month. These investor-owned facilities pay taxes, unless they negotiate tax abatements with local authorities.
Like the for-profits, “today’s non-profit hospitals have evolved into labyrinthine corporate structures, intertwined with both non-profit and for-profit subsidiaries and unaffiliated corporate entities,” Bianco wrote. They “generate significant revenue and pay their professionals salaries that are competitive even by for-profit standards.”
“For purposes of the property tax exemption, modern non-profit hospitals are essentially legal fictions,” Bianco wrote, saying that it was time for the Legislature — and not the courts — to set a new standard for such an exemption.
“He’s reversing 100-some years of tradition in the state of New Jersey,” said Frank Ciesla, who represents hospitals as head of the health law practice at Giordano, Halleran & Ciesla. For most municipalities, “this is obviously a potentially huge source of revenue,” he said. “I’ve got to believe that if this was sustained, the hospital would be largest ratable in many communities.”
But for hospitals that are struggling financially, the obligation to pay taxes could “push some hospitals over the edge,” Ciesla said.
The case will almost certainly be appealed, he added. “There’s an outside possibility that the hospital would have a case that goes to the U.S. Supreme Court,” he said. Another solution would be legislation that provides explicit, “black letter guidance” about the requirements for a property-tax exemption, he said.
State Sen. Joseph Vitale, chairman of the Senate health committee, said Wednesday that he had already requested a bill to be drafted to clarify that tax-status of non-profit hospitals.
As a condition of maintaining their non-profit designation, Vitale said, hospitals should require the physician practices that lease space on their property to participate in the same insurance contracts — and accept the same in-network reimbursements from insurance companies — that the hospitals do. The measure would reinforce a legislative effort to rein in surprise medical bills from hospital-based physicians, which Vitale and three Assembly Democrats hope to advance this fall.