Government, Health Care, and Real Estate

Taxing of satellite health centers needs clarity

March 27, 2017
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How much land can a nonprofit hospital remove from the tax rolls? That’s a key question as a tax tribunal judge recently ruled against Grand Rapids Township and for Spectrum Health.

Like most hospitals in Michigan, Spectrum Health is a nonprofit corporation, and as such, it is expected to provide public benefits in return for tax-exempt status. It also is exempt from paying income taxes. Most often, the public benefit is expressed in terms of service to people unable to pay. Many hospitals have touted their unpaid bills as evidence of this benefit.

Obamacare has challenged some of the apparent free care, since more people than ever have had coverage of some type, and the number of uninsured has plunged. Under Obamacare, if hospitals had more patients covered and if they have not reduced their charges, the hospitals have had a financial windfall. Benefits to warrant tax emption as a nonprofit organization have to be calculated in other ways.

Spectrum has been engaged in a program of obtaining land and building integrated care centers. These centers go far beyond providing office space for Spectrum-employed physicians. They provide radiology services, lab services, surgical services and more. Such centers are not built where the poor and downtrodden might show up for services. They are in our suburban areas where many of our more affluent, well-insured people reside. As such, they are designed to make a profit.

The tax tribunal seems to believe that a nonprofit hospital needs auxiliary income to sustain its programs. It takes no position on the need for any specific programs or their efficiency. Hence, added hospital income is good in the tax tribunal’s view. Even a township’s claim that a health facility uses a disproportionate amount of public safety services (police and fire) is ignored by the tax tribunal, which seems to believe that all other taxpayers should foot the bill.

Following this reasoning, it then would be acceptable for a nonprofit hospital to acquire large plots of suburban land for typically suburban ventures. For example, a hospital might buy or get a donor to give land on a major suburban strip to build and operate a car dealership. Revenue from this then might be used to support the hospital. The hospital might open a suburban restaurant appealing to the well-heeled crowd to generate more revenue. How about a commercial laundry?

The tax tribunal seems to feel that revenue itself is the key. It can be argued that office space, car dealerships, restaurants, laundries and the like have been successfully provided by private, tax-paying business for years. However, now the hospitals that don’t pay regular taxes can crowd out the tax-paying businesses.

Competition between nonprofit hospitals and local for-profit business has stirred controversy in others parts of the country. Local chambers of commerce and the Small Business Administration have had issues in the South and West, challenging local hospitals.

If Grand Rapids Township is not successful in overturning the tax tribunal ruling, it would be interesting to have the community challenge Spectrum Health on this matter.

Perhaps the social service organizations dealing with very marginalized people should organize to bring them to the suburban integrated care center to receive the charity care that Spectrum Health says it provides. Perhaps they should enter the private offices of Spectrum Health physicians to seek routine care or specialized care. After all, it is part of Spectrum Health’s mission to provide for the least of us. The suburban centers indeed should welcome all comers.

Is this a rant about Spectrum Health? Absolutely not. The tax tribunal decision simply brings this issue to the fore.

All our hospitals have been operating satellite centers, and the broad method of handling them in terms of taxes needs a clearer vision. Revenue for revenue’s sake only makes some richer at the expense of others.

Perhaps everyone might remember the story about the goose that lays the golden eggs. By the time people wake up, it may be too late to remember who actually provides the public benefits of roads, policy, fire protection, utilities, etc.

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