Bill Scrutinizes Nonprofit Property Tax Structure

By Beacon Staff

A bill in the Montana Legislature is highlighting the concerns of independent health care providers over the growing influence of nonprofit hospitals and their tax-exempt status.

The bill, sponsored by Rep. Keith Regier, R-Kalispell, proposes to eliminate property tax exemptions for most nonprofit health care providers, including hospitals.

While it has been tabled, effectively killing it, Regier and others feel the bill has succeeded in publicly raising questions regarding the state’s tax structure for nonprofits and the role of hospitals in local economies.

At a House committee hearing, Regier explained that he supports the bill for two reasons. The first is that private businesses and homeowners pay taxes to fund services that hospitals use, such as police and roads.

Secondly, he said hospitals directly compete with businesses that pay property taxes. Regier contends that hospitals are “building large medical empires” and purchasing properties – including offices and apartments – that are in turn taken off the tax rolls. The bill would allow counties to vote on the tax-exempt status of critical access hospitals, which are smaller, more rural facilities.

Regier said he planned to introduce similar bills for churches and low-income housing facilities, but likely won’t in light of the hospital bill’s status.

“There is a large amount of property in Montana that is exempt from this shared responsibility, yet they all receive the benefit of the services that property taxes provide,” Regier said. “When a property receives tax-exempt status, the paying properties have their taxes increased. The burden grows.”

Eight hospital representatives, including several chief executives, spoke against the bill at the hearing, while there were two supporters. One was Rep. Don Roberts, R-Billings, and the other was Stan Watkins, who owns the Kalispell Athletic Club.

In illustrating what he calls an “unfair advantage that the nonprofits hold over private enterprise,” Watkins said he pays nearly the same in property taxes for his small health club as the Summit Medical Fitness Center does through its mostly exempt tax system.

The Summit, owned by Kalispell Regional Medical Center’s parent company Northwest Healthcare, is about 11 times larger than the Kalispell Athletic Club in size, Watkins said, and even bigger than that in terms of dollar value.

Watkins also said hospitals are buying up other businesses: “It’s kind of the 800-pound gorilla in the room.” And as a nonprofit, the Summit can secure money through other avenues, such as fundraisers, Watkins said.

“Imagine if I myself were to say, well, let’s do a fundraiser for Stan Watkins and the Kalispell Athletic Club,” Watkins said. “It would be laughed off.”

Nationwide and in Montana, physicians are increasingly leaving private practice and joining hospitals. Moreover, as hospitals grow, they often expand their business ventures and move into specialty areas, which can send ripples through local economies. In Kalispell, there was an outcry from independent pharmacy owners in 2008 when Northwest Healthcare announced the opening of its own pharmacy.

Regier said when hospitals offer services such as pharmacies, health clubs, massage therapy, physical therapists and more, they are “in direct competition with private business – private businesses that pay property taxes.”

However, Jim Oliverson, a vice president with KRMC, said parent company Northwest Healthcare pays $1 million in property taxes on its for-profit ventures, including the pharmacy, medical equipment supplier and pain management group.

“What this legislation would do, in a simple sentence, is add more than $2 million in property taxes,” Oliverson said.

Opponents of the bill argue that hospitals, as charitable organizations, pay other dues in lieu of property taxes, most notably charity care – free or discounted services. Bob Olsen of the Montana Hospital Association said any profits hospitals make are “reinvested back into the community,” not placed in the hands of shareholders and owners.

Olsen cited an Attorney General report that details the charity care contributions of Montana’s hospitals. The 2010 report concludes: “The 11 large hospitals have increased charity care significantly over the past three years.”

Nonprofit hospitals are not allowed to turn patients away. Northwest Healthcare provided $4 million in charity care last year, Oliverson said, and that number will exceed $5 million this year.

“If we were a for-profit, would we have to take in those people?” Oliverson said. “I think the answer is ‘no.’”

Furthermore, Olsen said hospitals provide other vital community services like emergency rooms and mental health resources.

“I think that the simpler way to deal with this is force us to live up to our obligations as tax-exempt charitable organizations,” Olsen said. “I think we’re doing that, I think the studies have demonstrated that and I think that we bring that value to the community.”

Adele Rittmueller, CEO of Flathead Orthopedics, believes it’s important to hold public discussions on the increasing influence of hospitals and large health systems, in regards to both for-profit business ventures and nonprofit tax exemptions. She said her organization is “one of the few specialty groups left” in the region to be unaffiliated with the hospital.

“I don’t know if this particular legislation is the answer, Rittmueller said, “but I think it’s raising some really important questions about the not-for-profit status of hospitals and the business ventures they’ve moved into in recent years.”