Nonprofit hospitals pay taxes if bill passes

State Rep. Keith Regier, a Kalispell Republican who represents House District 5, has sponsored House Bill 305, a law that would eliminate property tax exemptions for most nonprofit hospitals, including Kalispell Regional Medical Center and North Valley Hospital.

At a House taxation committee public hearing Friday, Regier called the measure revenue-neutral. He said that any revenue gained from hospitals would be used to reduce property taxes.

He pointed out that property taxes pay for education, police and sheriff departments and road maintenance – all services that benefit hospitals.

“Property taxes are called shared sacrifice or shared responsibility,” Regier said. “Most people don’t enjoy paying property taxes. It’s like a mortgage that you never pay off.”

Regier alleged that nonprofit hospitals are “building large medical empires” by hiring doctors and buying their private practices that were once on the tax rolls.

He pointed out that physicians in private practice pay property taxes as well as equipment taxes, but receive less in Medicare reimbursements than hospitals, making it impossible to compete. Regier spoke to one physician who paid $87,000 in property taxes and $29,000 in equipment taxes.

“It’s easy to see the huge tax advantage that tax exemption gives,” he said.

Regier said hospitals may argue that they must provide charitable care, but said private practices also write off bad debt and hardship cases. He cited one that wrote off $325,000 in 2009 and $422,000 in 2010.

“Hospitals are not allowed to deny care, that’s true,” he said. “But they receive many benefits that private practices do not.”

Regier listed private fundraising through foundations as one way hospitals generate revenue not available to private practices. They also don’t pay the business equipment tax.

He said hospitals do charitable giving, but so do businesses and individuals that don’t receive a property tax exemption.

 He said nonprofits by definition aren’t organized for profit, but he said hospitals must make profits to survive. Regier said some highly placed individuals profit personally from nonprofits.

He listed total compensation of Northwest Healthcare top executives from a 2007 IRS 990 form at $545,000 for the Chief Executive Officer and $352,000 for the Chief Operating Officer.

Regier said he was starting with targeting nonprofit hospitals, but indicated he would look at other nonprofits in future bills. Speaking by phone from Helena on Friday afternoon, he said he expects the taxation committee chairman to set a vote on HB305 on Wednesday or later.

“I feel positive about it [passing],” he said.

He pointed out that the bill would most likely face extensive amendments if it continues through the legislative process.

 Testifying Friday in support of HB 305, Stan Watkins, owner of Kalispell Athletic Club, said he can’t compete with The Summit, a facility owned by Northwest Healthcare, the parent company of Kalispell Regional Medical Center.

Watkins said he pays $9,000 in property taxes while The Summit, a facility 10 or 11 times as large, pays $13,000 because of partial property tax exemptions received for hospital-referred patients receiving rehabilitation and other qualified services. He said The Summit would pay at least $153,000 if taxed on the same basis as Kalispell Athletic Club.

“That puts us at a huge disadvantage,” he said.

He also said The Summit is able to raise money for scholarships for low income people to use the facilities. Watkins said that no one would donate to him so that he could make more money.

Watkins echoed Regier’s concerns about nonprofit hospitals acquiring private practices and increasing the tax burden on other property owners.

“This is one thing you can do to help the community the most — make sure these people pay their fair share,” he said.

  Health-care representatives from around the state spoke against the bill. No one from Northwest Healthcare and North Valley Hospital attended the hearing, opting to have Bob Olsen of the Montana Hospital Association express opposition to the bill by both nonprofit and for-profit hospitals around the state.

Olsen said nonprofits reinvest revenue generated in excess of expenses in services and facilities to benefit the community. He cited a major benefit as charitable care, a cost that has soared into the millions during the recession for most hospitals.

“We don’t have stockholders that walk away with profits,” he said.

Olsen said nonprofits have to compete with private hospitals as well as other nonprofits but no one is competing to offer expensive, less profitable services like emergency rooms that are critical to communities.

He pointed out that government agencies like the state Attorney General’s Office have audited the value of services provided in exchange for tax exemptions and found that benefits equal or exceed the tax concessions.

According to Olsen, hospitals would have little choice but to pass the extra cost on to recapture the revenue lost to property taxes. Because government programs such as Medicaid and Medicare have fixed reimbursements and make up a large percentage of revenues, people with private insurance could face higher health-care costs.

The Montana Hospital Association representative said he believes nonprofit hospitals live up to their obligation to provide community benefits equal to their tax exemptions.

“These are community assets,” he said. “ Kalispell Regional Medical Center belongs to Kalispell.”