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Alivio Medical Center v. Illinois Department of Revenue

September 30, 1998


The opinion of the court was delivered by: Presiding Justice South



Plaintiff, Alivio Medical Center, filed a real estate tax exemption complaint with the Board of Appeals of Cook County and an application for property tax exemption for the year 1993 with the Illinois Department of Revenue (Department), which denied the application. Plaintiff requested a formal hearing which was held before an administrative law Judge (ALJ). After the hearing, the Department issued a denial. Plaintiff then filed a complaint for administrative review in the circuit court of Cook County, which affirmed the Department's decision.

The sole question presented for review is whether or not plaintiff's property is exempt from taxation under our constitution and the applicable statute.

Alivio Medical Center, a comprehensive ambulatory medical care facility, was incorporated on March 21, 1988, under the General-Not-For-Profit Corporation Act of 1986. Alivio has no capital stock or shareholders and has 17 uncompensated members on its Board of Directors. Alivio's by-laws state its purpose is to: (a) increase Hispanic access to comprehensive, affordable quality health care through the availability of bilingual and bicultural personnel; (b) increase the Hispanic community's knowledge and understanding of wellness and factors leading to ill health; (c) promote effective communication between Hispanic consumers and health providers; and (d) increase the representation of Hispanics in health care professions at all levels. Alivio's services are available to anyone regardless of color, race, national origin, religion or gender.

Prior to Alivio's ownership of the property, the property was granted exemption from real estate property taxation based upon its ownership by Mercy Hospital. Alivio is exempt from Federal income tax payment pursuant to a 501(c)(3) designation from the Internal Revenue Service.

Alivio's fiscal year ends on June 30th. For the period from July 1, 1992 to June 30, 1993, Alivio's operating revenue was $1,855,673. Of this revenue, 59% was garnered from patient fees, 25% from contributions, 15% from federal grant income, and 1% from other sources. Of the patient fees, 78% came from Medicaid reimbursement, 15% came from patient collections, 5% came from third party reimbursement and 2% came from Medicaid reimbursement. Alivio's operating expenses for that period were $1,717,417.

In 1993, Alivio employed 3.5 physicians. This included a pediatrician, an internist, a family practitioner and a part-time obstetrician. Alivio also employed a full-time nurse and a number of midwives. Alivio's staff physicians were not allowed to engage in any competitive private practice but were allowed to work at another clinic or hospital as well as Alivio's medical center. Alivio's director was paid $84,249 that year and its staff physicians received salaries ranging from $70,000 to $90,000 that year, depending on their experience.

Alivio has an established policy for billing. All new patients are referred to the financial evaluator for assessment of their capabilities to pay. The required payments for patients expressing financial need are based upon the poverty guidelines promulgated in the Federal Register. This evaluation is done on the first visit and six months thereafter.

Alivio initially charges a patient the same amount regardless of the patient's financial classification. The bill then proceeds to the financial officer where it is adjusted to the appropriate financial category. Alivio has two categories of payment: self-payment and Medicaid. Only self-pay patients are referred to the sliding scale evaluation. Alivio files its Medicaid claims on a fee-for-service basis, and Medicaid patients who lose their eligibility are referred to the financial evaluator for the sliding scale evaluation.

Alivio bills its patients on the day of the visit. If the patient cannot pay on that day, a statement of account is mailed the next business day and remailed at three 30-day intervals until the bill is paid in full. After 180 days, the unpaid portion of the account is written off following the recommendation of the patient account coordinator and after the approval of the Director of Finance and the Executive Director. Alivio requests payment during any patient visits within that 180-day period. Alivio has no fee-waiver policy but Alivio estimates approximately 25% of its bills are written off. Patients with outstanding balances are still eligible to receive medical treatment.

On October 30, 1995, the ALJ recommended that Alivio be denied the real estate property tax exemption. This recommendation was based on the determination that Alivio was not a charitable organization. Specifically, the ALJ determined that Alivio made a profit in 1993, did not dispense charity to all that needed or applied for it, placed obstacles in the way of those seeking benefits, and the organization's primary use of the property was not for charitable purposes, all in contravention of the criteria established by the Illinois Supreme Court.

On November 1, 1995, the Department's Director, Kenneth E. Zehnder, accepted the ALJ's recommendation and denied Alivio the exemption. On December 19, 1995, Alivio filed a complaint for administrative review in the circuit court.

At the circuit court proceedings, Alivio sought reversal of the Department's decision, asserting that it did not make a profit, and did not place obstacles in the way of those seeking charity. The circuit court affirmed the Department's decision, holding that Alivio failed to prove it "primarily" used its property for charitable purposes. The court specifically looked to Alivio's by-laws and determined that Alivio's policy of writing off bad debts was not the ...

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