Utah's Supreme Court is mulling over for the second time in eight years whether Intermountain Health Care's practice of cost-shifting to cover unpaid bills and keep its rural hospitals open constitutes charity care and exempts the health-care giant from property taxes.
The high court took the issue under advisement Tuesday after hearing arguments from lawyers representing IHC as well as from assessors from Cache, Salt Lake and Utah counties.The assessors are challenging IHC's tax-exempt status and the constitutionality of the State Tax Commission's standards to qualify for the exemption.
The concerns date to 1985, when the Utah Supreme Court ruled in another case involving IHC that nonprofit status did not guarantee tax exemption. That court said hospitals must meet certain guidelines in order to qualify for exemption. The tax commission responded in 1990 by issuing six standards.
Those standards for charitable status require proof that assets are dedicated to a charitable purpose; that no individual earns a profit; that there is no discrimination in treatment of patients; that there is a community charity plan; that each hospital's total gift to the community must exceed what it would otherwise pay in property taxes; and that satellite facilities be used for the charitable purpose.
There is no argument that IHC met the standards, attorneys agreed.
"Our dispute is that the standards don't comply with the (state) constitution," said Bill Peters, representing the assessors.
He said the standards have an "over-arching flaw by not giving any recognition to (IHC's) commercial activity."
"Commercial activity must be incidental and subordinate to charitable ones," Peters said. "Com-mer-cial activity is the predominant business of IHC."
Deputy Salt Lake County Attorney Karl Hendrickson added that IHC is not as concerned with meeting the medical needs of the poor as it is covering its costs. "We find nothing different between IHC and for-profit hospitals," he said.
Hendrickson focused on IHC's practice of cost shifting, or using paying patients to cover the bills of those who can't afford to pay. His arguments implied charity means giving without getting something in return.
"When you design a rate structure that recovers everything you gave, where's the charity?" he asked.
But IHC attorney Alan Sullivan countered that the concept of charity allows for the recouping of losses incurred by the indigent.
"That is how charity works," he said. "The alternative is deficit spending and bankruptcy."
He explained that the Utah Tax Commission's standards are more rigorous than any other state, demanding extensive detail on IHC's operations and an accounting of its annual activities.
In addition to providing care for the indigent, Sullivan characterized IHC's medical research, public education programs and special services as forms of charity.
"This court should resist the assessors' efforts to strangle charity," he said.
Chief Justice Michael Zim-mer-man questioned whether the charity standards should be applied to IHC as a health-care system or to its individual hospitals and clinics. He said the constitution requires taxes be applied and exempt on pieces of property, not groups of property.