A lawsuit filed in Cook County Circuit Court against the Illinois Department of Revenue claims changes made in 2012 to the state’s charity care law that governs not-for-profit hospitals violates the state constitution, according to published reports.

The lawsuit was filed by two low-income women who charge that the changes hurt the ability of low-income residents to obtain free care. It alleges that the changes “impermissibly and unconstitutionally broadened” the definition of how hospitals can qualify for perks that include an exemption from property taxes and access to the tax-exempt market through the Illinois Finance Authority.

Illinois Gov. Pat Quinn last June signed the legislation that defused a fiscal threat posed to not-for-profit hospitals over their charity care activities. It was tacked on to an overhaul of Medicaid.

Lawmakers inserted the clarification of the charity care standards, in a move pushed by the Illinois Hospital Association that warned a state crackdown on hospitals’ property tax-exemption threatened the sector’s fiscal health.

Market participants considered the provisions a clear win for hospitals because they expanded the types of activities that count toward their “charity care” threshold. Some community groups said the new rules let hospitals off too easy.

The legislation broadened the definition of charity care to more closely mirror Internal Revenue Service rules that take into account a larger category of “community benefits.” Benefits provided to low-income individuals, free and discounted hospital care for the indigent, support for health care programs or services for the indigent, subsidizing physicians treating low-income persons now count, as does the difference between the cost of providing a Medicaid service and the state reimbursement.

The value of those charitable activities must equal or exceed the estimated value of a hospital’s property tax exemption. Hospitals that meet the test would also continue to enjoy a sales tax exemption.

A long debate over whether nonprofits provide enough charity care escalated in 2011 when the Illinois Department of Revenue moved to deny exemption applications for three hospitals for providing charity care equal to just 1% to 2% of their operating revenues. The state’s crackdown did not affect hospitals’ federal nonprofit status, which allows them to issue tax-exempt bonds.

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