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Challenges to tax-exempt hospital status continue to increase


Palisades Medical Center, being sued for allegedly not being a real nonprofit.

The number of lawsuits in New Jersey challenging not-for-profit hospitals’ tax exemptions continues to swell.

“I think it is evidence of what we feared would occur if we did not get a statewide legislative solution enacted into law,” said Betsy Ryan, New Jersey Hospital Association CEO, of the legal actions.

Cash-strapped Municipalities  across America are increasingly eyeing hospital tax exemptions, and asserting that many hospitals are operating more like for-profits, with, for example, very high executive compensation.

Modern Healthcare reports that some of the lawsuits, such as the one filed last Friday by the North Bergen Township against the 206-bed Palisades Medical Center, are challenging hospitals’ tax-exempt statuses in general. About a dozen of the legal challenges involve municipalities seeking tax money that hospitals didn’t have to pay in the last year or two.”

The challenges were filed after a New Jersey tax court ruled against Morristown (N.J.) Medical Center in June.

“In that case, the judge said that because the hospital operated in many ways like a for-profit business, it should not be exempt from property taxes. The judge also concluded that if all hospitals operate like Morristown then ‘for purposes of property-tax exemption, modern nonprofit hospitals are essentially legal fictions’—opening the door to similar challenges across the state. The town and hospital in that case ultimately settled for $26 million.”

“In response to that ruling, the New Jersey Legislature passed a bill in January that would have solidified hospitals’ tax exemptions in exchange for them paying fees to their municipalities. Gov. Chris Christie, however, didn’t sign the bill, resulting in a pocket veto.”


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