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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.”


‘Nonprofit’ hospitals as ‘legal fictions’


New Jersey Tax Court Judge Vito Bianco’s ruling that  the Morristown (N.J.) Medical Center failed to operate as a nonprofit organization could have implications on other New Jersey hospitals, according to a report.

Indeed, we at Cambridge Management Group guess  that it might have national implications.

Judge  Bianco ruled June 26 that the medical center didn’t run as nonprofit for three years beginning in 2006. The ruling could cost the hospital  $2.5 million to  $3 million per tax year. reported that the New Jersey Hospital Association said that the Morristown decision “will have repercussions beyond one hospital. The implications of this decision will be the topic of much further discussion and perhaps will need a legislative solution.”

The news service said that Judge Bianco said it was time for the state legislature to set a new standard for exemption. “For the purposes of the property-tax exemption, modern nonprofit hospitals are essentially legal fictions,” he wrote. reported that state Sen. Joseph Vitale, chairman of the Senate Health Committee, said he has  requested a bill to be drafted to clarify the tax-status of “nonprofit” hospitals.

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