CHICAGO & NEW YORK--(BUSINESS WIRE)--A New Jersey tax court ruling that one nonprofit hospital in that state is not exempt from property tax for several recent years is unlikely to spread to other states, Fitch Ratings says. The court ruled that Morristown Medical Center used its property to operate for-profit businesses. The decision may be appealed.
In our view, this is one of only a few cases that have found against nonprofit hospitals in decades. In many more cases, hospitals have prevailed as attempts to deny their tax-exempt status by local tax assessors and tax boards resulted in providers strongly defending their community benefit to local and state political leadership. Notably, in 2011, the Illinois Department of Revenue attempted to remove the tax exemption from three hospitals. Within weeks, the governor had asked the Department for a reprieve.
Fitch believes the challenge to the sector's tax-exempt status was a greater risk during the recession when property assessment declines related to the housing crash created property tax pressures for many local governments. During that time, very few hospitals were impacted. As the housing market has recovered in many areas, this legal risk has declined.
However, we expect mergers and acquisitions and alignments among hospitals and healthcare providers to be brisk in the near term. The coordination and development of clinically integrated networks will continue. And the desire to leverage size and scale for payor and supply negotiations, while preserving independence and flexibility, will lead to the exploration of alternative partnership structures. This continued alignment across continuum of care could raise legal risk to hospitals' nonprofit status, as it will integrate for-profit and nonprofit entities.
Additional information is available on www.fitchratings.com.
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