A recent trial court decision could have significant, long-term consequences for the financial models of Pennsylvania nonprofit health care providers. Ruling that three nonprofit Chester County hospitals of the Reading, Pennsylvania-based nonprofit Tower Health system are not tax exempt "charities," a judge has ordered them to begin paying millions in annual local property taxes that fund local school districts. The Tower Health decision has led local municipalities and school districts across the commonwealth to consider tendering property tax notices to nonprofit health care entities that have long been deemed exempt from such expenses.

Background

Hospitals have long organized as nonprofit corporations and received recognition as tax-exempt organizations by the IRS. More than two decades after for-profit hospitals entered the market, there are still twice as many nonprofit hospitals as there are for-profits in the United States. In Pennsylvania, the ratio is even higher: more than 75% of all hospitals are organized as nonprofits. Generally speaking, the motivation for being a nonprofit hospital is straight-forward: by avoiding cash-draining dividends and some (but not all) taxes, the nonprofit has more money to devote to improving the delivery of health care.