Court Opinion

ID: 9737764
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:34:12.147509+00
Date Added: 2024-06-11T07:24:01.188757
License: Public Domain

YETKA, Justice
(dissenting).
I respectfully dissent from the majority holding. It is my opinion that the Hospital Annex and Wyoming facilities which are detached from the main hospital building in Chisago City ought to be exempt from property taxation. The Commissioner of Taxation ruled that they are not.
The health care system in America has undergone dramatic change within the past decade. Medicare and Medicaid have systematically reduced their payments to hospitals for patient services. Third-party payors — HMO’s and private insurers — have imposed restrictions on reimbursement. As a result, hospital revenues have dropped drastically. In order to survive, hospitals have had to look for alternative, more cost-effective ways to provide patient service. Many have set up outpatient and ambulatory care facilities, often in shopping malls and neighborhood centers remote from the hospital inpatient unit.
Small rural hospitals especially have suffered in the new environment. They lack a large patient base and opportunities for growth. They have fewer sources of patient revenue and charitable donations than large institutions. Moreover, they face fierce competition from large metropolitan hospitals that seek to expand their own patient base in these difficult times.
The hospital in Chisago City, like other small rural hospitals, was in financial trouble. Hospital occupancy was dropping rapidly. Admissions were down. Average length of stay was declining. There were several doctor clinics in the area, but the doctors were referring patients to the Twin Cities, Forest Lake, or elsewhere because the hospital facilities were not adequate.
In response to these problems, the hospital district and the doctors formed a nonprofit corporation, Chisago Health Services (CHS). CHS took over both the clinics and the hospital and operated them for nonprofit purposes. The doctors became employees of CHS. Non-doctor members of the CHS Board of Directors set the doctors’ salaries annually. The new corporation is non-profit, so there are no profits to distribute to the doctors, and their sole remuneration is their salaries. The detached facilities at Wyoming and the Hospital Annex, formerly private clinics, now are organized as ambulatory care centers. They perform outpatient surgery, physical therapy, and other outpatient services which modern full-service hospitals provide.
The commissioner held that, while the main hospital in Chisago City is exempt from property taxes as a public hospital, the facilities at Wyoming and the Hospital Annex are not exempt. It seems to me that these facilities qualify for tax exemption as “reasonably necessary for the accomplishment of [the hospital’s] purposes.” *393Abbott-Northwestern Hosp., Inc. v. County of Hennepin, 389 N.W.2d 916, 919 (Minn.1986).
The form of providing hospital services is changing. Today many hospitals have only a 10 or 20 percent occupancy rate compared to 30 years ago when 90 to 100 percent of inpatient beds were filled. Today Medicare, Medicaid, and private insurers demand that patient care be delivered in a more cost-effective way, that is, on an outpatient basis. Today hospitals derive their revenues more from short-term patients and those who receive ambulatory care than from long-term inpatients. It is reasonable for a hospital to enlarge its outpatient service and to provide care in remote locations which are more accessible to walk-in patients.
Within the spectrum of hospital services, even under the traditional inpatient model, there have always been services that operated at a loss. Other services broke even. Some brought in revenue, and they offset the losses from those services which a community hospital must offer to its public even if it loses money on them. There have always been hospital-based employee physicians staffing the laboratory, radiology, anesthesia and other departments. There have always been outpatient care programs, most visibly in emergency departments. CHS has brought together elements which, if placed under the roof of the main hospital building, would undisput-ably be tax exempt. It appears to me that they are challenged because they are physically separated from the main hospital.
CHS was formed in order to meet the needs of a changing health care environment and to attract more doctors. Before CHS was organized, there were 11 doctors in the area; now, 14 doctors serve the area as CHS employees. The number of patients has increased and so have revenues. Under its new structure, CHS is financially viable and may survive to serve this rural community. In this light, the two ambulatory care facilities may be more than “reasonably necessary” to accomplish the hospital’s purposes; they may be essential to this hospital’s survival.
I believe, therefore, that relator has met the test required by the legislature; thus, I dissent.