GRAND RAPIDS — Spectrum Health stands to regain more than $747,000 it paid in property taxes after successfully earning tax-exempt status on a medical center in Grand Rapids Charter Township.
A Michigan Tax Tribunal judge ruled Spectrum Health Medical Group’s Integrated Care Campus on East Beltline Avenue meets state law and a precedent-setting Michigan Supreme Court ruling on what constitutes a charitable health care venture deserving a tax-exempt status.
Judge David Marmon ordered Grand Rapids Charter Township – which late last week appealed the ruling to the Michigan Court of Appeals – to return the property taxes collected on the $48 million care campus that Spectrum Health opened in 2014. He also called on the township to adjust the tax status for the two parcels in question.
“The fact is we’re well within the law to have exemption,” said Steve Heacock, vice president of public affairs and research at Spectrum Health. “Spectrum Health is committed to improving the health of the community and we serve anyone who comes to our doors with a need, and our effort is to eliminate pain and suffering and provide good health care. That makes us a charitable organization.”
Township records indicate Spectrum Health paid $747,191.68 on summer and winter property tax bills for 2015 and 2016 on the two parcels.
Grand Rapids Charter Township decided to appeal the ruling, citing the $442,346 in property tax hit it would take for the 2016 tax year alone. Half the tax revenue in 2016 went to the Forest Hills Public Schools and the rest was split between the township, Kent County, Kent Intermediate School District, Grand Rapids Community College and Kent District Library.
“The lost revenue will then be passed on to the remaining local taxpayers either through a reduction in services that make our community safe and viable or through increased taxes paid by the remaining community members (primarily homeowners) through voted millages,” township trustees wrote in a statement.
Spectrum Health filed the case with the Michigan Tax Tribunal in May 2015 after the township treated the property as taxable. The Grand Rapids-based health system argued it was formed as a charitable organization providing medical care to all and that the Integrated Care Campus deserved tax-exempt status.
After winning the case, Spectrum Health now will seek tax-exempt status of other medical campuses, including similar integrated care campuses in Holland Township and Ionia.
“We have an obligation, as much as we can, to keep health care costs as low as possible,” Heacock said. “We will seek exemption wherever we believe we deserve it.”
Spectrum Health has been developing integrated care campuses in markets across the region to consolidate at a single location its primary care and specialty physicians, plus medical services such as CT and MRI imaging. The idea is that having all care housed together offers more convenience for patients and leads to better continuity of care between doctors, as well as improved costs.
Heacock notes Spectrum Health’s latest integrated care campus that opened in late 2016 was granted tax-exempt status by Muskegon Township. Other campuses are under development in Algoma Township near Rockford and in Ada.
In Grand Haven Township, a joint venture with Holland Hospital that’s building a $55 million medical campus agreed to pay an annual sum in lieu of taxes. Under the arrangement, Health Pointe LLC will pay Grand Haven Township $43,200 to support public services, with the amount adjusted annually for inflation.
In his ruling, Marmon found Spectrum Health met state law and six factors created in the Michigan Supreme Court decision 11 years ago. That decision reversed Tax Tribunal and lower court rulings for the City of Cadillac, which argued Wexford Medical Group did not qualify as a charitable institution and that its facility did not qualify for tax-exempt status under the state’s property tax law.
Grand Rapids Charter Township based its case in part by arguing the Spectrum Health Medical Group was formed for the benefit of doctors. The medical group started with about 40 doctors and, after a number of practice acquisitions, has grown to become the largest physician group in the region with more than 800 doctors.
Under their employment contract, physicians are expected to use Spectrum facilities and resources, the township said. The township also argued Spectrum actually provides little charity care at the Integrated Care Campus, which was a key issue in the City of Cadillac/Wexford Medical case.
“[I]n this particular case what they’re trying to do here as we continue on is they’re not focusing on charitable. They’re not focusing on affordable, like Wexford does. They’re just focusing on ‘let’s provide access’ and, also, ‘let’s facilitate an integrated continuum of care for patients through a multi-specialty group practice model,’” attorney Andrea Crumback of Mika Meyers PLC said on behalf of the township in oral arguments to the Tax Tribunal on Jan. 5, according to a transcript.
Judge Marmon rejected that argument. In his ruling that the Integrated Care Campus met the law and precedents in the Wexford case, he wrote “there is nothing incompatible with charity in striving to provide access to high-quality medical care.”
“A charitable institution is not required to strive for mediocrity as a condition of its being considered a charitable institution,” he wrote in a ruling that noted the changing health care landscape.
“(Spectrum Health) also happens to be in an industry that has undergone tremendous consolidation, where small practices are gobbled up by larger practices, and hospital systems gobbled up by other hospital systems. While acquisitiveness and bigness in and of itself is not a charitable goal, it may be a necessary one in terms of survival,” Marmon wrote. “Not stated, but assumed in this decision is the premise that business success or survival is not incompatible with having a charitable purpose under our property tax exemption statutes.”