Preference provides tax relief to nonprofit outpatient dialysis
facilities, which outperform for-profit counterparts on two standard measures.
Legislature should clarify its intent.
July 2021
Executive Summary
Tax exemption for nonprofit outpatient dialysis facilities
Nonprofit outpatient dialysis facilities are exempt from property tax on real
and personal property used exclusively for providing dialysis services.
Dialysis is a medical treatment that performs kidney functions. The majority
of dialysis patients have end stage renal disease (ESRD), a condition in which
kidney function is so compromised that the patient needs dialysis or a kidney
transplant to survive.
The preference was enacted in 1987 and has no expiration date.
Preference intent is unclear
The preference was enacted before performance statements for new tax preferences
were required, and the Legislature did not state an intent in statute. Similar
preferences, such as the property tax exemption for nonprofit hospitals, have an
inferred objective of supporting charity care. Patients with ESRD, regardless of
age, are covered by Medicare and the state's Kidney Disease Program. As a result,
JLARC staff concluded that supporting charity care is not an inferred objective of
the nonprofit outpatient dialysis facilities property tax exemption. The intent of
the preference is unclear.
Beneficiaries outperform for-profit counterparts on certain measures
The Legislature did not specify a public policy goal for this preference.
Four beneficiaries operate 27 dialysis facilities in
seven western Washington counties: Clallam, Island, King, Kitsap, Pierce, Skagit,
and Snohomish.
Compared to for-profit dialysis centers, beneficiaries have a higher share of
patients on the kidney transplant wait list and receive lower revenue per treatment.
Nonprofit and for-profit outpatient dialysis facilities perform similarly on other
measures.
The Legislature should clarify the objectives of the preference by including
a performance statement. The preference was enacted before the Legislature required
a performance statement for new tax preferences. There is no explicit public policy
statement for the tax preference in statute.
If the Legislature believes the tax preference is intended to support certain
outcomes, the Legislature should clarify its expectations by adding a performance
statement that clearly states the public policy objectives and metrics to determine
if the objectives have been met.
Preference exempts nonprofit outpatient dialysis facilities from
property tax on real and personal property used to provide dialysis services
Dialysis is a life-saving treatment for patients with end stage renal disease
Dialysis is a medical treatment that performs kidney functions, such as removing
waste, controlling blood pressure, and maintaining a safe level of certain chemicals
in the blood. Dialysis is necessary when a patient's kidneys lose over 85% of their
function. The majority of dialysis patients have end stage renal disease (ESRD), a
condition in which kidney function is so compromised that the patient needs dialysis
or a kidney transplant to survive.
Dialysis is performed in both inpatient and outpatient settings. Inpatient dialysis
is performed when a patient is admitted to the hospital, usually for an acute kidney
injury or other concurrent injuries. Patients with ESRD usually receive routine
outpatient dialysis services in a medical facility where hospital admission is not
required.
Patients typically receive dialysis three to four times a week. Each dialysis
treatment lasts several hours.
Preference exempts nonprofit dialysis facilities from property taxes
The Legislature enacted the preference in 1987, allowing nonprofit organizations to
claim an exemption from property tax on real and personal property used for outpatient
dialysis services.
Nonprofit organizations apply to the Department of Revenue for the property tax
exemption. The exempt property must be used exclusively for outpatient dialysis
services, and beneficiaries must be nonprofit organizations as defined in RCW
84.36.800. Beneficiaries must file to renew the exemption annually.
Preference is similar to exemption for nonprofit hospitals, but intent is
unclear
The preference was enacted before performance statements for new tax preferences were
required. The Legislature did not state a public policy objective for this preference.
Public testimony at the time noted that nonprofit hospitals, which have inpatient
dialysis facilities, also had a property tax exemption. The inferred intent of the
preference for nonprofit hospitals is to support charity
careCharity care is medical care for which providers do
not expect reimbursement.. JLARC staff reviewed the preference for
nonprofit hospitals in 2007 (JLARC Report 07-14, Nonprofit Hospitals).
The nonprofit outpatient dialysis facility property tax preference has no expiration
date.
Beneficiaries located in Western Washington
Beneficiaries operate dialysis facilities in seven Western Washington counties:
Clallam, Island, King, Kitsap, Pierce, Skagit, and Snohomish.
Exhibit 1.1: Beneficiaries operate 27 nonprofit outpatient dialysis facilities in
seven Washington counties
Source: JLARC staff analysis of Department of Revenue data.
Several factors determine where a dialysis facility is located:
Provider interest: Dialysis providers must have an interest in locating
facilities in a certain area. This may depend on the availability of suitable
parcels, the perceived demand from patients in the area, the availability of
qualified employees, and proximity to existing facilities. A provider may also
consider the proximity to referring nephrologistsKidney specialists. and hospitals, especially
if the dialysis provider has an existing relationship with another institution, such
as a nonprofit hospital.
Department of Health Certificate of Need: Providers apply to locate
dialysis facilities through the Department of Health’s Certificate of Need Program.
This regulatory process requires certain healthcare providers to obtain state
approval before building facilities or offering new or expanded services. The
process ensures that proposed facilities and services are needed for quality patient
care in a particular area. The department scores applications and issues a
certificate if it determines there is a need for the facility or service.
JLARC staff reviewed Certificate of Need applications for the past five years to
determine if nonprofit outpatient dialysis facilities explored establishing facilities
in other parts of the state. We found one instance of a nonprofit seeking a
certificate in Yakima County. The certificate was not awarded due to a higher-scoring
application from a for-profit competitor.
Beneficiaries will save an estimated $4.2 million in the 2021-23
biennium
Beneficiaries are exempt from taxes on real and personal property.
In fiscal year 2020, four beneficiaries saved at least $1.2 million across 27
facilities in seven counties. This estimate includes 54 parcels and associated
personal property, such as medical equipment. The beneficiary savings estimates are
based on the most recent assessed property values. Some assessed values have not been
updated in several years. Due to these properties' exempt status, many county
assessors do not annually update property values.
Exhibit 2.1: Four beneficiaries saved $1.2 million in fiscal year 2020
Beneficiary
Counties
Estimated FY 2020 Savings
Facilities
Northwest Kidney Centers
Clallam, King, Pierce
$968,592
17
Olympic Peninsula Kidney Center
Kitsap
$31,174
2
Puget Sound Kidney Centers
Island, Pierce, Skagit, Snohomish
$205,538
7
CHI Franciscan
Pierce
$9,850
1
Totals
$1,215,153
27
Source: JLARC staff analysis of county assessor data.
During the 2019-21 biennium, beneficiaries saved an estimated $2.7 million.
Beneficiary savings in the 2021-23 biennium are estimated to be $4.2 million. JLARC
staff estimated future beneficiary savings using the compound annual growth rate of
beneficiary savings between 2018 and 2020.
Inferred intent of similar preference for nonprofit hospitals is
not relevant to nonprofit dialysis facilities
The Legislature did not state an intent for this preference. Statute provides a
property tax exemption to other nonprofit medical facilities, such as hospitals and
cancer centers. In a 2007 review of the property tax exemption for nonprofit
hospitals, JLARC staff inferred that the goal of the preference was to encourage charity careMedical care for which
providers do not expect reimbursement.. However, encouraging charity
care does not appear relevant to property tax exemption for nonprofit outpatient
dialysis centers.
Coverage and assistance provided by Medicare and the Kidney Disease Program leaves
little need for charity care
Together, Medicare and the state's Kidney Disease Program provide coverage and
assistance with treatment costs for people diagnosed with end stage renal disease
(ESRD), regardless of age or income.
More than 99% of treatments at outpatient dialysis facilities are provided to
patients with ESRD. Because Medicare and the Kidney Disease Program pay for nearly all
dialysis treatment, this leaves little need for charity care at nonprofit outpatient
dialysis facilities. As a result, unlike the preference for nonprofit hospitals, a
public policy objective to support charity care is not relevant for a tax preference
for nonprofit dialysis centers.
4. Beneficiaries outperform for-profits on two measures
Nonprofit outpatient dialysis facilities outperform for-profits
on two measures
Beneficiaries outperform for-profit counterparts on select measures
The intent of the preference is unclear. The preference was enacted before
performance statements for new tax preferences were required. Without a clear
intent, JLARC staff compared performance information for nonprofit and for-profit
facilities to see how these two business models differ in outcomes.
The Center for Medicare & Medicaid Services (CMS) An agency within the U.S. Department of Health and Human
Services that administers Medicare and other programs. collects
performance and quality of care data from outpatient dialysis facilities as part of
its oversight activities. JLARC staff compared data for all Washington outpatient
dialysis facilities on these measures. Nonprofit outpatient dialysis facilities
perform better than for-profit outpatient dialysis facilities on two measures: share
of patients waitlisted for kidney transplants and revenue per treatment.
Nonprofits have a greater share of patients on the kidney transplant wait
list
Nonprofit outpatient dialysis facilities have a higher share of patients on the
kidney transplant wait list. Nonprofit facilities averaged 16.3% of patients on the
wait list, compared to 12.2% of patients at for-profit facilities. Transplants are
generally considered the best treatment option for ESRD patients. Patients with ESRD
who receive a successful kidney transplant may avoid dialysis for several years or
never require dialysis again.
JLARC staff also obtained data from the United States Renal Data System, the
national data registry for the ESRD population. In 2018, an average of 4.63 patients
per nonprofit outpatient dialysis facility in Washington received a transplant. In
contrast, an average of 2.75 patients per for-profit facility received a transplant.
Data is not available for a facility-level comparison on this measure.
Nonprofits receive less revenue per treatment
As part of its Certificate of Need ProgramA regulatory process that requires certain healthcare
providers to obtain state approval before building facilities or offering new or
expanded services., the Department of Health calculates the
revenue per treatment at each outpatient dialysis facility in the state. This
measure is part of its scoring criteria for comparing Certificate of Need
applications, where applicants with a lower revenue per treatment score more
favorably. Despite operating in generally higher-cost areas of the state, nonprofit
outpatient dialysis facilities receive less revenue per treatment. Nonprofit
facilities averaged $397 per dialysis treatment, while for-profit facilities
averaged $480 per treatment.
Nonprofits and for-profit dialysis centers have similar outcomes for other CMS
quality measures
CMS also collects data for other measures, such as hospitalization rate, mortality
rate, readmission rate, standard infection ratio, and total performance score. JLARC
staff found no statistically significant differences between nonprofit and
for-profit facilities for these other measures.
Exhibit 4.1: Nonprofit dialysis facilities outperform for-profits on two
measures
Measure
Nonprofit Performance Compared to For-Profits
Percentage of patients on the kidney transplant wait list
Significantly higher (16.3% vs. 12.2%)
Revenue per treatment
Significantly lower ($397 vs. $480)
Hospitalization rate
No difference
Offers home hemodialysisA type
of dialysis that filters blood through a machine.
training
Source: JLARC staff analysis of data from the Center for Medicare and Medicaid
Services, the Department of Health, and the Office of Financial Management.
Nonprofit child day care centers, libraries, orphanages, homes or hospitals for the
sick or infirm, outpatient dialysis facilities.
RCW 84.36.040
(1) The real and personal property used by, and for the purposes of, the following
nonprofit organizations is exempt from property taxation:
(a) Child day care centers as defined in subsection (4) of this section;
(b) Free public libraries;
(c) Orphanages and orphan asylums;
(d) Homes for the sick or infirm;
(e) Hospitals for the sick; and
(f) Outpatient dialysis facilities.
(2) The real and personal property leased to and used by a hospital for hospital
purposes is exempt from property taxation if the hospital is established under chapter
36.62 RCW or is owned and operated by a public hospital district established under
chapter 70.44 RCW.
(3) To be exempt under this section, the property must be used exclusively for the
purposes for which exemption is granted, except as provided in RCW 84.36.805, and the
benefit of the exemption must inure to the user.
(4) For purposes of subsection (1) of this section, "child day care center" means a
nonprofit organization that regularly provides child day care and early learning
services for a group of children for periods of less than twenty-four hours.
Definitions.
RCW 84.36.800
As used in this chapter:
(1) "Church purposes" means the use of real and personal property owned by a
nonprofit religious organization for religious worship or related administrative,
educational, eleemosynary, and social activities. This definition is to be broadly
construed;
(2) "Convent" means a house or set of buildings occupied by a community of clergy or
nuns devoted to religious life under a superior;
(3) "Hospital" means any portion of a hospital building, or other buildings in
connection therewith, used as a residence for persons engaged or employed in the
operation of a hospital, or operated as a portion of the hospital unit;
(4) "Nonprofit" means an organization, association or corporation no part of the
income of which is paid directly or indirectly to its members, stockholders, officers,
directors or trustees except in the form of services rendered by the organization,
association, or corporation in accordance with its purposes and bylaws and the salary
or compensation paid to officers of such organization, association or corporation is
for actual services rendered and compares to the salary or compensation of like
positions within the public services of the state;
(5) "Parsonage" means a residence occupied by a member of the clergy who has been
designated for a particular congregation and who holds regular services therefor.
Sales and use tax for public facilities in rural counties
RCW 82.14.370
(1) The legislative authority of a rural county may impose a sales and use tax in
accordance with the terms of this chapter. The tax is in addition to other taxes
authorized by law and must be collected from those persons who are taxable by the
state under chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event
within the county. The rate of tax may not exceed 0.09 percent of the selling price in
the case of a sales tax or value of the article used in the case of a use tax, except
that for rural counties with population densities between sixty and one hundred
persons per square mile, the rate shall not exceed 0.04 percent before January 1,
2000.
(2) The tax imposed under subsection (1) of this section must be deducted from the
amount of tax otherwise required to be collected or paid over to the department of
revenue under chapter 82.08 or 82.12 RCW. The department of revenue must perform the
collection of such taxes on behalf of the county at no cost to the county.
(3)(a) Moneys collected under this section may only be used to finance public
facilities serving economic development purposes in rural counties and finance
personnel in economic development offices. The public facility must be listed as an
item in the officially adopted county overall economic development plan, or the
economic development section of the county's comprehensive plan, or the comprehensive
plan of a city or town located within the county for those counties planning under RCW
36.70A.040. For those counties that do not have an adopted overall economic
development plan and do not plan under the growth management act, the public facility
must be listed in the county's capital facilities plan or the capital facilities plan
of a city or town located within the county.
(b) In implementing this section, the county must consult with cities, towns, and
port districts located within the county and the associate development organization
serving the county to ensure that the expenditure meets the goals of chapter 130, Laws
of 2004 and the requirements of (a) of this subsection. Each county collecting money
under this section must report, as follows, to the office of the state auditor, within
one hundred fifty days after the close of each fiscal year:
(i) A list of new projects begun during the fiscal year, showing that the county has
used the funds for those projects consistent with the goals of chapter 130, Laws of
2004 and the requirements of (a) of this subsection; and
(ii) expenditures during the fiscal year on projects begun in a previous year. Any
projects financed prior to June 10, 2004, from the proceeds of obligations to which
the tax imposed under subsection (1) of this section has been pledged may not be
deemed to be new projects under this subsection. No new projects funded with money
collected under this section may be for justice system facilities.
(c) The definitions in this section apply throughout this section.
(i) "Public facilities" means bridges, roads, domestic and industrial water
facilities, sanitary sewer facilities, earth stabilization, storm sewer facilities,
railroads, electrical facilities, natural gas facilities, research, testing, training,
and incubation facilities in innovation partnership zones designated under RCW
43.330.270, buildings, structures, telecommunications infrastructure, transportation
infrastructure, or commercial infrastructure, and port facilities in the state of
Washington.
(ii) "Economic development purposes" means those purposes which facilitate the
creation or retention of businesses and jobs in a county.
(iii) "Economic development office" means an office of a county, port districts, or
an associate development organization as defined in RCW 43.330.010, which promotes
economic development purposes within the county.
(4) No tax may be collected under this section before July 1, 1998.
(a) Except as provided in (b) of this subsection, no tax may be collected under this
section by a county more than twenty-five years after the date that a tax is first
imposed under this section.
(b) For counties imposing the tax at the rate of 0.09 percent before August 1, 2009,
the tax expires on the date that is twenty-five years after the date that the 0.09
percent tax rate was first imposed by that county.
(5) For purposes of this section, "rural
county" means a county with a population density of less than one hundred persons
per square mile or a county smaller than two hundred twenty-five square miles as
determined by the office of financial management and published each year by the
department for the period July 1st to June 30th.
The Legislature should clarify the objectives of the preference by including a
performance statement.
The preference was enacted before the Legislature required a performance statement
for new tax preferences. There is no explicit public policy statement for the tax
preference in statute.
Testimony suggests the preference was intended to extend the same tax treatment for
nonprofit hospitals to nonprofit dialysis centers. The preference for nonprofit
hospitals is intended to support charity care, which hospitals are required to
provide. However, since federal and state programs pay for nearly all dialysis
treatment, support for charity care is not a relevant objective for the tax preference
for nonprofit dialysis facilities.
There may be other benefits provided by nonprofit dialysis facilities, such as
increased opportunities for transplants and lower treatment costs.
If the Legislature believes the tax preference is intended to support these or other
benefits, the Legislature should clarify its expectations by adding a performance
statement that clearly states the public policy objectives and metrics to determine if
the objectives have been met.
