After several occasionally fractious public hearings on nonprofit tax exemptions, Pittsburgh Mayor Luke Ravenstahl is challenging the tax exempt status of the University of Pittsburgh Medical Center (UPMC), the largest healthcare provider and employer in western Pennsylvania.
"Following an extensive review process by legal counsel, we are confident that UPMC fails to meet the standards set by the Pennsylvania Supreme Court," Ravenstahl said in a media release. "UPMC must act like the charity it claims to be. It is time for UPMC to engage in a serious conversation with the City and key stakeholders about its responsibilities to our community."
At a news conference Wednesday, Ravenstahl said he was directing the city's law department to challenge UPMC's status as an "institution of purely public charity" in the Allegheny County Court of Common Pleas, after a 2012 Pennsylvania Supreme Court ruling that established standards for charitable, tax-exempt status.
The ruling cited upheld the denial of a 501(c)(3) summer camp's pursuit of a real estate tax exemption as a "purely public charity." In so doing, the state high court affirmed a 5-point criteria for establishing institutional tax exemption under state law -- if it advances a charitable mission, donates a substantial portion of its services, benefits people of legitimate need, relieves the government of some burden and operates without a profit motive.
The city is asking the court to lift UPMC's real estate tax exemption -- the not-for-profit health system has about 150 properties in Pittsburgh and many more throughout the region -- and end exemptions from the city payroll tax.
Ravenstahl and the city are arguing that UPMC fails the charitable exemption test on several grounds, based on publicly-available financial data. The city contends that the health system donates "at most" 2 percent of its net patient revenue to patients eligible for financial assistance; that many of its operations and divisions are for-profit; and that it has "exhibited an anti-competitive, pro-profit motive," in closing hospitals in low-income underserved neighborhoods, like the town of Braddock, while opening facilities in well-served areas.
UPMC has contended that its tax-exempt charitable designation is justified by the large amounts of uncompensated care it provides -- some $238 million in charity and uncompensated Medicaid care in 2012.
Paul Wood, UPMC chief communications officer, told the Pittsburgh Tribune-Review that the challenge to the health system's tax-exempt status "appears to be based on the mistaken impression that a nonprofit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses or particular political constituencies -- in other words, the way that some local governments are also run."
"If UPMC ran its affairs as poorly as some of our local governments, it would not have become the internationally known, world-class healthcare institution it is today," Wood said.
With some 54,000 employees, UPMC is the largest employer in Pennsylvania. Caring for the region's aging population while working with academic medical research centers, UPMC has been central to Pittsburgh's transition from an economy dependent mostly on heavy industry to one based on "eds and meds."
In fiscal year 2012, UPMC had nearly $10 billion in revenue -- up from $8.8 billion a year before -- with a 4.5 percent operating margin. Recently, its provider services growth has been flattening, while the growth of its health plan is accelerating at double-digit rates.
The Pittsburgh City Council and the Allegheny County Council have each held public hearings on the question of UPMC's tax-exemptions in recent months -- one so contentious that UPMC officials walked out.
Taking a different approach than Pittsburgh Mayor Ravenstahl, Allegheny County Chief Executive Rich Fitzgerald has started a new property assessment initiative asking nonprofits in the county to justify their tax exemptions along the five-point test established by the state Supreme Court.
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