AG tries different approach
Shapiro asking courts to modify consent decrees
After a spate of local taxing authorities began challenging the tax-exempt status of hospitals and other nonprofits in the early 1990s, Pennsylvania’s Legislature in 1997 passed a new law, the “Institutions of Purely Public Charity Act.”
Act 55, as it was called, was designed to establish consistent standards for a five-prong test established in 1985 by the state Supreme Court for determining what a purely public charity was, with one key requirement being that the organization “operate entirely free from private profit motive.”
It also basically ended challenges to Pennsylvania hospitals’ tax-exempt status in the 20-plus years since, as the act made it easier for nonprofits to qualify for exemption while limiting local taxing authorities’ ability to challenge.
In accusing UPMC of not living up to its charitable mission on Thursday, state Attorney General Josh Shapiro has taken a different approach — asking the courts to modify the soon-to-expire consent decrees between UPMC and Highmark rather than going directly after UPMC’s tax-exempt status.
Should UPMC continue to refuse modifications that he says would bring it into compliance “with their charitable obligations,” however, Mr. Shapiro alluded to additional authority that his office could bring to bear — presumably including a challenge to UPMC’s tax-exempt status.
Two pre-Act 55 Commonwealth Court decisions that upheld challenges to a local hospital’s tax-exempt status remain on the books.
Both of the hospitals involved — Hamot Medical Center in Erie and Pinnacle Health System in Harrisburg — are now part of the UPMC network.
In the two rulings, handed down six years apart, Commonwealth Court judges based their decisions on a combination of factors — such as associated for-profit businesses (Hamot, for example, owned a marina), generous salaries for executives, and the use of noncompete clauses that prevent doctors from switching to a competing health system — as reasons they should not be exempt from real estate and sales tax payments.
On Thursday, Mr. Shapiro noted UPMC salaries and expenditures on highprofile real estate in his comments.
In Erie, the passage of Act 55 “brought confusion as to whether or not [Hamot] still had to meet that requirement” to make payments, said Scott Maas, director of assessment for Erie County, in a recent email exchange.
Rather than go through costly litigation, he wrote, the hospital and the taxing body “decided together to enter into a [payment in lieu of taxes] agreement where [Hamot] would agree to pay 50 percent of what they would normally pay.”
When UPMC acquired Hamot in 2011, “The Board of Assessment Appeals directed me to pull the exemption once again” — a requirement when a sale occurs — while the parties renegotiated on maintaining the same 50 percent payment level, Mr. Maas said.
“We are still working under that agreement today.”
Dauphin County assessment officials did not respond to numerous requests for information regarding UPMC Pinnacle and its current arrangement with the county.