A Tax Fight in Pittsburgh and the Future of Non-Profit Hospitals Nationwide

The University of Pittsburgh Medical Center is now under fire from local labor organizers who want to unionize its workforce, a competing health care system that’s eyeing its customer base and, lately, the mayor of Pittsburgh.

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Ramin Talaie / Bloomberg / Getty Images

Jeffrey Romoff, president of and chief executive officer of University of Pittsburgh Medical Center in New York, in 2010.

The University of Pittsburgh Medical Center (UPMC) is one of the most powerful institutions in Pennsylvania, employing some 55,000 people at more than 20 hospitals and 400 outpatient clinics. Like many powerful organizations, UPMC has detractors. The health care system is under fire from local labor organizers who want to unionize its workforce, a competing health care system that’s eyeing its customer base and, lately, the mayor of Pittsburgh, who is suing UPMC to try to force the institution to pay payroll and property taxes.

UPMC is now a tax-exempt non-profit organization categorized as a charity. The mayor’s lawsuit, if successful, could change its status under Pennsylvania law and portend a national wave of local and state politicians attempting to tax large health care institutions with healthy revenue streams. As health systems like UPMC grow larger, buying up physician groups and local clinics in a trend accelerated by the new health care law, they become more attractive tax targets. UPMC generates some $10 billion in annual revenue, netting the organization more than $300 million in operating income in 2012 and nearly twice that in 2011. Changing UPMC’s status to a for-profit institution under state law could net Allegheny County, which includes Pittsburgh, $11 million, on top of $14 million for the local public school, according to the Pittsburgh Post-Gazette.

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The heart of Mayor Luke Ravenstahl’s case is whether UPMC fulfills its state obligation to advance a charitable purpose, donate a significant amount of services to the community and operate without a for-profit motive. UPMC claims it easily meets these criteria and says Ravenstahl filed the lawsuit against the health system to distract from his own political problems. The mayor announced in February that he would run for re-election, but reversed course less than two weeks later. Ravenstahl cited the grueling demands of the job as his reason, but recently fired his chief of police who was under investigation by federal authorities for corruption and has been indicted by a federal grand jury. The investigation threatens to overshadow the mayor’s political legacy in Pittsburgh.

“The mayor’s trying to curry political favor with someone who can soften his landing when he disgracefully leaves office,” says Paul Wood, a UPMC spokesman, referring to the union SEIU, which has led a so far unsuccessful effort to unionize some UPMC workers. UPMC has countersued the city of Pittsburgh, saying its constitutional rights have been violated, and moved the legal proceedings from state to federal court. Ron Barber, a lawyer with an outside firm hired by the city, says UPMC is trying to “delay and obstruct” the legal process. The city has cited UPMC CEO Jeffrey Romoff’s large compensation package, more than $6 million in 2012, and the fact that more than 20 UPMC executives earned more than $1 million in 2012 as evidence the health care system operates more like a for-profit corporation than a charitable organization dedicated to the local community.

But local Pittsburgh politics aside, large non-profit health systems are getting new attention from city and state tax officials across the country facing budget crises. “The fact is hospitals are coming under more scrutiny,” says Gary Young, director of Northeastern University’s Center for Health Policy and Healthcare Research. “The city’s willingness to take on a hospital with the cachet that UPMC has is sending a chill down the spines of many hospitals around the country who are saying, ‘If this is happening in Pittsburgh, what could happen with us?’”

The requirements to be a tax-exempt non-profit in Pennsylvania are tougher to meet than in many other states, but generally, health care systems must have a charitable mission and benefit the local community. In exchange, they are effectively subsidized by taxpayers. Under the Affordable Care Act (ACA), beginning next year, hospitals that are exempt from federal taxes must develop and submit to the Internal Revenue Service detailed assessments of the health care needs of their local communities, along with plans to help meet those needs. Young is the lead author of a paper published in the New England Journal of Medicine in April 2013 that found that in 2009, tax-exempt hospitals spent just 7.5 percent of their operating expenses on community benefits. “We are, to some degree, moving into a new era in terms of some of the expectations we have for hospitals that have tax exempt status,” says Young. “Pittsburgh could be a watershed event.”

Some especially large and healthy hospital systems like UPMC, he adds, are “dripping with success and affluence. If you’ve got a mayor struggling to meet a budget, he could look at that and say, ‘Jeez, what are you really doing for the community?’”

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15 comments
BioShock
BioShock

When I resigned from UPMC they sent me a mailing encouraging a "charitable contribution".  I just laughed.  Why would I send them a contribution?  If they have money to waste on private aircraft, box seats at the Consul Energy Center and Heinz Field, and the most expensive real estate in the city, then they sure don't need my money.  And THAT'S why these arrogant SOBs should pay their fair share.  Why should public money subsidize these luxuries?  They're corporate bullies in the truest sense, not just to their employees, but to the city as well.  While I have high praise for their medical staff, the administration has no shame and will use all their money and influence, not to benefit the people of Pittsburgh, but to enrich people like Romoff.  He should go to a for-profit corporation where these tactics would be praised.  


BioShock
BioShock

When I resigned from UPMC they sent me a mailing encouraging a "charitable contribution".  I just laughed.  Why would I send them a contribution?  If they have money to waste on private aircraft, box seats at the Consul Energy Center and Heinz Field, and the most expensive real estate in the city, then they sure don't need my money.  And THAT'S why these arrogant SOBs should pay their fair share.  They're corporate bullies in the truest sense, not just to their employees, but to the city as well.  While I have high praise for their medical staff, the administration has no shame and will use all their money and influence, not to benefit the people of Pittsburgh, but to enrich people like Romoff.  He should go to a for-profit corporation where these tactics would be praised.  

AndyClark
AndyClark

Healthcare is mostly a scam in America.  Much of the healthcare system is Catholic Hospitals that follow Vatican doctrine.  They are all tax exempt, usually control any town they are in economically.  They are run by and for the Mafia that rides the coat-tails of the otherwise great Catholic Church.  First step is totally eliminate all religion-based-tax-exempt healthcare.  If a religion wants their own hospital chain, let THEM own/operate it and make sure their $ is not used to stack the local courts (for example).  It is a far worse situation than you can imagine:  our entire healthcare system is run by and for the MAFIA.

conA
conA

The "nonprofit" Big Blue insurers should get scrutiny next--

humtake
humtake

So, yes, this is most likely prompted for political reasons...but how does that take away from the accusation that so many people are becoming wealthy by working for the organization?  So while the motive may be in poor taste, the evidence is in even poorer taste.


However, that being said, it's amazing the public still gets behind these kinds of things.  If they start getting taxed, who do you think that burden falls on?  Do you think the people making a million dollars a year or more are going to stop making that amount?  Do you think the hospital will all of a sudden just learn to operate on less revenue?  Of course not.  The burden will fall on the patients.  Hospital bills will go up, thus causing either people to pay more or insurance providers to pay more...which will then drive up insurance costs as well across the board. 

There is no win here for the patients, so why change it?  That's one major problem with the current political platform..."changing" instead of "fixing" does nothing but create more problems without fixing the existing problems. 

standup10
standup10

I am a physician who trained at UPMC and another large non-profit system the Cleveland Clinic. These large hospitals are one of the major reasons for increased healthcare costs. Through their non-profit status they have an unfair advantage over private physician groups. Eventually the private doctors are put out of business and have to join these systems. With less healthcare  providers in the market there is less competition. These systems can negotiate higher prices for care from insurers and in the end all of our healthcare insurance premiums increase. When you have a routine doctors visit at one of these hospital systems the increased cost, versus a private physician, helps subsidize their other advanced services such as organ transplantation or open heart surgery. 

MartiWilliams
MartiWilliams

Bitter Pill article asked a lot of the same questions.

JohnDavidDeatherage
JohnDavidDeatherage

A not for profit hospital is a contradiction of terms just like jumbo shrimp...

retiredvet
retiredvet

There was a (relatively) recent dust up here in MA regarding "non profit" health insurance. Blue Cross/Blue Shield of MA was paying its CEO and board of directors huge salaries. It's part and parcel to the outrageous CEO compensation controversy we all know and love.

bobell
bobell

As so often, Tom Lehrer said it best: "Doing well by doing good."  I don't know about you, but I'd be delighted to make six million smackeroos a year running a non-profit.  This is a close cousin to the real 501(c)(4) scandal, which is the thousands of political organizations masquearding as "social welfare" organizations.

Maybe we should just tax the profits of any organization that has them.  After all, a true non-profit, by definition, has no profits to tax.  Or is that too simple and straightforward?

SaveUrth
SaveUrth

Q: ‘Jeez, what are you really doing for the community?’  

A: Providing healthcare.  

Why would they need to provide free healthcare to anyone once Obamacare is in place and all Americans have health insurance?

AndyClark
AndyClark

Mafia being the insurance biz... legal protection racket.  Warren Buffett and his sidekick Munger of Munger Tolles turned Amerika into a giant Boystown where attorney and court appointees are free to pillage our entire population using civil courts.  They sell Fear while making the most basic healthcare very expensive.  Going to a doc for an antibiotic can easily run $200.  If you injure yourself and have to go to a hospital....minimum bill will be $500  just for being looked at even if nothing is wrong.  Meanwhile.....insurance pays for Chiropractors... back rubs for frigid fat women mostly, total waste of money, let the idiots who believe in it pay their own way.

RalphSimpson
RalphSimpson

@humtake Everything you said here apply to UPMC.  It also applies equally to Exxon and Goldman Sachs.  by your logic we should not tax any organization because eventually it will fall on the customers.

I live in Pittsburgh and trust me, UPMC is no more o a charity than Exxon.  Indeed they are worse because they now have a monopoly.