Pittsburgh Mayor Luke Ravenstahl is challenging the University of Pittsburgh Medical Center's nonprofit status.
"Following an extensive review process by legal counsel, we are confident that UPMC fails to meet the standards set by the Pennsylvania Supreme Court to be classified as an institution of purely public charity," Ravenstahl said Wednesday, while saying his city's legal department would file action in Allegheny Count's Office of Property Assessments and Court of Common Pleas.
Ravenstahl said his move followed an extensive review process by independent counsel Strassburger McKenna Gutnick & Gefsky.
"Waging a legal battle against a behemoth like UPMC will be neither quick nor easy," firm president E.J. Strassburger wrote to city Solicitor Daniel Regan. "However, we believe that both challenges are well-justified."
UPMC is the largest health care provider in Western Pennsylvania. Highlighting the rough-and-tumble nature of this market has been the contentious merger saga involving Blue Cross Blue Shield insurer Highmark Inc. and teetering UPMC competitor West Penn Allegheny Health System.
Highmark's agreement to purchase West Penn's debt at 87.5 cents on the dollar, or about $658 million, is pending approval by the Pennsylvania Insurance Department.
The affiliation agreement, should it materialize, would make Highmark No. 2 in the region behind UPMC.
Ravenstahl said UPMC, whose 55,000 employees make it Pennsylvania's largest employer, failed to qualify as a nonprofit under a five-pronged test announced in the Hospital Utilization Project v. Commonwealth court case, known commonly as the "HUP test."
The mayor said UPMC donates as little as less than 1% and no more than 2% of its net patient revenues - more than $5.7 billion - to patients eligible for financial assistance, and that dozens of its units are for-profit entities and donate no services. He also said UPMC has exhibited an "anti-competitive, pro-profit motive" by closing hospitals in underserved communities while opening others in high-income neighborhoods, and threatening to reject its competitor's insurance coverage.
Ravenstahl seeks a declaratory judgment that UPMC is not exempt from paying the city's payroll tax, and an order requiring it to file quarterly payroll tax returns covering all operations dating to March 31, 2007.
"The challenge to UPMC'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," UPMC vice president and chief communications officer Paul Wood said in a statement.
"UPMC has always been a significant contributor to the city in a myriad of ways that are often disregarded, including as the primary funder of Pittsburgh Promise college scholarships for the city's public high school graduates," Wood added, saying that last year the organization provided $622 million in charity care and other community benefits to Pittsburgh and Allegheny County.
UPMC, according to Wood, already pays real estate taxes on 49% of the property it owns.
"Our hospital campuses comprise almost all of the remaining 51% of the land UPMC owns - those properties were tax-exempt when each hospital joined UPMC, they continue to operate as 'institutions of purely public charity' in every sense of the phrase, and they are unquestionably tax-exempt," he said.