UPMC says it does not have employees

Health giant claims subsidiaries do hiring, allowing it to remain tax exempt

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Depending on whom you ask, medical giant UPMC either employs more than 50,000 people -- or no one at all.

On Monday, in one of the first hearings of the city of Pittsburgh's lawsuit to strip UPMC of its tax-exempt charity status, Common Pleas Judge R. Stanton Wettick Jr. opened the proceedings with that very question.

"Does UPMC have any employees?" he asked. "I've been told in discovery they don't."

William Pietragallo, one of the attorneys representing UPMC at the hearing, answered.

"They do not," he said.

For purposes of the city's payroll taxes, Mr. Pietragallo explained, UPMC's subsidiaries -- like UPMC Shadyside and Western Psychiatric Institute and Clinic -- file separate forms. Employees work for those legal subsidiaries. But UPMC itself?

"We don't have employees," Mr. Pietragallo said.

The question is central to the city's suit to strip UPMC of its status as a purely public charity. UPMC argues the city can't challenge its exemption from payroll taxes because it technically has no employees. It's a case where the legal reality may differ significantly from the one that UPMC, which on its website claims to have 55,000 employees, markets on a regular basis.

"You can't pay employment taxes unless you have employees," Mr. Pietragallo said.

Judge Wettick ended the hearing saying that he could not continue until the issue of whether UPMC has employees is addressed. He asked the city's attorneys to amend their complaint, which they agreed to do within the week.

"As of now, I'm going to need an amended complaint," he said, "because if UPMC has no employees, there's nothing more I can do."

UPMC spokesman Paul C. Wood, who technically works for a subsidiary, said "the lawsuit is misplaced" and that if the city wants to challenge the medical conglomerate's tax-exempt status, it needs to do so on a subsidiary-by-subsidiary basis. UPMC has 37 subsidiaries, although Mr. Wood could not say how many are within the city. Some of those subsidiaries do pay payroll taxes to the city; Mr. Wood did not know how many.

The issue now holding up the case was first raised in a one-line parenthetical statement contained in one of hundreds of pages of legal filings in July, when the case was still in federal court. UPMC claimed -- and continues to claim -- that the city cannot sue the hospital giant in court because it has to first exhaust an administrative process outlined in the Local Taxpayers' Bill of Rights and the Pittsburgh Taxpayers' Bill of Rights. The city contests that the process doesn't exist.

"The City also contends that LTBRA and PTBR only apply where the taxpayer has filed a tax return, which has not happened here (because UPMC, the parent corporation, has no employees)," UPMC attorneys wrote in a motion supporting the dismissal of the case.

It wasn't the first time UPMC attempted to claim it had no employees. Earlier this year, when UPMC faced 80 complaints of unfair labor practices, it argued that it was only a holding company and did not technically employ those in the complaints. The complaints alleged, among other things, that UPMC employees were being punished for attempting to unionize. UPMC ultimately settled.

In an interview following the hearing, attorney Ronald Barber, representing the city, said UPMC's own public relations campaign may work against it.

"We're going to amend the complaint to address the judge's concern and we're confident that we can do that based on UPMC's own pronouncements that they have tens of thousands of employees," he said.

Indeed, UPMC touts it large workforce. Its 2012 annual report, for example: "The economic impact of UPMC is more substantial than most people realize. The organization is the largest nongovernmental employer in the Commonwealth of Pennsylvania, and more than $6.2 billion in total labor income can be attributed directly or indirectly to UPMC."

UPMC's website and media releases say the hospital giant employs in the range of 55,000 people. And when UPMC made the top rankings of U.S. News & World Report's Best Hospitals, it did so as a conglomeration of several facilities attorneys are now arguing are separate subsidiaries.

Mr. Wood said he sees no contradiction when UPMC claims it employs 55,000 people in marketing and business materials -- and no one in court. He did not know which subsidiary employed him nor UPMC CEO Jeffrey Romoff, whose multimillion-dollar salary has become part of the city's claim that UPMC is not a public charity.

"We're talking a marketing tool ... on our website and what is actually filed" for tax purposes, he said.

"I think it's pretty easy, you know. UPMC is made up of UPMC Mercy, UPMC Presbyterian ...," he said. "A marketing number is just a marketing number."

But Mr. Barber argued that even for tax purposes, UPMC has documented having employees. In a Form 990 filed for the "UPMC Group," the hospital network said it employed around 52,000 people.

Mr. Wood countered that the "UPMC Group" was just an amalgamation of the subsidiaries, which file separate 990s.

Mr. Barber also said state and local tax laws dictate that UPMC should actually be filing tax forms on behalf of those subsidiaries that are not considered purely public charities. UPMC claims it filed no payroll tax returns and may be out of compliance with those laws. Mr. Wood said he believes Mr. Barber is misreading the statute.

The city will file an amended complaint in a week, and UPMC will be given a week to respond after that. Future court dates have not been determined.

Also on Monday, a federal judge said she would put a hold on a separate but related civil rights case filed by UPMC in which it claimed its due process rights were violated when the city announced and filed the lawsuit heard Monday in Judge Wettick's courtroom.

Judge Joy Flowers Conti presided over a hearing on whether to dismiss or stay the lawsuit in which the region's largest health system claimed that the city violated its due process rights.

She said she would decide "fairly promptly" how to proceed with the case.

Correction/Clarification: (Published Oct. 22, 2013) A previous version of this article said UPMC was exempt from the wrong type of tax. It is exempt from payroll taxes.


Moriah Balingit: mbalingit@post-gazette.com, 412-263-2533 or on Twitter @MoriahBee. Rich Lord contributed. First Published October 22, 2013 1:27 AM

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