Profit motive: The city's UPMC suit will turn on one key factor

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Perhaps the most surprising thing about Pittsburgh's challenge to UPMC's tax-exempt status is not that Mayor Luke Ravenstahl decided to do it, but that he decided to do it now.

Having just made the decision not to run for re-election, he is now a lame duck 10 months before his term expires. It's unlikely that such a court battle will be concluded on his watch, so it will have to be picked up and waged by his successor.

Still, this is a fight worth having.

The law firm hired by the city to handle the case, Strassburger McKenna Gutnick & Gefsky, will have its work cut out for itself. Finding a way to make large, successful nonprofits pay their fair share for public services has been an issue in Pennsylvania for years. No state law or payment-in-lieu-of-taxes formula exists to address the situation in a fair and system- atic way.

Then last April a state Supreme Court decision changed everything. The justices ruled 4-3 that a summer camp in Pike County run by an Orthodox Jewish school did not deserve tax-exempt status, giving taxing bodies fresh impetus to question in court whether nonprofits with sizable property holdings meet the test of state law.

UPMC, as most Pittsburghers know, is the region's dominant health care network and Allegheny County's largest property owner. Along with its subsidiaries, UPMC owns $1.6 billion in land and buildings, 86 percent of it tax-exempt. Although other large nonprofits have significant untaxed real estate holdings -- for instance, the University of Pittsburgh, with $1 billion worth; Carnegie Mellon University, $412 million; and Duquesne University, $253 million -- UPMC, as a corporate entity, is in a class by itself.

With 55,000 workers, it is the largest employer in the state. UPMC runs more than 20 hospitals and 400 outpatient sites in Western Pennsylvania and has operations in seven countries, calling itself a $10 billion global health enterprise. UPMC's headquarters is not on a hospital campus, but in Pittsburgh's tallest office building. Its CEO makes $5.9 million, more than 20 employees are paid $1 million or more and it has a corporate jet.

At the same time, UPMC has a reputation for delivering quality care -- at top-notch facilities and by skilled personnel. It is the chief benefactor of the Pittsburgh Promise scholarship program, with $100 million pledged, most of it as challenge grants.

It is also known for its bitter public dispute with another health-care giant, Highmark, which wants to partner with the West Penn Allegheny Health System, a rival hospital network. UPMC does not want to renew its contract after 2014 with the region's dominant insurance provider, meaning Highmark customers will lose in-network access to most UPMC services.

UPMC considers all that merely a consequence of competition. The community, by and large, sees it as a double-cross to the people and region whose donations, health premiums and tax dollars built UPMC.

When the city's case goes before a judge it will not turn on UPMC's corporate perks and grand style, but on the five points of the so-called HUP test, a 1985 court ruling involving the Hospital Utilization Project, which was invoked by the court last year in the Pike County camp case. UPMC may have an easy time arguing that it meets most demands of the test, such as advancing a charitable purpose and donating a substantial portion of its services. But meeting the fifth point of HUP -- "operating entirely free from profit motive" -- may pose more of a challenge:

• UPMC closed Braddock hospital in a poverty-stricken area, saying it could not afford the red ink, at the same time it was building one in Monroeville, a prosperous community where another modern hospital already existed.

• UPMC, which vigorously promotes its own health insurance plan, does not want to provide affordable access to Highmark insurance customers, who represent the majority of the Western Pennsylvania market.

Do these and other business strategies betray a profit motive? Talk-show hosts and letters-to-the-editor writers are quick to venture their opinions. But the only opinion that counts in the end is the one that will come from the court.

Short of a way to obtain revenue for public services from such a successful corporation, the city of Pittsburgh is right to press its case.



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