Premature celebration: UPMC’s tax suit win came on a technicality

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As details were being announced Friday about the terms of next year’s separation of UPMC health care from many Highmark insurance customers, executives of the region’s dominant hospital network were celebrating victory on a different front.

On Wednesday, Common Pleas Court Judge R. Stanton Wettick Jr. threw out the City of Pittsburgh lawsuit that had sought to impose the payroll tax on the $10 billion enterprise. But it’s way too early for UPMC to be popping the bubbly.

Judge Wettick was clear and straightforward on what his decision did and did not mean. He called it “a narrow ruling that does not consider whether UPMC or any of its subsidiaries are charitable organizations,” the nub of the city’s attempt to derive broad tax revenues from the health-care system.

He said the city’s legal counsel had targeted the wrong entity when it sued UPMC, the parent company of more than 20 hospitals in Western Pennsylvania, more than 400 clinical locations and other sites where more than 62,000 people work. That’s because technically the parent company has no employees — the legal claim UPMC has made all along and for which it has faced understandable derision.

We say “understandable” because those 62,000 employees certainly work somewhere in the UPMC firmament and obtain their paychecks from some UPMC entity, even if not its parent company. Judge Wettick’s example was UPMC Mercy hospital, a UPMC subsidiary that pays the UPMC workers who work there.

That’s why the response from a UPMC spokesman to the ruling sounded presumptuous and smug: “By throwing out the city’s tax-exempt challenge to UPMC, the court clearly agrees that the city’s case had absolutely no merit.” Well, not really.

UPMC won this round on a procedural issue, not on the merits, and the city is right to be contemplating its next steps. As we’ve said before, the city and Allegheny County should scrutinize the tax status of all local nonprofits, particularly those enterprises that behave more like large corporations and less like charitable institutions — and may not be paying their fair share for public services.

Consider this victory party premature.

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