This is the first in a three-part series looking at UPMC’s tax-exempt status.
With their attacks on UPMC and its tax-exempt status, the mayor of Pittsburgh and some local newspaper columnists are sadly twisting or ignoring the facts to make their case in what should be a serious debate about the city’s financial future and the role of the region’s nonprofits. Let’s set the record straight on some of the most serious misconceptions about UPMC:
UPMC doesn’t qualify for its tax exempt status.
FACT: UPMC easily passes the Hospital Utilization Project (HUP) test articulated by the Pennsylvania Supreme Court. One of the key components of the HUP test is that the organization operates “entirely free from a private profit motive.” That does not mean a nonprofit shouldn’t strive to have a positive operating margin – organizations that don’t do that go out of business. It also does not mean a nonprofit cannot compete vigorously with other nonprofit institutions – indeed, the nation’s antitrust laws require just that. And, it does not mean that a nonprofit should pay its officers and employees anything other than compensation pegged at market equivalents. What it does mean is that “profits” a nonprofit might generate must be invested back into the organization or paid out to the community rather than used to reward or motivate private individuals.
FACT: UPMC easily passes the Hospital Utilization Project (HUP) test articulated by the Pennsylvania Supreme Court. One of the key components of the HUP test is that the organization operates “entirely free from a private profit motive.” That does not mean a nonprofit shouldn’t strive to have a positive operating margin – organizations that don’t do that go out of business. It also does not mean a nonprofit cannot compete vigorously with other nonprofit institutions – indeed, the nation’s antitrust laws require just that. And, it does not mean that a nonprofit should pay its officers and employees anything other than compensation pegged at market equivalents. What it does mean is that “profits” a nonprofit might generate must be invested back into the organization or paid out to the community rather than used to reward or motivate private individuals.
Another component of the HUP test is that the organization provides a service to the public that the government would otherwise be obliged to fund or provide. Pennsylvania is the only large state in the nation without public hospitals, and therefore, Pennsylvania hospitals and health systems, like UPMC, serve as the health care safety net for the poor and uninsured. If not for UPMC, the responsibility for charity and other uncompensated care could fall to the local government and its taxpayers. A city- or county-run public hospital like, say, Cook County Hospital in Chicago, would cost taxpayers millions of dollars annually to operate and certainly wouldn’t be the first choice of many to seek care.
This is a test that UPMC easily passes.
UPMC makes too much money to be a nonprofit.
FACT: UPMC is a large organization, and it looks like we earn a lot of money. That is true, but with our big company comes big expenses — all to provide and maintain the facilities and services to take care of the people in our communities. Yes, UPMC is nonprofit, which means money that we earn is plowed right back into our services. It doesn’t go into shareholders’ pockets, like revenue from a for-profit company.
While UPMC aims to maintain a profit margin that allows it to borrow at favorable rates for new equipment and facilities, it does so to maintain its charitable mission—and the employment of its nearly 60,000 employees. UPMC’s supposedly “rich” profit margin is only 3 cents on the dollar, less than what is earned by some other leading health care providers, including Cleveland Clinic and Mayo Clinic. Nonprofits must have money to reinvest in patient care or they will soon go out of business, as Pittsburgh is seeing with the financial struggles at nearly bankrupt West Penn Allegheny Health System.
UPMC doesn’t pay any taxes.
FACT: Last year, UPMC paid more than $200 million in local, state, and federal taxes. UPMC already pays real estate taxes on 49 percent of the property we own. Our hospital campuses compose almost all of the remaining 51 percent of the land UPMC owns – those properties were tax-exempt when each hospital joined UPMC, and they continue to operate as “institutions of purely public charity” in every sense of the phrase. All told, our 500 acres of tax-exempt property accounts for just 1/10th of 1 percent of all the land in Allegheny County.
UPMC gives only 2 percent of its patient revenue to charitable care.
FACT: This is a narrow and misleading account of what constitutes “charity” care—essentially ignoring the fact that Medicaid does not cover the cost of care to those recipients or the fact that when we write off the debts of patients who can’t pay their bills, we are providing them free care. When you add all of these amounts together, UPMC provided $238 million in uncompensated care last year to those who could not afford to pay.
Moreover, the focus on charity care alone ignores the fact that UPMC supports medical training and research at Pitt to the tune of more than $288 million a year and contributes $96 million to community service programs and other charitable organizations, such as the Greater Pittsburgh Community Food Bank and Women’s Center and Shelter, that we believe make Pittsburgh a better place to live and work. When looking at the $622 million in contributions UPMC provided to the community in FY12 ($565 million in FY11), there’s not another major medical center in the nation that does more for its community that UPMC does for Pittsburgh.
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