Tax board files case
The Warren County Board of Assessment Appeals has filed a Finding of Facts outlining the basis for its contention that Warren General Hospital is subject to property taxes.
To be considered a property tax-exempt “purely public charity” under Pennsylvania law, an organization must meet each of five criteria identified by the Supreme Court of Pennsylvania in the case Hospital Utilization Project v Commonwealth.
To be considered a purely public charity, an organization must:
Advance a charitable purpose, the first prong;
Donate or render gratuitously a substantial portion of its services, the second prong;
Benefit a substantial and indefinite class of persons who are legitimate subjects of charity, the third prong;
Relieve the government of some of its burden, the fourth prong; and
Operate entirely free of the profit motive, the fifth prong.
These five criteria are known as the HUP Test.
The board’s finding outlined 17 points in which it claims the hospital fails to meet the requirements of the HUP Test, “based on the information provided to the board by the hospital by letter dated February 20, 2012; the application for exemption dated August 30, 2012; the brief supplied by the hospital for the October 22, 2012 hearing; and the testimony submitted at the October 22, 2012 hearing.”
According to the finding, the hospital fails to meet the first prong because:
“Charitable contributions amount to one percent of revenue.”
According to the finding, the hospital fails to meet the second prong because:
“Providing medical and other health related services to persons of all ages on a non-discriminatory basis is not inherently charitable,”
“Hospital expects patients to pay for services at the time it provides those services,”
“Hospital budgets for benevolent care by adjusting those charges to paying patients to recover this expense.”
“Hospital claims the value of time donated by various volunteers as part of their ‘charitable donation’ to the community.”
According to the finding, the hospital fails to meet the third prong because:
“Patients must secure a guarantor who will be responsible for payment in the event the patient does not pay,”
“Hospital does not accept Security Blue, Highmark Blue Cross; Medicare HMO product or Freedom Blue”
“Patients who do not pay their bill within 30 days are assessed a charge of 18 percent, per annum,”
“A patient is offered an alternative to finance outstanding balances owed on their accounts with CSI Financial for an interest rate of 15 percent,”
“To qualify for special assistance from the hospital, patients must provide federal tax returns, current pay stubs, a Medical Assistance denial of benefits verification form, a schedule of personal assets and a letter from a physician outlining the medical need for service,”
“Collection agencies and third party collectors are utilized.”
The finding notes the hospital’s long-term borrowing rates for the year ending 2009 were between three and four percent.
According to the finding, the hospital fails to meet the fourth prong because:
“(Non-profit tax filing) Form 990 for 1990 reflects substantial compensation and benefits paid or incurred on behalf of its officers, directors and certain key employees.”
“Since reimbursements from Medicaid are based on local area averages for salaries and benefits, any reimbursement for salaries and benefits on behalf of any employee in excess of those amounts creates an additional burden on government,”
“The hospital is budgeting for and the patients are paying for real estate taxes.”
According to the finding, the hospital fails to meet the fifth prong because:
“Based on Form 990 key employees receive bonus and incentive plans,”
“Private profit motive based on salaries and bonus, deferred an incentive in compensations of key employees (ending June 2009): Dale McNett, M.D. – $209,165; John Papalia – $400,028; Murray Marsh – $220,515; Randy California – $225,727; Leroy Korb, M.D. – $735,191; Olakunie Oluwole, M.D. – $500,693; Osama Al-Omar, M.D. – $403,441; Gregory Pierson, M.D. – $446,919; Anne Rasiga, M.D. – $452,486.”
“Hospital buys private practices who then contract with Warren General Hospital.”
The Pennsylvania Department of Public Welfare’s published allowable salary reimbursement maximums for entities with expenditures in excess of $7 million is $123,404.
According to the finding, “In several instances, officers and other employees receive compensation and benefits in excess of $400,000.”
The issue centers around nine property parcels comprising Warren General’s main campus, cancer center and related parking areas.
According to the finding, on Dec. 31 the board notified the hospital that the properties were appraised at a fair market value of $38,714,902 and an assessed value of $19,357,451 for 2013.
The assessment would result in a tax burden for the properties in excess of $1.7 million.
The board initially found the properties in question to be taxable in May of last year.
The hospital filed an application for exemption from property taxes and an appeal of the determination on Aug. 30.
Under an agreement last month, the board will not seek taxes from the hospital for 2013 but continues to seek them for 2014 and beyond.
The two sides have been given 20 days from last Friday to work out any issues in the case on which they both can agree in an effort to streamline the proceeding.
President of the Warren General Hospital Board of Directors Timothy Bevevino said of the filing, “It is what it is. Our position hasn’t changed.”
Bevevino noted it is rare in these types of cases to challenge an entity on all five prongs of the HUP Test.