UPMC sues to thwart Pittsburgh's challenge of nonprofit status
By Alex Nixon and Brian Bowling
Published: Friday, April 19, 2013, 10:21 a.m.
UPMC returned fire on Friday against Pittsburgh and Mayor Luke Ravenstahl, alleging in a lawsuit that the mayor “initiated a campaign to target and damage UPMC.”
Ravenstahl last month announced a legal challenge of the hospital giant's tax-exempt status and predicted that UPMC was “no doubt prepared to spend a lot of those billions of dollars to fight what we're trying to do.”
The lawsuit, filed in U.S. District Court, claims that the city's challenge violates the hospital system's constitutional rights to due process and equal protection.
UPMC, which owns 19 hospitals and employs about 55,000 workers, “didn't ask for this fight,” spokesman Paul Wood said. But, “we simply aren't rolling over.”
Ravenstahl spokeswoman Marissa Doyle referred questions to city Solicitor Dan Regan, who said outside counsel is reviewing the lawsuit.
“We're not at a point where we're going to respond to the specific allegations, but obviously we don't believe that we violated any of their constitutional rights,” Regan said.
E.J. Strassburger, a Downtown attorney representing the city in its lawsuit in Allegheny County Common Pleas Court, disputed UPMC's contention.
“It is unclear to me how asking a court to make a determination whether UPMC is or is not an institution of purely public charity is a violation of its constitutional rights,” he said. “The painfully obvious bottom line is that the last thing UPMC wants is judicial scrutiny of its non-charitable agenda.”
The health care system reported revenue of $9.6 billion and net income of $220.7 million for its most recent financial year, which ended June 30.
UPMC wants the issue decided in federal court and filed a request to do so in Common Pleas Court, Wood said. Strassburger said he planned to challenge the move.
UPMC claims the city's legal challenge will require a judge to determine to what extent UPMC's operations are taxable under federal laws. It also claims the state's test for determining whether a charity is tax-exempt violates the U.S. Constitution's commerce clause by giving charities that operate solely within the state favorable treatment compared to those with national and international operations.
Arthur Hellman, a University of Pittsburgh law professor, said UPMC's chances of keeping the case in federal court seem doubtful because its commerce clause argument “is almost certain to fail,” and the U.S. Supreme Court has significantly narrowed the grounds for moving state cases to federal court.
“One of the most basic rules is that you can't remove a case from state court to federal court based on a federal defense to a state claim,” he said. The federal lawsuit may not succeed either, Hellman said. If UPMC can make the same constitutional challenge in the state proceeding and the federal lawsuit would “directly interfere” with the state lawsuit, Supreme Court rulings generally favor dismissal of the federal lawsuit, he said.
The city's lawsuit alleges UPMC does not meet the state's requirements to qualify as a “purely public charity,” in part because UPMC does not operate free of profit motive.
Ravenstahl has said the city determined UPMC was the only area nonprofit organization that acted like a for-profit, international corporation with interests that extend far beyond its hometown. UPMC operates in Ireland, Italy, Qatar, Kazakhstan, China, Japan and Cyprus.
If UPMC paid the city's 0.55 percent payroll tax for its employees and property taxes on land that's exempt, Pittsburgh would net roughly $20 million a year, the city said.
UPMC pays property tax on 51 percent of the properties it owns; it made community contributions last year totaling $622 million, including $288 million to research and education, $238 million in uncompensated health care and $96 million in community service programs. UPMC has made no payments to the city in lieu of taxes since 2009.
UPMC claims the city and Ravenstahl bypassed steps required by state and city tax laws, and haven't pursued similar measures against other nonprofits, “choosing instead to gin up a new set of tax rules just for UPMC,” the suit states.
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