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UPMC-Highmark spat should kickstart ‘charity’ reform

Finally, Gov. Tom Corbett has weighed in on the UPMC/Highmark split. Last week, he said the impasse between the two health care giants “deeply concerns” him, and that without a prompt solution he would begin working with the Legislature on a state-mandated solution. Otherwise, millions of Highmark-insured people in the region will have to switch carriers or be priced out of UPMC’s doctors and hospitals.

“They’re both charities and they’re both nonprofits and something is getting lost in between,” he said.

He got that right. It’s been clear for five months that this stalemate requires outside intervention of the sort that several lawmakers, mostly Democrats, already have begun. It’s good to know the Republican governor is on board, too.

Now that everyone is paying attention, this would be the perfect moment to overhaul the laws that govern, or fail to govern, nonprofit charities in Pennsylvania.

This region has seen what happens when hugely profitable companies operating under the nonprofit shield are permitted to reap the enormous benefits of tax exemption, using their windfalls to buy more property and take it off the tax rolls, even as they put their own corporate agendas ahead of the community they’re supposed to serve.

If state law protects them in this behavior, then state law has to be changed. Legislators already exercised over the UPMC/Highmark impasse couldn’t ask for a better argument for reform.

As just about everyone knows by now, the contract between Highmark, the region’s biggest insurer, and UPMC, its largest hospital system, expires in June 2012. Highmark wants to re-up so that millions of its commercial subscribers can maintain in-network access to UPMC’s doctors and facilities. But UPMC says no deal, the insurer’s acquisition of the financially ailing West Penn Allegheny Health System makes it a competitor.

Local leaders, employers, donors and everyday folks have been aghast. Not because they love Highmark, with its double-digit rate hikes and $4 billion-plus surplus, but because they don’t like being pushed around by UPMC President Jeffrey Romoff and his board of directors. Surely there are enough sick people in the region to support two hospital systems, and West Penn, with its shaky finances, is hardly a threat to UPMC’s dominance.

The medical giant already has raised public ire with its plush executive suite and flashy sign atop Downtown’s tallest skyscraper, its corporate jet, advertising budget, mega-salaries and international expansion — even as it pursued its “charitable” mission by closing Braddock Hospital, the last institution standing in that hard-hit town. Now the hospital system is issuing an ultimatum to the very people who have built its empire with their donations, insurance premiums and taxes that cover UPMC’s exemptions.

How can a nonprofit charity that has done so much good for this region and its residents get away with acting like its own opposite?

As reported last week by my colleagues Sean Hamill and Jonathan Silver , state laws that favor nonprofits and vague federal standards make it hard to challenge the tax exempt status of nonprofits, even when they pursue a monopoly with the same bare-knuckled tactics as for-profit corporations.

Act 55, the 1997 law that established nonprofit criteria in Pennsylvania and whose drafting was heavily influenced by nonprofit hospitals, set a very low bar for charitable status. As long as their earnings do not benefit private shareholders or individuals and they recycle or retain excess revenue, they can compete with others, rent palatial suites and pay high salaries to their hearts’ content.

If you think health care resources instead should be going back to the primary mission of taking care of sick people, even those who can’t afford it, well, some of them do. But the law sets no specific percentage of revenue that must be directed to that end. Depending on corporate priorities, this can free up a lot of cash for other things, like airplanes.

Act 55 also did grievous harm to struggling municipalities by putting a near stop to their challenges of tax exemptions. Previously, taxing bodies could take suspect organizations to court. That gave them leverage to negotiate payments in lieu of taxes, a.k.a. PILOTs. But the 1997 law removed that leverage, turning cities like Pittsburgh into supplicants. Nonprofits might deign to kick some money their way; then again, they might not.

The result has been a double whammy for the commonweal. An organization like UPMC can plow ahead with its empire building, impervious to widespread protests. It and other deep-pocketed nonprofits are free to turn their fortunes toward the purchase of ever-more tax-exempt property, starving municipalities of revenue that would cover public services, pensions and schools.

One look at Pittsburgh’s distressed city status tells the story. Forty percent of its assessed property is tax exempt. Meanwhile, the school board has voted to close seven more schools and eliminate 400 positions, including teachers and librarians. Property tax exemptions are not the only culprit here, but they are a big one.

It often takes some outrage or other to prompt the Legislature to change the law. Because of Penn State’s child sexual abuse scandal, state-related universities may well lose the open records exemptions that they never should have had in the first place. It would be fitting if public anger over UPMC’s high-handedness led to tightening the definition and oversight of nonprofit charities that look like anything but.

Source: http://www.post-gazette.com