Pennsylvania hospitals got some unexpected help in their ongoing property-tax exemption fight last week when the state Supreme Court said a lower court misapplied its exemption standards to strip a hospital-owned nursing home of its exemption.
The April 20 decision, however, came days too late for Lehigh Valley Hospital in Allentown, which became the most recent of dozens of Pennsylvania hospitals to agree to make payments in lieu of property taxes to a local taxing body (See story, p. 18).
On the positive side for other hospitals, though, the state Supreme Court reversed the lower court's decision, under which it would have been virtually impossible for any not-for-profit hospital to obtain a property-tax exemption.
And, under the high court's interpretation of its own standards, the justices gave hospitals some potent ammunition to protect their property-tax exemptions from local taxing authorities.
"The most important thing about this decision is that it has broad implications for other providers," said Seymour Schafer, an attorney for the Hospital Council of Western Pennsylvania.
By a 6-1 vote, the Pennsylvania Supreme Court said a state appellate court erred in 1992 when it said 156-bed St. Margaret Seneca Place in Pittsburgh failed all five parts of a set of tax-exemption standards the high court established in 1985.
The Commonwealth Court of Pennsylvania said the nursing home, owned by St. Margaret Memorial Hospital in Pittsburgh, didn't advance a charitable purpose because it didn't care for many uninsured patients. And, it said the nursing home didn't operate free from a private profit motive because it budgeted to make a profit.
In its 13-page decision, the Supreme Court said the lower court applied its standards too strictly, representing a "serious departure" from its previous policies established through case law.
Specifically, the high court said the nursing home was a public charity because it took in residents regardless of their ability to pay. It said the absence of many patients without any form of insurance didn't mean anything because most nursing home residents have some coverage, and the nursing home absorbed any payment shortfalls from Medicaid-insured patients.
The court also said the nursing home didn't fail the profit test simply because it wanted its revenues to exceed its expenses. The court said surplus revenue isn't synonymous with a private profit motive as long as the money is spent for a charitable purpose.
The nursing home was liable for $700,000 in property taxes from 1989 through 1992.