Regional News/Northeast: UPMC challenged

Pittsburgh's mayor said UPMC should pay property and payroll taxes because the hospital operator fails to meet state criteria for tax exemption, citing legal counsel that found the UPMC system likely spends too little on free care for low-income patients and too much on executive compensation to merit tax breaks.

Luke Ravenstahl, Pittsburgh's mayor, announced the city's legal department would challenge UPMC's tax exemptions in court.

“UPMC must act like the charity it claims to be,” Ravenstahl said in a news release. “It is time for UPMC to engage in a serious conversation with the city and key stakeholders about its responsibilities to our community.”

Ravenstahl cited a legal opinion that said UPMC would likely fail to meet three of five state criteria for tax exemption as a charitable institution “because its commitment to charity is dwarfed by its preoccupation with profits.” UPMC paid $15 million to eight executives, and that compensation appears “excessive,” the legal opinion said.

Jeffrey Romoff, president and CEO for the system, earned $5.5 million for the year that ended in June 2011, the most recent publicly available tax filing shows. That does not include an estimated $450,000 in additional compensation.

UPMC—which owns 11 hospitals, including six in Pittsburgh—spent 1.7% to 3.6% of patient revenue on free care for those unable to pay, the legal opinion said, an amount it called “insubstantial.”

The health system also closed its operations in communities with more uninsured or publicly insured patients and invested in communities with privately insured patients, the legal opinion said.

Paul Wood, a spokesman for UPMC, said in an e-mail that the system “understands, honors and adheres at all times” to tax-exempt rules. Wood defended the system's operating margin as necessary to remain viable and said antitrust laws require vigorous competition among rivals. Pittsburgh's healthcare market in recent years has seen notable skirmishes among the city's insurers and health systems. UPMC may also pay its executives what they would expect to be paid elsewhere, Wood said.

UPMC's health system reported income of $277 million on revenue of $6.6 billion in the year that ended last June, according to unaudited financial statements, or a profit margin of 4.2%.

For 2011, the most recent publicly available tax filing, UPMC reported it spent $91.9 million on free and discounted care for those unable to pay and another $112.2 million on other subsidized services for low-income patients.

Wood said last year that the system's spending on uncompensated care totaled $238 million, which he said amounts to more than the value of the UPMC's tax exemption. The system employs nearly 60,000. Wood said he did not have a value of UPMC's payroll tax exemption but cited a 2012 Allegheny County controller report that listed the lost revenue from UPMC's property tax exemption as $7.4 million.