Patricia A. O'Malley
Social Policy & Programs Consulting ~ Community Matters
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Patricia A. O'Malley
Social Policy & Programs Consulting
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Pennsylvania Can Solve the UPMC Charity Status Dispute
What it means and what the Pittsburgh Media Won’t Tell You
February 27, 2019
UPMC is Southwestern Pennsylvania’s largest employer, property owner, health care provider, and charity. Its charity status and tax exemption are controversial. After decades of conflict, Pennsylvania is finally acting to control the behemoth.
The University of Pittsburgh Medical Center is a massive nonprofit, tax-exempt corporate conglomerate operating dozens of hospitals, other medical facilities, foundations, and health insurance services, primarily in the southwestern Pennsylvania region. With more than 87,000 employees, it owns $1.6 billion of tax-free real estate, and contributes $billions$ to the region’s economy. If UPMC was classified as a for-profit bundle of corporations, it would be a Fortune 500 enterprise.
THE DEBATE
During the past decade, UPMC has been entangled in several disputes:
- UPMC refused to extend its contracts with Highmark Blue Cross Blue Shield, its chief insurance competitor. Lawsuits, court rulings, and nasty TV commercials flow back and forth.
- The City of Pittsburgh and several community organizations intensely question its “charitable” status. More lawsuits and court rulings.
- Dozens of media accounts report that UPMC wages for its non-professional staff are too low to support a family. Just like Walmart.
- UPMC employees have been trying to organize a union for eight years. In October 2013, the National Labor Relations Board charged UPMC with 19 violations of union organizing laws. That speaks volumes about UPMC management’s values and respect for justice. Just like Walmart.
UPMC consistently circles the wagons and refuses to cooperate with anyone. Just like Walmart.
PITTSBURGH VS. UPMC
The City of Pittsburgh sued UPMC in 2013, claiming that the medical monster doesn’t meet the legal definition of a charity, and thus owes the city big bucks in past due employee payroll taxes.
UPMC countered that it can’t owe any money because it has no employees, and counter-sued the city.
That threw the public into a raging tizzy. How can the region’s largest employer, an entity that brags about its employees’ accomplishments, claim in court that it has no employees? It’s a simple answer, and a great move, legally.
First, the Pittsburgh Law Department dropped the ball. The very first rule of debt collection is to know exactly who owes you the money. The Law Department staff didn’t do their homework.
Nonprofit, tax exempt, charitable organizations in the United States must file an annual form 990 with the Internal Revenue Service. The 990 lists the organization’s revenue and expenses, along with the names of its directors and management staff. Anyone can access those reports at the Guidestar.org website.
According to Guidestar, there are at least 69 different UPMC corporations in the United States. One is in Ohio, one in California, and 67 in Pennsylvania. As far as I can see, forty nine of those are in the city of Pittsburgh. Each hospital, doctors’ practice group, foundation, and other medical service is a separate corporation. They all have different names and IRS Employer ID numbers. Their boards of directors are not identical, but there is a lot of overlap among the members.
This structure makes sense because it limits the facilities’ legal liability and protects their assets. If someone successfully sues one hospital, the plaintiff can’t take the assets of the entire group. It also insulates UPMC from other laws that pertain to certain large employers. But that’s what muddies the waters.
The city sued one corporation called “UPMC Group”, which serves as an umbrella group to “reflect the composite information and operations of … tax exempt entities … from within the UPMC ….” (according to its 990). I don’t know who does that work, but UPMC Group claims that it has no employees. And perhaps, legally, it doesn’t. In order to make its point and collect its tax payments, Pittsburgh would have to sue every one of those 49 nonprofit corporations separately. It’s a lot of work but it can be done, and it can make the same point. But the city didn’t bother. Mayor Bill Peduto abandoned the effort.
NONPROFIT LAW
A nonprofit organization is a corporation, just like any other. Once established, it obtains tax exempt status from the Internal Revenue Service. Charities are only one of the 57 types of nonprofits recognized by the IRS. Nonprofits must meet most of the same legal and financial requirements as for-profit businesses. All must obey wage and hour, payroll withholding, workplace health and safety, union organizing, and other laws. (Yes, Duquesne University, union organizing. But that’s another story.)
A nonprofit is not anyone’s private domain. No one, not even the founders, “owns” a nonprofit. The board of directors controls the organization. They delegate the daily operations to employees led by someone with the title of president, chief executive officer, executive director, or some such thing. But the primary power and responsibility always belong to the board.
Pennsylvania’s Institutions of Purely Public Charity Act contains an extensive definition of a public charity which includes the following:
- The institution must advance a charitable purpose.
- The institution must operate entirely free from private profit motive.
- The institution must donate or render gratuitously a substantial portion of its services.
- The institution must benefit a substantial and indefinite class of persons who are legitimate subjects of charity.
- The institution must relieve the government of some of its burden. It’s not supposed to be a burden.
If UPMC doesn’t meet the definition of a charity, then it doesn’t deserve its tax exemption.
WHAT IS UPMC?
According to its website,
UPMC, a $19 billion world-renowned health care provider and insurer based in Pittsburgh, PA, is inventing new models of accountable, cost-effective, patient-centered care.
• UPMC is a nonprofit that melds an unwavering community mission with entrepreneurial business models. UPMC is the first nonprofit health system to fully adopt Sarbanes-Oxley.
• UPMC is the largest non-governmental employer in Pennsylvania, with 87,000 employees.
See that? They claim to be a single nonprofit with 87,000 employees. They brag about how many patients they serve and how many services they provide. Sure, the health care industry provides benefits to the city, just as your local dry cleaner or parking garage does. But those profit-chasing businesses aren’t charities.
UPMC brags that they give big bucks to the Pittsburgh Promise and other charities. Great. They’re not supposed to give money to charity. They’re supposed to be a charity. Plenty of private businesses donate billions of dollars in cash, services, and merchandise to valid charities every year. But that doesn’t make them charities either.
If UPMC wants to be tax exempt as a charitable institution, then they must BEHAVE like one.
It’s standard practice for every charity to create and publicize its mission statement – the purpose for its existence. According to its website, buried four levels down, UPMC says its mission is:
“… to serve our community by providing outstanding patient care and to shape tomorrow’s health system through clinical and technological innovation, research, and education.”
See. Not a word about charity.
DOES UPMC QUALIFY AS A CHARITY?
Well, that’s the big question.
- Several of the UPMC corporations are foundations which collect donations from the public and distribute them to the
other UPMC entities. - Just 6.22 percent of UPMC’s $10 billion in revenue went to “charity care”, community health programs and donations, and support for research and education in 2012. Those are the activities which supposedly qualify it to be a charity.
- UPMC closed Braddock Hospital in 2010, partly because it wasn’t making enough money. That left a large part of a very low-income community without access to health care.
- In 2012, UPMC arranged a food drive for its employees “in need”. Just like Walmart. Naturally, it doesn’t occur to them to pay living wages so that the employees can buy their own food.
- Of course, UPMC charges fees for its services. But while they’re so busy bragging about their “charity” work, instructions to get financial aid for patients unable to afford health care are buried five levels down on the UPMC website.
REAL CHARITIES
I’ve worked with and for nonprofit charities for more than 35 years. In REAL charities, the leaders genuinely care about their clients, members, employees, and neighbors. They make real efforts to behave responsibly and to help those less fortunate. Service providers make a point of sharing information and resources, and telling each other what’s available. They hold networking events specifically for that purpose.
UPMC does not attend those events. I have never once heard anyone mention UPMC as a resource for free medical care.
The words “nonprofit” and “charity” compel a level of trust – that the public can trust the organization. UPMC has violated that trust. UPMC’s nonprofit status exists only on paper, and its claim to be a “charitable” institution is laughable at best and might constitute outright fraud.
Think twice before you give them money, folks. Surely there are more worthy organizations for your hard-earned dollars.
THE MEDIA
An internet search for “UPMC nonprofit status” yields more than 100 hits as far back as 2007. But you didn’t know about the 69 corporations until now because the Pittsburgh media is hiding it from you. They cover the legal wrangling, but they won’t dare to explain what’s behind it. The city’s newspapers, TV, and radio stations make a bundle from UPMC advertising. And they’re not about to kill that golden goose. That money is more important to them than informing the public.
SOLUTIONS
- Pennsylvania Auditor General Eugene DePasquale can perform thorough financial and program audits of every UPMC corporation. He can find out exactly where the money comes from and where it goes. He can find out exactly how much “charity care” exists. Yes, he does have that authority. UPMC benefits from tens of millions of dollars in state and local tax breaks every year. We have to verify that they deserve those benefits. But DePasquale refuses to do his job. A search of his office website for “UPMC” yielded zero results.
- On February 7, 2019, PA Attorney General Josh Shapiro sued UPMC, claiming that the monster is violating the Purely Public Charities Act by refusing to any patients with Highmark health insurance. Shapiro claims that UPMC’s charity status requires them to must serve all patients who request care, because UPMC gets the benefits of tax exemption from all Pennsylvania citizens. UPMC counter-sued. And the beat goes on.
- Allegheny County Controller Chelsa Wagner wants state officials to force UPMC to treat Highmark customers as in-network for insurance purposes. She’s launched a website and is hosting several community meetings.
- Corporate culture flows from the top down. UPMC leaders, particularly CEO Jeffrey Romoff, are so insulated from real life that they apparently don’t care how many people they hurt. Throughout his tenure as CEO, Romoff has behaved as though he owns the place. It’s time for him to learn that he doesn’t.
I’ve been researching UPMC for several years, and they’ve changed their website. They don’t address the controversies directly, but they do give their version of the issues. The pressure is getting to them. We need to keep it up.
Public interest groups can research and publicly identify all UPMC corporate board members and pressure them
individually to change the corporate culture and function like a real charity.
SO. WHAT CAN YOU DO?
Join One Pittsburgh, a coalition of neighbors, community organizations, faith groups and labor unions working on several campaigns that impact the Pittsburgh region, including UPMC issues.
Join Make It Our UPMC, an organization uniting UPMC workers, community leaders, and Pittsburghers to hold UPMC accountable for its actions.
Lobby your public officials to insist that PA Auditor General Eugene DePasquale conduct thorough financial and program audits of all 67 Pennsylvania UPMC corporations.
Contact DePasquale yourself to insist on those audits. And yes, I have.
Attend a Chelsa Wagner town hall on the UMPC-Highmark issue. Speak up.
UPMC is what happens when you run a charity like a business.
Don’t spectate. Participate.
For more information
University of Pittsburgh Medical Center
UPMC Mission
Guidestar.org – Search “UPMC”
Internal Revenue Service – Charities and Nonprofits
Pennsylvania Institutions of Purely Public Charity Act
NLRB charges UPMC with more than a dozen violations against union-organizing workers
Food Drive Irks Some UPMC Workers
UPMC: Applying for Financial Assistance
County Controller Wagner launches petition to state officials to stop UPMC-Highmark split
Make it Our UPMC
Auditor General Eugene DePasquale
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