In February, 2013, we noted that the Governor of the state of Connecticut publicly criticized lavish executive compensation at a small regional hospital system, compensation partially fueled by government funded health insurance payments, and in contrast to hospitals' claims that insufficient reimbursement was driving them to poverty.
The Suit Challenging the Charitable Status of UPMC
Now the outgoing Mayor of Pittsburgh has launched a lawsuit challenging the status of huge, nominally non-profit health system UPMC as a public charity. A summary of the arguments comes from an article in the Pittsburgh Post-Gazette. First, in the state of Pennsylvania, a Supreme Court description set out a test to determine if a particular organization is a public charity, the status the UPMC currently claims:
The Supreme Court's 1985 ruling involving the Hospital Utilization Project (or HUP) set out a test that requires that a purely public charity must fulfill all five of the test's points that it: advances a charitable purpose; donates or renders gratuitously a substantial portion of its services; benefits a substantial and indefinite class of persons who are legitimate subjects of charity; relieves the government of some of its burden; and operates entirely free from private profit motive.
That ruling was reaffirmed by the Supreme Court in April in a case involving an Orthodox Jewish summer camp in Pike County that was found to not deserve its property tax exemption.
The Post-Gazette also sought the advice of experts,
Nicholas Cafardi, dean emeritus and professor at Duquesne University's Law School, said he believes the argument that UPMC is not free from a private profit motive is the strongest one in Mr. Strassburger's review, in part because of how far-flung UPMC has become.
'The more they do that gets them away from their core purpose, the more they open themselves up to the argument that they aren't doing charity,' he said.
In addition, Mr. Cafardi said, UPMC's extensive advertising campaign --sometimes directly against rival Highmark -- makes it look like the organization is operating for profit.
'A lot of things like that make them look like they're operating for a private profit,' he said. 'You advertise because you're in competition. That's the private profit motive.'
Gary M. Grobman, former head of the nonprofit Pennsylvania Jewish Coalition and author of 'The Pennsylvania Nonprofit Handbook,' said UPMC would have a fight on its hands.
'Based on what [Mr. Strassburger] has written, which may or may not be true, it seems some staff at the hospital are paid quite well and some decisions are made based on achieving as much revenue as possible instead of providing as much charity as possible,' he said. 'And if all of that is true, they don't deserve their not-for-profit status.'
So the main issues brought up by the city are similar to issues we have raised about numerous nominally non-profit health care organizations. We have shown that many particular organizations appear not to act like charities when they appear to put short-term revenue ahead of the organization's mission, a process sometimes called financialization, and put lavish compensation of top hired managers ahead of the organization's general financial well-being; and when their leadership appears to subvert the organization's mission.
The UPMC Response versus Anger in the Community
Of course, UPMC public relations disagreed with the premises of the lawsuit:
'We think the 13-page memo that a local law firm wrote for the City is very weak and reaches its conclusions entirely based on opinion, not fact,' UPMC spokesman Paul Wood wrote. 'Rather than responding to partisan politics and blatant union pandering by the Mayor, UPMC looks forward to demonstrating in a court of law that we meet all five prongs of the HUP test and that our hospitals easily qualify for the tax-exempt status they unquestionably deserve. Interestingly, by hiring an outside law firm the City is prepared to waste millions of dollars of taxpayer funds on an unsuccessful attempt to pursue this case.'
Note that the unsubstantiated allusions to "partisan politics" and "pandering" appear to be an appeal to ridicule, "a fallacy in which ridicule or mockery is substituted for evidence in an 'argument.'" We have noted before how public relations flacks working for top executives of health care organizations seem to be very good at using such logical fallacies.
Mr Wood also scoffed at the naive notion that having a $1 billion surplus and $3 billion in reserves means the organization operates like a business:
Mr. Wood wrote that 'numerous people have tried to distort the meaning of that component to attain a political result.'
'It does not mean a nonprofit shouldn't strive to have a positive operating margin -- organizations that don't do that go out of business,' he added.
Note that Mr Wood seems to be arguing that the only alternative to a very large surplus and a very large reserve is a deficit. By ignoring another obvious alternative, having a small surplus and a small reserve, his argument thus is derived from the logical fallacy known as the false dilemma. He also seemed to be arguing that a deficit inevitably leads to bankruptcy. Of course prolonged deficits might lead to bankruptcy, but a single deficit would not necessarily do so. Thus he also employed the logical fallacy known as the slippery slope.
On the other hand, a Post-Gazette columnist showed the depth of community concern over the role of UPMC:
Someone in power is taking official action against the biggest corporate bully in town. Can I get an Amen?
In fact, I can get many Amens, and that says a lot about the behavior of the region's dominant hospital system.
Has there ever been a 'charity' so disliked and mistrusted by the people it's supposed to serve and the people it employs? You rarely hear anyone say 'I cannot stand CARE,' or 'I despise Doctors Without Borders.' But you hear it all the time about UPMC, notwithstanding the jobs it creates, the medical innovations it advances, the life-saving care its doctors deliver and its commitment of $100 million for the Pittsburgh Promise scholarship fund. With all that to its credit it should be beloved, but the opposite is true.
Not helping matters is its corporate public relations, which is increasingly tone deaf. In an emailed response to the mayor's announcement, UPMC spokesman Paul Wood said the lawsuit 'appears to be based on the mistaken impression that a non-profit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses, or particular political constituencies.'
No, Mr. Wood. It's based on the correct impression that a nonprofit hospital's top priority should be the patients, not building a monopoly. And that a $10 billion system with a billion-dollar surplus and $2 billion to $3 billion in reserves should be taking care of many more indigent sick people than UPMC has been treating -- especially when it owns land that a Post-Gazette investigation valued at $1.6 billion, even as it enjoys a $20-million tax break every year, underwritten by the good citizens of Pittsburgh and Allegheny County. You can try blaming the SEIU organizing campaign or your arch-enemy, Highmark the insurer, or politics, but this is so much bigger than any of those things. And the public knows it.
Keep in mind that the current discussion of UPMC in the media focuses on very recent events. On Health Care Renewal, we have posted frequently over the last eight years about problems with the leadership of UPMC. We started in 2005 with their inability to prevent a fraud perpetrated by some UPMC middle managers. In 2008, we discussed the apparent mismanagement of the highly touted UPMC liver transplant program. Starting in 2009, and continuing through 2013, InformaticsMD chronicled how the leadership has presided over health care information technology so problematic that it has been blamed for patient deaths. In 2009, we noted sanctions against UPMC's public relations. In 2010, we noted conflicts of interest and apparent self-dealing and nepotism affecting the UPMC board of trustees and UPMC executives.
For at least a generation, health care leaders and health policy makers have been pushing for consolidation of health care organizations in the name of efficiency. We now have a health care system dominated by fewer, larger organizations, and whatever efficiencies have been produced mainly seem to have benefited organizational insiders. Maybe now, though, some are beginning to remember that monopolists - starting at least with John D Rockefeller, I believe - have historically touted their ability to improve efficiency and rationality. The results, however, have been higher prices and poorer results for everyone else.
Hospitals and hospital systems have been particularly good at getting away with the efficiency argument despite the fact that health care prices in the US have been soaring ever since the "vertical integration" craze in the early 1990s. I believe such organizations have been getting away with this nonsense because of their revered status within their communities. Now, however, as huge hospital systems drive up prices and make their top executives rich, maybe we will remember Theodore Roosevelt's warnings about trusts and malefactors of great wealth.
There is no good evidence that large hospitals and even larger hospital systems take better care of patients, or provide better teaching and research. Not only should we question whether huge hospital systems like UPMC are public charities, we should wonder how we ever let them get so big, and proceed to break up these new sorts of "trusts."