Tuesday, March 26, 2013

The Push Back Continues: the Mayor of Pittsburgh Sues UPMC Claiming it is No "Public Charity"

There is another indication that push back against the power of large health care organizations is getting more significant.

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 city's lawyer, E.J. Strassburger of Strassburge Mckenna Gutnick & Gefsky, argued that UPMC does not pass that test:

Mr. Strassburger wrote, first and most strongly, that 'it seems virtually certain that UPMC would fail to carry its burden of proving that it satisfies the fifth prong of the HUP test by 'operating entirely free from profit motive.''

He cited UPMC's nearly $1 billion surplus over the last two years and $3 billion in reserves as evidence of this, and that UPMC 'is carefully structuring its operations to prioritize profits-generation over charity.'


In addition, Mr. Strassburger wrote that UPMC does not 'advance a charitable purpose' in part because UPMC 'maintains an 'open admissions policy' in name only' and it does not make all of its health care available to everyone, regardless of ability to pay.


the review says UPMC fails to provide sufficient charity care, operates far-flung international operations that are losing money, and has closed operations in poor communities only to open or expand into richer ones.

But it also cites what it terms 'excessive' benefits of UPMC executives, including CEO Jeffrey Romoff's $5.9 million salary; the fact that more than 20 employees are paid more than $1 million; UPMC's corporate jet; Mr. Romoff's 'lavish'  Downtown headquarters (which it claims includes a private chef, chauffeur and private dining room).

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."


Afraid said...

Amen. Problem is it will never happen.

Anonymous said...

The citizens of Western Pa have been held hostage and silenced by the ruthless leadership and a rubber stamp BOD. Dissenting BOD members have been asked to leave; while several got fed up and simply quit. Besides, the care there is smoke and mirrors, using creative manipulation of their EHR to obfuscate.

Steve Lucas said...

“Outgoing Mayor” is the key in this scenario. Today in many small and mid-sized communities we find the local hospital is both a major employer and also the location of the largest number of professionals. Additionally the boards of these hospitals are made up of people who have been successful in business, may have an interest in community involvement, but no background in health care.

Local politician’s themselves may have no qualifications other than being elected, and in many cases, we find they are the only one’s left willing to take the job. Many communities have faced the loss of jobs with the only major employer left being the county hospital. A fact many are willing to leverage into a juggernaut that will not tolerate any questions concerning its business policies.

Last night I spoke with a former nurse now administrator (MBA) who was quite adamant that her care facility made no money on surgical procedures. The question was then raised concerning the markups all along the process and this was dismissed as part of the process and did not reflect any increase in cost.

Here we have a mayor willing to question the status quo while shining light on any number of facts concerning retained earning and pay only because he will not seek reelection. Sadly this is what it will take along with a local newspaper with the backbone to write the stories knowing that hospital will in most likelihood cut advertising dollars.

All of those involved need to be supported, or as we found out a year ago my wife’s 100 year old uncle was told he would no longer receive care from his hospital affiliated doctor, if he could not make his 90 day appointment schedule due to a profit motive.

Steve Lucas

Anonymous said...

Steve. Your last paragraph.....it is not computing . Uncle....no longer receive care ...why?

Would you explain again for me?

Steve Lucas said...


Sorry for any confusion. A year ago my wife’s then 100 year old uncle was told he had to make an office visit for a PSA test. The man was not mobile and this appointment would be in January.

Additionally at the time he was having a gall bladder drain replaced every 90 days and his personal physician stated he did not have access to any of those medical reports nor could he order additional test during those visits. This doctor’s office was on the same campus as the hospital and the CIO touted their EMR’s.

Upon arrival the uncle and aunt were chastised by a nurse who demanded to know why he had not fasted since along with a PSA test they wanted to do a glucose test. My aunt explained that fasting was not part of the instructions.

Upon meeting with the doctor she raised her concerns about transport and was told bluntly that to be a patient in his office he must maintain his 90 day schedule along with complying with any test request. She stated that this would be impossible and the doctor effectively ended their relationship suggesting they contact the hospital for other possible alternatives.

Fortunately there are Medicare services available for those who are not able to physically go to an office.

An email discussion took place between myself and two of his children with medical backgrounds and the consensus was this doctor’s actions were based totally on a profit motive. Garnering Medicare payments for those 90 day visits was more important than serving a long time patient.

While this did not take place at UPMC this type of action, given the growing number of hospital owned medical practices, will I fear become more common.

Steve Lucas

Anonymous said...

Wow! Understood ! Dirty rotten .....

Thanks for taking time to explain.

Steve Lucas said...


Thank you for allowing me to share this story. While my wife’s uncle is now 101 and in failing health and his wife will soon turn 90, they remain accomplished competent people with a support system of equally accomplished people joined by the internet. We share information as it becomes available, often finding that we are not all told the same story. Frustrating is when the aunt is pulled aside and we, or other family, are excluded from the conversation due to “privacy” issues.

Strangely the most accommodating person in this situation was the surgeon. After cycling through a number of these gall bladder drain procedures, he was the one who suggested it could be removed, made the phone calls, ordered the scans, and took the time to explain why and what was going on to my wife’s aunt, making sure we were part of the conversation. (As a side point this drain allowed the gall stones to pass while avoiding surgery on a person who would not tolerate the procedure.)

Today there is a great deal of conflict in medicine about who takes care of the patient. From the patient’s perspective it is the person who fixes the problem, makes the pain go away, and explains everything in an understandable manner. Sadly this is often not the personal physician who trying to make a number of appointments per day says; “The nurse will explain everything.”

Steve Lucas

Anonymous said...

This is terrible. The problem is that nobody seems to care anymore. When did helping people become about something other than helping people?


Erin Krupp said...

How sad it is to know that no one actually care for a quality health care or for the health of the people. This is where they should focus, because of the increasing number of mortality or morbidity per year.We must continue to care for people who are needing help. I hope that they will be open minded and that they will resolve this problem immediately