I founded a non-profit, a 501(C)3 some years back, and while I have severed tied with it, it is still an ongoing organization.
For a number of reasons, largely the fact that I've always felt that I kind of played the IRS regulations get the educational charity status, (I felt that in a just world, it should have been a 501(C)7, a non-profit but not tax exempt membership organization) I have been sensitive to the use and abuse of tax exempt status, where you see things like multi-million dollar remuneration packages for senior management who have no concept of charity.
So I find it heartening when I see that non profit hospital chain Tower Health has been denied a property-tax exemption for three hospitals that they acquired in Chester County hospitals because they decided to run those hospitals primarily for the benefit of its upper management.
The school districts sued after they tried to take the hospitals off of the property rolls after Tower bought them out.
A Chester County judge rejected Tower Health’s bid for property tax exemptions for Brandywine, Jennersville, and Phoenixville Hospitals, saying those operations had become too similar to for-profit companies and didn’t deserve to be free of property taxes.
The decision strikes another blow to Tower, which vowed to appeal as it struggles to reverse large losses. It represents a rare loss for any nonprofit hospital.
The ruling also shows how health care is becoming more complicated and far removed from its philanthropic roots, at least according to one judge.
The 44-page decision came a week after a Montgomery County judge ruled in favor of Tower’s application for a property-tax exemption for Pottstown Hospital, reflecting the messiness in Pennsylvania of determining nonprofit property tax exemptions based on a jumble of state laws and legal precedent.
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The case presents an occasion for appellate courts and legislatures to review property-tax exemptions in the health-care industry, Sommer said, and “to perhaps acknowledge that the existing tests, no matter where found, can no longer be applied to health care entities in the United States and particularly in Pennsylvania.”
The Philadelphia region is home to dozens of nonprofit hospitals, most of which are parts of complex businesses and bear little resemblance to the old model of hospitals supported by community largesse.
Experts said the decision could lead to changes in how requests for property-tax exemptions for nonprofit hospitals are evaluated.
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A lawyer who represents school districts and municipalities in similar cases disagreed. “This is a very well-reasoned opinion,” said Pamela A. Van Blunk, who has offices in Swarthmore and Yardley.
For the three school districts in this case, Avon Grove, Coatesville, and Phoenixville, the nonprofit Tower Health’s purchase of the three hospitals from Community Health Systems Inc., a for-profit, meant the potential loss of hundreds of thousands of dollars in taxes.
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Sommer found that the three hospitals did not qualify for property-tax exemption for three main reasons: They do not provide enough free services, the hospitals’ businesses are too intertwined with doctors at for-profit practices, and they don’t operate free of private profit motives because of how they structure executive compensation.
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Under Pennsylvania Supreme Court precedent, an organization must “operate entirely free from private profit motive” in order to qualify for property-tax exemption.
Sommer found that bonus plans mostly tied to financial performance disqualified the hospitals from tax exemption. “It was very clear from the testimony of all witnesses that the health system was set up to be profitable and to reward executives at all levels when it was,” Sommer said.
BTW, when Judge Sommer talks about executive compensation being a for-profit model, he ain't kidding: The chief executive of Tower Medical, Clint Matthews, who used his disastrous acquisition spree to bulldoze his board into inflating his already inflated salary package:
Before his dream of expanding Tower Health went bust, then-chief executive Clint Matthews was offered a compensation deal that included base pay of about $1.15 million and a bonus of $331,500 for the mergers he was about to engineer. He rejected it as “a bit light.”
The Tower board came back with a new offer. In the end, it agreed to increase his base pay by $100,000 ― and to bump the bonus by $73,500.
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Documents in a Montgomery County court case decided last week explore Matthews’s ambitious acquisitions and his relentless push for high compensation ― a drive that a struggling school system in the area served by his network, Pottstown School District, claimed undercut Tower’s very claim to be a nonprofit.
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The school district’s lawyers quote a Tower board member as saying that Matthews, 68, the chief executive of nonprofit Tower since 2012, was annoyed by “the suggestion that the best way to optimize his income was getting great results and maxing out bonus opportunities.” The lawyers also quote Matthews himself as saying he was unconcerned about the “optics” of his pay.
By 2018, his compensation had hit $2.3 million, up $700,000 in just two years. Tower cut it back somewhat as the system’s financial troubles grew.
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When Matthews was gearing up for the hospital acquisitions, his simultaneous complaints about his pay did not sit well with Meg Mueller, a banker and Tower board member.
Mueller found it troubling that Matthews compared himself to executives at larger, successful systems even though Tower had yet to purchase the other hospitals, much less successfully integrated them, a court filing said.
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As losses mounted and Tower struggled to halt a downward financial spiral, Matthews retired abruptly in February, leaving new management, mostly outside consultants, to unravel much of what he and a compliant board had done.
We really need to limit the pay for tax exempt organizations. I would suggest the salary of the President of the United States, $400,000.00 a year.
Multi-million dollar salaries for charity executives, and college football coaches, are not justifiable for a charity.
It runs counter to the stated purpose or a charitable organization, and, as studies of high remuneration have shown, they actually result in reduced performance.
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