The Salisbury School District is challenging Lehigh Valley Health Network’s property tax exemption, arguing the hospital system is not a “purely public charity” and should pay its “fair share of property taxes.”
The school district filed a complaint in Lehigh County court last week asserting the hospital should pay more than $5 million a year in property taxes. The lawsuit occurs as the Stroudsburg School District and Upper Moreland School District file similar complaints against St. Luke’s University Hospital and Abington-Jefferson Health, respectively.
“These major, mega health networks function more like corporations than charities,” said attorney Aaron J. Freiwald, representing Salisbury. Stroudsburg and Upper Moreland. “School districts need money. Mega health care corporations are not paying their fair share.”
Nonprofits like Lehigh Valley Hospital, part of the Lehigh Valley Health Network, are typically tax-exempt because of their charitable contributions.
Salisbury claims LVHN’s property tax avoidance penalizes all other taxpayers. If LVHN’s hospital property at 1210 South Cedar Crest Blvd., was reassessed, it could result in even more revenue for the district, according to a news release from the attorneys representing Salisbury.
“These uncollected revenues could help support core programs and even limit future tax increases,” Superintendent Randy Ziegenfuss said in a statement. The school district raised taxes by 2.4 percent last year.
The school district first filed a commercial appeal on July 31 with the Lehigh County Board of Assessment Appeals. An argument was heard in October, and the board upheld the hospital’s property tax exemption.
The district argues that LVHN, which is based in the township, conducts its business as a profit-making one, including paying its top executives high salaries and bonuses, according to the news release.
In the complaint, the Salisbury district argues that under a 1985 Supreme Court decision, nonprofit hospitals are not automatically exempt from paying local property taxes. Hospitals must meet five points to qualify for “purely public charity”: Advance a charitable purpose. Donate or render gratuitously a substantial portion of its services. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity. Relieve the government of some of its burden. And operate entirely free from profit motive.
Salisbury argues that the hospital did not provide documents backing up the five claims, such as showing it donated a substantial portion of its services to charity, when the argument was before the county board.
LVHN disagrees, said spokesman Brian Downs, who pointed out that the county board and a judge have backed the network’s position.
“We believe the health network fulfills its charitable mission including improving health care, advancing medical science and providing education,” he said. “We feel Judge Brian Johnson’s decision in June 2016 related to the handling of our charitable assets bolsters this point.”
In that Lehigh County court case, Johnson accepted LVHN’s account of its charitable giving, which had been challenged by a retired judge from Upper Milford Township. That retired judge, Robert Young, in 1990 had presided over a challenge to LVHN’s nonprofit status and ordered its charitable giving to be audited periodically. Lehigh County Orphans’ Court is tasked with determining whether LVHN, the Lehigh Valley’s biggest nonprofit, is charitable enough.
At its annual meeting in December, LVHN reported that giving at $547 million, about 87 percent of which went into covering the gap for Medicare and Medicaid reimbursements that did not meet what LVHN charges.
Salisbury is not the first to challenge a hospital’s nonprofit status.
In 1989, the Lehighton Area School District appealed Gnaden Huetten Hospital’s tax exemption, seeking more than $1 million in back taxes. The state Supreme Court finally closed the case in 1999, ruling that the hospital should remain tax-exempt.
Also in 1989, Wilson Area School District filed a suit against Easton Hospital, seeking $3.3 million in back taxes to the district, Wilson and Northampton County. The state Supreme Court ruled in 2000, again finding in favor of the hospital.
Last year, Allentown charged nonprofits for portions of their operations that the city believes are profit-generating. As a result, Good Shepherd Rehabilitation Network, which operates a hospital in south Allentown, sued the city in September, claiming it was wrongly charged for taxes dating to 2012.
In 2016, a study conducted by the journal Health Affairs found that seven of the 10 most profitable U.S. hospitals operated as nonprofits.
As the size of health networks has grown, the kinds of activities under their umbrellas have also broadened to include businesses that would traditionally be taxable. Many local hospitals offer in-house pharmacies. Some operate medical supply companies. Others, such as LVHN and St. Luke’s University Health Network, operate fitness centers.
The complaint names the county Board of Assessment Appeals, LVH and LVHN.
In addition to Freiwald, Salisbury, Stroudsburg and Upper Moreland are represented by Martin Cohen and Mark Altemos of the Bethlehem-based Cohen, Feeley, Altemose & Rambo firm.
