Editorial: Should UPMC and other nonprofits worry about Tower Health ruling?

Tower Health might be the canary in the nonprofit coal mine.

The Reading-area health system has four hospitals. It has joint ventures with Drexel University. It has about 11,500 employees and was ranked No. 8 in Pennsylvania by U.S. News & World Report in 2022. In 2020, it had total revenues of $534 million. It spent $4.7 million on executive compensation.

That’s a pretty solid resume for a Pennsylvania health system. It checks many of the same boxes as others across the state.

And that is why the others should be paying attention — because Commonwealth Court Judge Christine Fizzano Cannon said in a recent ruling that the nonprofit failed to meet the most critical aspect of being a “purely public charity” in Pennsylvania. Namely, she said, it was not free of profit motive.

Why? In part because of the executives’ paychecks.

Cannon took issue with a lower court’s finding because a hefty portion of that $4.7 million was due to incentive bonuses to the CEO at 24% of salary and the CFO at 18-19% of salary based on how Tower Health performed financially. She agreed with a description of the paychecks as “eye-popping” and revoked property tax exemptions for Tower’s three hospitals in Chester County.

Now consider UPMC. It dwarfs Tower on multiple levels, with more hospitals in Pittsburgh alone than Tower spreads across four communities. UPMC’s revenue is measured in billions, not millions.

And former CEO Jeffrey Romoff made more than double that “eye-popping” Tower executive figure. His compensation was $10.38 million in the 2020-21 fiscal year; $7.54 million was from bonuses and incentives.

So does the Tower ruling — which might still be appealed to a higher court — mean UPMC and other high-dollar nonprofits in Pittsburgh and elsewhere will be cutting big checks for property tax sometime soon? Not necessarily. That’s a fight that has been going on for a long time.

But it does suggest the courts are considering more than just the nonprofit label. If a big-ticket business is going to act like a private company when it comes to paying its executives, why should it get to avoid paying taxes?