Breaking down VHS's 2008 Community Benefit figure of $58,349,282

Does the majority of the local citizenry even understand the meaning of this huge "community benefit" number?

To get a better understanding how the Valley Health System's 2008 $58,349,282 regional community benefit was derived, the following Schedule H's for WMC, Hampshire Mem'l and Warren Mem'l Hospitals will help to break it down per hospital.

Warren Memorial Hospital, 2008 Schedule H Community Benefit breakdown 

Hampshire Memorial Hospital, 2008 Schedule H 

Winchester Medical Center, 2008 Schedule H

Valley Health's 2009 Community Benefit Report

The 2009 Community Benefit report featured in the Winchester Star did not have a line that read "Excess of Revenue over Expenses (Profit)".  Valley Health Systems profits for 2004-2007 were as follows: $42,613,000; $53,800,000; $59,432,000; $62,803,000 and a loss of $42,000 in 2008.  Valley Health Systems had a five year profit total of $218,606,000 from 2004-2008 per information shared by a VHS official in December of 2009.

The perception is that VHS is taking huge profits made locally in Winchester and spending on an average of $30-35million for new hospitals in Page County, Romney, WV and Berkeley Springs, WV while previously enjoying the tax break perks from the City of Winchester.  Is this fair to the local taxpayers?

Will these much smaller regional hospitals just become medical bus stops for the Winchester Medical Center campus?

Please note ... Page Mem'l and Shenandoah Mem'l IRS990 did not provide a Schedule H in 2008.  The Winchester Surgi-Center was not part of VHS until March 1, 2010.  The 2009 IRS990's are not yet available to breakdown Valley Health's total community benefit of $71.3 million.

Valley Health's statement on the regional communities that it serves:

WMC provides a range of services for its communities which includes clinics and support programs.

All of these items give patients access to leading edge technology and state of the art service, and to experience high quality patient care that is close to where they live.

These activities are overseen by WMC's BOD's, comprised mainly of independent community members.

The population has increased from the previous year from 951,209 to 959,447 in 2008.

The female population for 2007 was 479,624 and the male population was 471,585 in 2007.

The population numbers for 2008 show that females increased to 483,523 and the male population increased to 475,924 for 2008.

The regional community that VH serves is widely diverse.  The regional community racial ethnic breakdown in the communities served by VH is as follows: 84.2% White, 4.8% Black, 1.7% Asian, 1.5% Multiracial, 1.2% other, 0.2% Native American and 3.3% Hispanic for 2008.

The total population per race or ethnicity increased significantly from 2007.  Give the general location of facilities, WMC serves several migrant worker communities during harvesting of crops for the local farmers.

There is also an aging population that WMC serves with several of its communities.  As the baby boomers grow older, more and more medical care will be needed and provided by WMC.

WVU-H East offers more than ‘bus stop’

September 27, 2009 - By Albert Pilkington III, president and CEO, WVU Hospitals-East, Martinsburg

Valley Health has spent a lot of money and time to develop a PR campaign aimed at discrediting our interest in providing health care for the citizens of Morgan County. Beyond all the rhetoric, I ask you to simply consider one basic concept. Do you want a hospital in Berkeley Springs or a medical bus stop for Valley Health?

Ultimately, that is the real question. Our approach will be the same as it has been in Jefferson County in that we believe in building and growing services within the community as opposed to the Valley Health model of using small hospitals as a feeding system for the big hospital in Winchester, Va.

If you are satisfied with driving to Winchester for the majority of your medical needs as if Berkeley Springs were a suburb of Winchester, then we are not your best choice. On the other hand, if you are interested in the development of your own unique community with services provided locally, then that is the approach we offer for health care.

Truly, beyond all the PR and rhetoric, this is the only real question at hand as both companies will give you a new building.

VHS hospitals profit/losses for 2006, 2007 and 2008

	2006	2007	2008		Total:
Warren Mem'l	2,680,781	2,245,851	-1,222,867		3,703,765
Winchester Medical Center	57,422,678	66,617,963	9,500,911		133,541,552
Shenandoah Mem'l	3,933,230	1,933,193	1,689,374		7,555,797
Valley Health (Corp. Mgmt)	-7,559,599	-9,210,808	-9,725,512		-26,495,919
Figures obtained via IRS990's
VHS purchased Page Memorial
effective 1/1/2009	433,956	331,956	-367,694		398,218

WMC's exemption by classification position / Code of VA - 58.1 Taxation - Ch. 36 Tax Exempt Property

Mr. Merrill says, "We still feel firmly that we meet the exemption by classification and are eager to find out how the commissioner came to her conclusion that we do not meet that definition of exempt by classification. Once we have that information we then will look at what our options may be. An appeal or what other recourse we may have."

http://www.tv3winchester.com/home/headlines/104042003.html

 

Code of Virginia - Title 58.1 Taxation - Chapter 36 Tax Exempt Property

58.1-3603 Exemptions not applicable when building is source of revenue

58.1-3605 Triennial application for exemption; removal by local governing body

58.1-3606 Property exempt from taxation by classification

58.1-3650 Post-1971 property exempt from taxation by designation

58.1-3651 Property exempt from taxation by classification or designation by ordinance adopted by local govern...

Nothing at the local level that qualifies WMC tax-exempt nor state level

After reviewing the Commissioner of the Revenue's report.  There is no formal exemption from local taxes by either designation or classification in the City of Winchester with regards to Winchester Medical Center nor at the state level.

The commonwealth has never had a "community benefit" standard in place for a not-for-profit hospital to abide by, but rather followed those previous 1969 broad and vague guidelines.

Federal Tax-Exemption Criteria for Nonprofit Hospitals:

IRS's community benefit standard to qualify for tax-exempt status allows nonprofit hospitals broad latitude to determine the services and activities that constitute community benefit. Furthermore, state community benefit requirements that hospitals must meet in order to qualify for state tax-exempt or nonprofit status vary substantially in scope and detail.

In the 1969 revenue ruling that established the community benefit standard, IRS recognized five factors that would support a nonprofit hospital's tax-exempt status. These five factors were :

(1) The operation of an emergency room open to all members of the community without regard to ability to pay

(2) A governance board composed of community members

(3) The use of surplus revenue for facilities improvement, patient care, and medical training, education, and research

(4) The provision of inpatient hospital care for all persons in the community able to pay, including those covered by Medicare and Medicaid

(5) An open medical staff with privileges available to all qualifying physicians.

IRS further stated that tax-exempt status would be determined based on the facts and circumstances of each case, and that neither the absence of particular factors set forth in the 1969 revenue ruling nor the presence of other factors would be necessarily conclusive. 

Nonprofit hospitals that qualify for tax-exempt status are exempt from federal income taxation, have access to bond financing that generates tax-free interest earnings for the bondholder--allowing these hospitals to borrow funds at a lower cost than nonexempt entities--and are eligible to receive contributions that are tax deductible for the donors.

In addition, these hospitals may also be exempt under state law from state and local income, property, and sales taxes, which in some cases are of a greater value than the federal income tax exemption.
(Information was obtained from The Government Accountability Office report on hospital community benefit, page 11 and 12 of actual report but page 16 and 17 of the PDF file).

Case Where State Law Superseded Federal Law

City of Richmond v. Richmond Memorial Hospital. In City of Richmond v. Richmond Memorial Hospital, 202 Va. 86, 116 S.E. 2d 79 (1960), the issue was whether the right to exemption “depends solely upon the extent to which free service is rendered.” The court rejected that standard and concluded that the exemption depends not upon the number of patients who are treated free of charge, but upon the nature of the institutions and the purpose of the operations. The constitution of Virginia did not require that services be rendered for free as the basis for exemption.

Burkholder: No 'qualifying exemption' met by WMC

September 30, 2010

By Ann T. Burkholder

    

Tax questions regarding Valley Health and/or Winchester Medical Center have comprised a significant portion of my workload over the past lively nine months as Commissioner of the Revenue.

On Jan. 27, 2010, (City Attorney) Tony Williams, staff member Tina Butler, and I visited the Wellness Center in response to Valley Health's protest of the personal property tax and business license taxes of that site. At the time, Todd Way of Valley Health also asked about the questionnaires regarding the initial triennial review of tax-exempt properties, any need to apply for exemption of the new Diagnostic Center, and options for minimizing tax discussions regarding future construction and usage charges.

Consequently, Valley Health submitted an application for real estate tax exemption for the WMC campus in February 2010, which was scheduled for review at the March 23 City Council work session. Upon seeing the recommendation of the Assessor and Commissioner of the Revenue that Valley Health be denied a blanket exemption, Valley Health then withdrew its application. By filing and subsequently withdrawing this application, Valley Health clearly demonstrated its own awareness that no clear and irrefutable tax exemption exists for the WMC campus.

Since then, the city and Valley Health have gone back and forth on the matter, accelerated by recent meetings between the two parties. In a letter dated Sept. 2, James Daniel, attorney for Valley Health, wrote, "We understand that it is not in dispute that charitable, nonprofit, Virginia hospitals are exempt by classification from local real estate and personal property tax."

I do not agree with this statement; rather, whether Valley Health/Winchester Medical Center qualifies for exemption under that section of the Code of Virginia is specifically what is in question. It is the position of this office that the entity is subject to taxation unless City Council enacts a classification or designation otherwise.

It is likely that the City of Winchester considered the original Winchester Memorial Hospital, on the Stewart Street site, and the naissent Winchester Medical Center to be tax-exempt under liberal interpretation of the language of the 1902 Virginia Constitution. While post-1971 updates to the Code of Virginia include stricter guidelines, nothing has been found which clearly establishes WMC's entitlement to tax exemption under either the current or earlier version of the Constitution.

While correspondence from prior administrations suggests that the issue was examined, by all parties' accounts, the mission and business of today's Winchester Medical Center have substantially evolved from the hospital of yore. As a result, the commissioner has little basis on which to conclude that ownership, use of the property, and, in fact, the property itself, are the same as when the exemption initially came into use.

On Sept. 23, Valley Health officials held a press conference at the Wellness Center to discuss their 2009 Community Benefit Report. As stated by the Valley Health Board Chair, the point was to show what Valley Health gives to the community in lieu of paying taxes. Of the $71.3 million in benefits claimed, over 63 percent consists of bad debt expense and Medicare Reimbursement Shortfall, both of which more accurately fall under the cost of doing business.

Valley Health avers its not-for-profit status and charitable contributions undermine any claim of ineligibility for exemption, yet neither point is relevant to the matter at hand. Not-for-profit does not automatically equate to non-taxable. Moreover, while the City of Winchester is very appreciative of the generosity and community benefits provided by Valley Health, these are not a substitute for the benefits provided by tax revenue. Here in the city, we are blessed with many citizens and businesses that willingly donate goods, money, and services to designated charities, yet also pay their fair share of local taxes for the common good.

Assisted by the City Attorney, City Assessor, and my staff, I have reviewed applicable state and local code, local records of council action, numerous legal opinions and proceedings, and information provided by Valley Health. Considerations in evaluating tax-exempt status have included:

Categories of taxation, to include real estate, gross receipts business license and personal property taxes.

Usage of real property, including undeveloped land, property leased to outside entities, and property used for personal and professional services.

Variety of business units operating under Valley Health, including traditional hospital functions, as well as those in direct competition with fully taxable entities, such as the Wellness Center and physician office practices under Valley Physician Enterprise.

Fair and equitable distribution of local taxpaying responsibility, recognizing that Valley Health will continue to expand its vision, mission, and revenue stream.

The role of Valley Health as a valuable community partner.

At this point, my findings indicate the property and activities of the WMC Campus do not meet any qualifying exemption by classification or by designation and thus are taxable. Within the next two weeks, absent compelling evidence to the contrary, my office will begin preparing the current year real estate tax bills for the WMC Campus and will proceed with other applicable billings.

Ann T. Burkholder is commissioner of the revenue for the City of Winchester.