Tower Health, a West Reading nonprofit, is facing stiff resistance in its bid for property tax exemptions at the four hospitals it bought in Chester and Montgomery Counties.
"We can't give them an exemption now for something they're going to do in the future," said Lisa Longo, president of the Phoenixville Area School District board, referring to a Pennsylvania legal standard that a nonprofit must donate a substantial portion of its services to qualify for property-tax exemption. "They have the burden to actually prove that first."
For Longo, installing new ownership is not like flipping a switch. The hospitals Tower bought in October were operated as for-profits for years, she said. Before getting an exemption, Phoenixville Hospital needs to establish a history that its operations have changed, Longo said.
Tower provided $3 million in uncompensated care, or 0.3 percent of the $997 million in net patient revenue, in fiscal 2017, its audited financial statement showed. Comparable figures were not available for its new hospitals.
Tower's $418 million deal, which also included Chestnut Hill Hospital in Philadelphia, was a rare case of a nonprofit buying for-profit hospitals, and the potential loss of revenue set off alarms in communities where the hospitals were among the top taxpayers when they were owned by Community Health Systems Inc.
In Chester County, the Board of Assessment Appeals denied Tower's applications for tax exemptions for Brandywine Hospital, Jennersville Regional Hospital, Phoenixville Hospital, and a small clinic in Coventry Township connected to Pottstown Memorial Medical Center, which is in Montgomery County.
Tower appealed that decision to the Chester County Court of Common Pleas, but no hearing has been scheduled.
The Montgomery County Board of Assessment Appeals granted Tower an exemption for Pottstown Memorial, but the Pottstown School District intends to contest that decision in the Court of Common Pleas, a district spokesman said.
Philadelphia's Office of Property Assessment in December received Tower's application for a property-tax exemption at Chestnut Hill Hospital. The agency has yet to make a ruling.
It is too soon to say how the disputes will turn out. The Pennsylvania Supreme Court standard of five tests, established in 1985, to determine whether a nonprofit gets an exemption is "very subjective with no objective standards to measure against," said Stewart M. Weintraub, a lawyer in the Philadelphia office of Chamberlain Hrdlicka.
In central Pennsylvania, UPMC Pinnacle received property tax exemptions for three hospitals in Lancaster and Cumberland Counties that it bought last summer from Community Health Systems "without contest or appeal," a UPMC spokeswoman said. The nonprofit did not apply for a facility in York County, where a replacement hospital is under construction.
Tower, which undertook a huge expansion when it purchased the hospitals from Community Health Systems, declined to comment, citing the litigation. The system aims to become what it called an "integrated provider/payer system" through a joint venture with UPMC Health Plan to sell health insurance in nine eastern Pennsylvania counties, excluding Philadelphia.
The outcome of the property-tax fight could be financially significant for Tower, which had an operating income of $9.725 million in the year ended June 30, 2017, on $1.052 billion in revenue. The aggregate annual property tax tab for the five hospitals is more than $3.5 million, public records show.
Tower knew it could be in for a fight over property taxes, warning investors in a bond-offering statement last fall that its bids for tax exemptions at its new hospitals could be challenged and that it "might consider entering into a payment in lieu of taxes agreement and agreeing to make some payments to the taxing authorities."
Reading Hospital, Tower's legacy facility, already has such an arrangement with the Wyomissing Area School District, where it is located. Alan D. Fegley, Phoenixville's superintendent, said he believes the annual payment to that school district — which did not respond to a request for comment — is in the $500,000 range.
Other school districts that are home to the new Tower hospitals either did not respond to a request for comment or merely confirmed that they are contesting the exemption for the Tower hospitals in their areas.
Fegley said he had maintained a close working relationship with the leader of Phoenixville Hospital when it was owned by Community, but so far he has been rebuffed under Tower ownership, being told he has to deal with executives in West Reading.
On Feb. 1, Fegley and Longo sent a letter to Clint Matthews, Tower's president and chief executive, as well as to Brent J. Wagner, Tower's chairman, asking for a meeting by the middle of last month, explaining that they were under pressure to establish a budget for the coming school year. They would have to raise taxes by 1.72 percent just to make up for the loss of $950,000 in taxes from the hospital.
"We have heard nothing," Fegley said Tuesday. "We do know they received the letter because we sent it certified return receipt."
It's possible that, depending on how a decision is made on a property-tax exemption, a hospital might not pay any taxes to a local school district.