A state court ruling denying tax-exempt status to three Pennsylvania hospitals may signal a renewed look at hospitals’ tax-exempt status in the state.

In the ruling, a Chester County court found that three hospitals acquired from for-profit Community Health Systems by non-profit Tower Health and then turned into non-profit hospitals did not meet the generally employed criteria for non-profit status in Pennsylvania – even though just a week earlier a Montgomery County court approved a similar tax exemption for a fourth Community Health Systems hospital acquired by non-profit Tower.

As reported by the Philadelphia Inquirer, Chester County court judge Jeffrey Sommer

…found that the three hospitals did not qualify for property-tax exemption for three 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.

In his decision, Judge Sommer also wrote that

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.

Tower Health has indicated that it will appeal the decision.

The judge also suggested that he expected his decision to encourage public officials to reconsider property tax exemptions 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.”

Learn more about the court’s decision and its potential implications in the Philadelphia Inquirer article “Tower Health is denied property-tax exemption for three Chester County Hospitals.”  Find the judge’s decision here.