The New London Hospital v. Town of Newport

In order to qualify under the second ElderTrust factor, NLH had the burden to prove that the stated obligation to provide its charitable purposes of delivering care to the ill and disabled regardless of race, sex, color, creed or national origin was directed to the public and not simply the members of the organization. ElderTrust of Fla., Inc. v. Town of Epsom, 154 N.H. 693, 697 – 698 (2007). Factor 2 has two components: whether there is an actual obligation to perform the stated charitable purpose and whether such performance is to the general public or an indefinite segment of it. Marist Bros. of N.H. v. Town of Effingham, 171 N.H. 305, 314 (2018). In Marist the fact that 500 children a year from the United States (including New Hampshire and around the world) were provided religious, educational, and recreational summer camping activities was sufficient to satisfy the second ElderTrust factor. By comparison, in Nature Conservancy v. Nelson, 107 N.H. 316, 320 (1966), the use of a 400-acre lakefront property by mainly nearby residents, with limited use by college students for ecological field investigative purposes, was deemed insufficient to qualify the property as being used for public charitable purposes. Similarly, very occasional use of property by a Boy Scout Troop did not support a claim for a charitable exemption for property owned by a church but not used directly for church purposes. First Congregational Church v. Gilmanton, 123 N.H. 343 (1983). The indefinite and prospective benefit of rent stability was also not deemed to be the direct use and occupation of the property in order to support a charitable organization to receive a tax exemption. Housing Partnership v. Rollinsford, 141 N.H. 239, 244 (1996). The Court’s observation in Housing Partnership is particularly relevant to the charitable exemption claims of NLH: The Beccaris Drive tenants pay close to market rates and receive no special benefits from living in the property, and as a result the occupancy of the property by the tenants is not a direct use of the property for the plaintiff's charitable purposes. See Alton Bay Camp, 109 N.H. at 50, 242 A.2d at 85. In other words, the plaintiff in this case has failed to demonstrate that the tenants' occupancy of the Beccaris Drive property is in any significant way different from tenants occupying housing run by a noncharitable organization.

Housing Partnership at 244.

The evidence adduced at trial demonstrated NLH was operating the NHC in a manner that was comparable to a noncharitable provider of medical care. When addressing the amount of actual charity provided by NHC, Lisa Cohen, Chief Financial Officer for NLH, confirmed the amount of charity care, defined as “free & discounted health care services”, Community Benefit Reporting Form, NLH Apx. II at 151, declined from 2015 to 2018. Transcript (Tr.). p. 385. Indeed, according to Cohen, patients with outstanding balances would need to pay those outstanding balances before new appointments could be scheduled, Tr. pp 491 – 492, and for fiscal years 2011 through 2017, a total of 133 patients were discharged from the NHC practices due to outstanding balances. Tr. 496. Mark O. Dietrich, CPA, the town’s expert witness, testified that for profit hospitals in New Hampshire spend more on charity care than did non-profit hospitals, including NLH (Tr. p. 94), and that NLH’s level of charity care for the period 2013 to 2018 was less than one percent. Tr. p. 794. Furthermore, Dietrich testified that based upon an analysis of the billing by NHC for a common medical service, established patient visit, NLH was charging a market rate for medical services. Tr. 685. This evidence established that patients visiting NHC were not receiving, or paying for, medical services that varied in any significant way when compared to for-profit medical institutions.

The Town’s expert witness Mark O. Dietrich, CPA, also provided testimony based on the financial statements and Community Benefits Reporting Forms submitted to the Charitable Trust Unit of the Attorney General’s Office. Dietrich testified that a New Hampshire Community Benefits Guide prepared by the Attorney General’s Office directs how the Community Benefits Report should be prepared for health care charitable trusts under RSA 7:32-d. Dietrich explained that according to that Guide institutions should not include as a claimed community benefit the cost of providing health services due to inefficient operations. To the extent NLH was claiming the primary health care it was providing at NHC was evidence of its community care benefits based upon the operating losses related to providing that primary care – and thus evidence of carrying out its charitable purpose – the evidence showed not that the losses were due to discounted medical charges or low reimbursement due to Medicare but rather those operating losses were due to inefficiency. Tr. 809. Employing Medicare cost reports and analyzing physician productivity, Dietrich concluded that excess physician compensation based upon Medicare productivity standards equaled $201, 000 in 2015, $234, 500 in 2017 and $295, 000 in 2018. Tr. 703 – 704. Dietrich concluded that the amounts of claimed subsidized medical care on the Community Benefits Report for those years should not have been included since these claimed subsidized services were due to inefficient operations. Tr. 765.

The Trial Court held found that “there is no dollar amount of free or discounted treatment [NLH] must provide in order to show it uses the property to provide healthcare in a charitable way.” Appendix I - 9. Prior case law is clear, however, that the services provided by NLH must have an “underlying motive... of generosity and benevolence”, Young Women’ s Christian Ass’n v. Portsmouth, 89 N.H. 40, 44 (1937) (emphasis added), or an “altruistic spirit, ” Soc'y of Cincinnati v. Exeter., 31 A.2d 52, 58, 92 N.H. at 350 (1943). Regardless of whether NLH is required to show an actual dollar amount of free or discounted care, the overwhelming evidence at trial was that NLH did not provide healthcare services at NHC that demonstrated a generous and benevolent motive where it was charging market rates to patients regardless of its actual cost to provide the care and when it had a policy of discharging patients who could not pay – and in fact did discharge patients that could not pay. Tr. pp. 495-498. To say that a healthcare facility operating in this manner qualifies as a charitable organization entitled to a property tax exemption (and this increasing the tax burden on the rest of the town’s taxpayers) completely undermines the purpose and intent of the property tax exemption laws. “The purpose of the ‘obligation’ requirement is to prevent purely private organizations, albeit with charitable purposes, from benefiting by a tax exemption without, in turn, providing some service of public good.” E. Coast Conference of the Evangelical Covenant Church of Am., Inc. v. Town of Swanzey, 146 N.H. 658, 662 (2001). This could open the floodgates for all manner of organizations seeking to claim a charitable tax exemption. Since under RSA 73:23-m the burden was on NLH to demonstrate the applicability of the charitable property tax exemption under RSA 72:23, V and RSA 72:23-l, based upon the trial court record NLH did not satisfy the ElderTrust second factor. Compare, Appeal of Nashua, 155 N.H. 443, 445 (2007) (church functioning as a storage space for religious items not in use was not entitled to exemption).

II. The trial court erroneously ruled that NLH satisfied the third ElderTrust factor

The trial court concluded that NLH “established that most of the property it occupied at its Newport facility was used to provide health care in a charitable manner.” App I-8. The trial court based this conclusion in part on evidence about the delivery of free or discounted medical services through a financial assistance policy that was advertised on a website and in patient care areas. App I – 8 - 9.

Additionally, NLH’s Bad Debt Policy (Ex. A-4) would only have patients referred to a collection agency if they ignored four billing statements and two phone calls on paying a balance. The trial court also observed that there was no evidence NLH denied medical care to patients who could not pay but worked with them to find sources of financial assistance. App I – 9. The trial court also credited NLH for absorbing losses by providing medical care to patients with Medicare and Medicaid as additional evidence of charity care, along with a Breast and Cervical Cancer Prevention Program and a Medication Bridge program. After considering necessary deductions for portions of the NHC property leased to two non-profit medical providers who were not proven to be charitable, the court ruled NLH had proven the third ElderTrust criterion for the property it directly occupied. App I – 12.

For NLH to qualify under the third ElderTrust factor, the NHC property must be owned, occupied and used for its charitable purposes. The third factor primarily asks whether the charitable purpose identified under the first factor is being carried out on the particular parcel of property for which the exemption is being sought. The ownership of the property in question by an institution proclaiming to be a public charity does not, by that fact alone, exempt the property from taxation. Furthermore, when the use is slight, negligible, or insignificant, or not in the performance of the public purpose, the applicant is not entitled to a tax exemption. Two pieces of evidence introduced at trial through the testimony by Mark O. Dietrich, CPA, demonstrate that NLH’s operation of NHC for its charitable purpose was indeed “slight, negligible, or insignificant.” Transcript cite?

After examining spreadsheets produced in discovery by NLH and focusing on a common CPT billing code entry for an established patient office visit, Dietrich explained that NLH was charging market rates for those particular services. Tr. 685. Indeed, contrary to the trial court’s conclusion that accepting Medicare was causing NLH to absorb more financial losses, NHC realized a higher cost basis reimbursement by virtue of being designated a rural health clinic and would have realized even higher reimbursement rates had it attained the Medicare productivity standard of 4, 200 visits. Tr. 687. This decline from the Medicare productivity standards caused NLH to suffer losses, not the Medicare rates themselves. Tr. 706. Indeed, the contribution of Medicaid and Medicare provided payment of the fixed costs for the operation of NHC. Tr. 800. In Marist the Court found that the off-season rentals of camp property did not defeat entitlement to a charitable exemption since the off-season use was incidental and did not interfere with operations of the camp by which Marist Brothers of New Hampshire accomplished its charitable purposes. In the Court’s view, the off-season rentals were de minimis, amounting to approximately 7% of total expenses and the camp’s occupancy of the property was reasonably necessary for the charitable organization to carry out its mission and that its charitable use was not slight, negligible, or insignificant and was in the performance of the public purpose. 16 NH Practice Series: Municipal Taxation & Road Law § 37.03 (2022). In contrast, the delivery of charitable medical services at NHC can only be characterized as slight, negligible or insignificant since NLH provided charity care equaling less than 1 percent of total patient costs when compared to other non-profit hospitals spending 2.3 percent of total patient costs, and for-profit hospital spending 3.8 percent on charity care. Tr. 792 – 796. Furthermore, rather than Medicare and Medicaid being evidence of NLH providing charity medical care, those streams of income to NLH represented a positive contribution to its operating margins that substantially contributed to paying the organization’s fixed costs. Tr. 798 – 800. Compare, Appeal of City of Franklin, 137 N.H. 622, 626 (1993) (the Franklin Home for the Aged provided exemplary, quality charitable health care at below cost rates and lower than area Medicaid and Medicare facilities can offer).

The trial court’s reliance on Harvard Community Health Plan, Inc. v. Board of Assessors of Cambridge, 427 N.E.2d 1159 (1981) in support of its conclusion NLH satisfied the third ElderTrust factor was misplaced. The premises where the charitable exemption was sought in that case, known as the Cambridge Center, housed a full-service medical clinic where prepaid comprehensive health services were provided for a subscribing population. Id., p. 1160. Only because the Cambridge Center provided substantial medical services at a lower average cost did the Supreme Judicial Court conclude a charitable exemption was warranted. Id., 1164. Given the substantial evidence provided at trial by Mark O. Dietrich, CPA, NLH did not provide medical services at a lower average cost.

Based on the trial court record NLH did not satisfy the ElderTrust third actor.

For the foregoing reasons the amici respectfully join in the Town of Newport’s requests for relief.

I hereby certify that on this 20th day of June, 2023 a copy of this BRIEF OF THE NEW HAMPSHIRE MUNICIPAL ASSOCIATION and TOWN OF BEDFORD as AMICI CURIAE has been transmitted via the NH Supreme Court’s electronic filing system to all counsel of record.

Date: June 20, 2023 /s/ Stephen C. Buckley Stephen C. Buckley