Genesee Hospital v. Wagner

• Decision Date: 28 February 1975
• Citation: 47 A.D.2d 37,364 N.Y.S.2d 934
• Parties: Application of the GENESEE HOSPITAL, Respondent, v. Wallace WAGNER, as Assessor of the City of Rochester, New York, and the Boardof Assessment Review of the City of Rochester, Appellants.
• Court: New York Supreme Court — Appellate Division

Page 934

364 N.Y.S.2d 934

47 A.D.2d 37

Application of the GENESEE HOSPITAL, Respondent, v. Wallace WAGNER, as Assessor of the City of Rochester, New York, and the Boardof Assessment Review of the City of Rochester, Appellants.

Supreme Court, Appellate Division, Fourth Department.

Feb. 28, 1975.

Louis N. Kash, Corp. Counsel, Rochester, for appellants (Merwyn M. Kroll, Rochester, of counsel).

Harris, Beach & Wilcox, Rochester, for respondent (Edward R. Macomber, Rochester, of counsel).

Before MARSH, P.J., and MOULE, SIMONS and DEL VECCHIO, JJ.

MARSH, Presiding Justice:

This is a proceeding commenced by petitioner, Genesee Hospital, in accordance with Article 7 of the Real Property Tax Law seeking judicial review of an assessment made by respondent Wagner, as assessor of the City of Rochester and upheld by the respondent Board of Assessment Review for the City of Rochester for the tax years 1970--1971 and 1971--1972 on a certain office building constructed and owned by Genesee Hospital, a tax-exempt hospital. Pursuant to RPTL, § 712, no answer was served by respondents and therefore all of the allegations in the petition are deemed denied. It is petitioner's contention that the valuations and assessments of petitioner's real property are illegal in that said property 'is devoted to a use which is reasonably incident to the major purposes of said hospital, to wit: to provide better health care for its patients, and as such is totally exempt pursuant to section 420 of the New York Real Property Tax Laws.' In opposition thereto, respondents-appellants, Wagner and the City of Rochester contend that the tax exemption provided by section 420 of the RPTL requires a two-dimensional showing, that is, that (1) the organization claiming the exemption has to fulfill one of the purposes outlined in section 420, in this case, a hospital purpose, and secondly the specific piece of property for which the exemption is claimed has to be used exclusively for carrying out one or more of the purposes of the hospital.

The facts underlying the present dispute are essentially uncontroverted.

The Genesee Hospital has been located at its present site for approximately 90 years. In 1969 the hospital, at a cost of about $1,700,000.00, completed the construction of a three-story brick structure on the hospital's property which was connected to the main hospital building by hallways on two levels, at the second floor and at the basement. This building, known as the Doctors Office Building, is the subject property involved in this proceeding. The building contains about 39,000 square feet of usable rental space on the three above ground levels and approximately 9,000 square feet in the basement. At the time of trial, in September, 1971, the building housed the private offices of about 40 attending staff physicians of the hospital out of a total medical staff of approximately 220 physicians. Office space in the Doctors Office Building is available only to physicians on the staff of the Genesee Hospital and in each case the rental period is for a minimum term of 5 years. Also located in the building are an Ambulatory X-Ray Unit containing 3,463 square feet, the laboratory, research area and office of the Chief of Surgery, Dr. Renee Menguy (3950 square feet), and the Dietary Unit of the hospital (216 square feet). Also planned for the building but not in operation at the time of trial was an Ambulatory Care Unit to replace the former Out-Patient Department of the hospital. The latter facility was planned for the basement and first floor of the Doctors Office Building.

With respect to one of the hospital facilities housed in the Doctors Office Building, to wit, the Ambulatory X-Ray Unit the City of Rochester disputes that this facility can be considered a direct hospital purpose because the radiologists who have charge of the facility receive a percentage fee based upon the hospital billings rather than a flat-rate salary from the hospital. It is a common practice in hospitals today for radiologists to be paid in this manner. The radiologists are paid by the hospital and also receive a percentage of billings from x-rays taken at the hospital's in-patient facility. The trial court in its decision did not make a distinction between the various facilities within the building, but determined that the property was exempt in total as being 'reasonably incident' to the hospital's exempt corporate purposes.

In addition to being a hospital for the care of its patients, Genesee Hospital is also a teaching institution for medical students, interns, residents, and nurses. Since 1948, the hospital has been affiliated with the Medical School of the University of Rochester. Genesee Hospital has accreditations in Nursing Education, X-Ray Education, and Dietition Education as well as from the Council on Medical Education of the American Medical Association in Medicine, Surgery, Pathology, Pediatrics, Obstetrics and Gynecology and from the American Dental Association in Dentistry. The hospital has 366 beds.

In recent years competition for qualified interns and residents has been intense. In order to facilitate the placement of interns in our hospitals a National Intern Matching Program was developed. This is a system which operates by having both the hospitals and the graduating medical students list their orders of preference for internship and a computer matches the student to the hospital which is highest on his list. In recent years the Genesee Hospital has seen a decline in the number of interns it has been able to attract from the Matching Program. The reasons assigned for this unfortunate trend suggests that the problem exists beyond just the City of Rochester and the State of New York into the entire Northeast portion of the country. High taxes are cited as well as the desire on the part of the interns to locate in warmer climates in the South and on the West Coast.

Confronted with this trend Genesee Hospital determined that if it was to improve as a high-quality medical and teaching hospital it would have to do something to attract well-known physicians onto its staff as well as attract and retain the better interns and residents. The construction of a Doctors Office Building was thought to be a step in that direction. As stated by Dr. Alvin Ureles, Chief of Medicine at Genesee Hospital and a full professor at the University of Rochester Medical School, in order to attract the best possible medical staff Genesee Hospital must develop a better program. He said, 'we must have better teachers, all must have teachers delivering at the bedside more than ever, and our reputation has to grow professionally, and our professional building is one of many factors that will help us in that direction.'

The thinking behind the original proposal to construct an adjacent professional office building attached to the hospital proper was given by Herman Waggershauser, former President of the Board of Directors of Genesee Hospital. Mr. Waggershauser testified that the function of the hospital was not solely the care and treatment of patients but also involved the development of group practices by physicians and the improvement of the medical education of doctors. To improve the educational function it became essential to have doctors close by the hospital. As far as the hospital was concerned the only purposes of the Doctors Office Building were to improve medical care in the community and to improve the training and education of doctors. The plan which was developed to accomplish these purposes provided that any physician on the staff of Genesee Hospital could rent space in the hospital's professional office building for a leasehold period of generally five years. The doctors were not restricted in the amount of time they were permitted to spend seeing private patients nor the amount of money they could earn through their private practices. Also, the doctors were not required to teach or to increase their previous level of teaching, if any, after their move into the professional building. However, the anticipation was that the close proximity of the attending physicians to the hospital would actually increase the teaching time and availability of the physicians to spend more time in the hospital than before, thus increasing and improving patient care as well as the educational function within the hospital. Several physicians who moved into the Doctors Office Building testified that in fact the close proximity of their private offices to the hospital did increase their availability to the hospital and consequently increased the time they had to devote to patient care and to training and educating the interns and residents at the hospital. It was generally agreed that whatever advantages existed by virtue of having their offices essentially under the same roof as the hospital were present only during the office hours of the doctor since in the evenings and on most weekends doctors would not be in their offices anyway, thus the proximity factor would not then be present. According to several of the physicians, however, the added versatility and ability to flow back and forth to the hospital for consultation, patient care and emergencies increased the medical care and teaching function of the hospital.

However, it also appears that a great deal of teaching is still being done by physicians who are not located in the Doctors Office Building and, conversely, many doctors who rent space there either do not or have not increased the teaching schedules as a result of the move. Basically, all agreed that teaching is a matter of the personal preference of the individual physician. Most teaching occurs right in the hospital. Generally, teaching occurs at the bedside of the patient during informal discussions between the house staff and the attending physician. Some teaching is done in the doctor's private office, or off the premises at other hospitals, but...