Harvard Community Health Plan, Inc. v. Board of Assessors of Cambridge

• Decision Date: 05 November 1981
• Citation: 384 Mass. 536,427 N.E.2d 1159
• Parties: HARVARD COMMUNITY HEALTH PLAN, INC. v. BOARD OF ASSESSORS OF CAMBRIDGE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1159

427 N.E.2d 1159

384 Mass. 536

HARVARD COMMUNITY HEALTH PLAN, INC. v. BOARD OF ASSESSORS OF CAMBRIDGE.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Sept. 14, 1981.

Decided Nov. 5, 1981.

Douglas A. Randall, Quincy, Christopher S. Pitt, Boston, for defendant.

Robert K. Gad, III, Boston, for plaintiff.

Before HENNESSEY, C. J., and LIACOS, NOLAN and LYNCH, JJ.

LIACOS, Justice.

The Board of Assessors of Cambridge (assessors) appeals to this court from a decision of the Appellate Tax Board (board) which found certain real estate owned by the Harvard Community Health Plan, Inc. (HCHP), to be entitled to an exemption under the provisions of G.L. c. 59, § 5, Third. The board found that HCHP had sustained its burden under the statute of establishing that it was incorporated for charitable purposes, and that its operations on the Cambridge property are consistent with such purposes. We conclude that the board's decision is supported by substantial evidence and we affirm. New Boston Garden Corp. v. Assessors of Boston, --- Mass. ---, --- - ---, Mass.Adv.Sh. (1981) 1023, 1033-1034, 420 N.E.2d 298 (1981).

The assessors had denied ¹ applications by HCHP for an exemption under G.L. c. 59, § 5, Third, as to property owned and occupied by HCHP at Nos. 1603-1611 Cambridge Street, Cambridge. HCHP took three appeals to the board, covering the fiscal years 1975 and 1976, plus six months of 1974. G.L. c. 58A, § 7. The appeals were consolidated for hearing. The board's decision, in favor of HCHP, was issued June 27, 1978. After the thirty-day appeal period provided by Mass.R.A.P. 4, as amended, --- Mass. --- (1979), had passed, the assessors filed a motion with the board to extend the time for filing a notice of appeal. See Mass. R.A.P. 4(c). This motion was denied by the board. Relying on the prior decision on the three appeals, HCHP moved for a decision in its favor on two appeals pending for the fiscal years 1977 and 1978. The motion was granted on October 23, 1978. The assessors requested relief from a single justice of this court under Mass.R.A.P. 2, 365 Mass. 845 (1974), and Mass.R.A.P. 14(b), as amended, --- Mass. --- (1979). The single justice granted the assessors' motion in an order issued November 27, 1978. The time for filing a notice of appeal was enlarged, and the board was ordered to prepare a report of facts and to pass upon the parties' requests for rulings of law. The decisions in the appeals for 1977 and 1978 were stayed. The present appeal was filed with this court on November 25, 1980. ² G.L. c. 58A, § 13.

We summarize the board's findings. HCHP was the owner of a building known as the Cambridge Center in each of the three years in question. The Center houses doctors' offices, examination rooms, conference rooms and laboratories, a medical records library, cafeteria, administrative offices, and meeting rooms. In short, the premises are a full-service clinic and are occupied by the officers and employees of HCHP for the purpose of providing prepaid comprehensive health services for a subscribing population. HCHP was organized in 1969 as a corporation for charitable purposes under G.L. c. 180. ³ Its stated primary purposes are to join with "the Medical School of Harvard University and its affiliated teaching hospitals ... to advance the development of comprehensive health care and to promote medical education by formulating a program or programs of prepaid comprehensive health services for a subscribing population which will: (a) Attempt to create effective and economic means of organizing and delivering health care; (b) Provide the students, faculties, and staffs of the Medical Institutions with an opportunity for studying and teaching comprehensive health care; and (c) Conduct social and clinical research concerning health needs and the effectiveness of health care." In furtherance of these purposes, HCHP proposed, among other things, to: provide patient care; engage in teaching and research; establish, operate and maintain medical service centers, clinics and such other facilities as may aid in the study, prevention, diagnosis, care or treatment of ailments and injuries.

The doctors using the facilities are full-time or part-time employees of HCHP. With rare exception, the only patients examined or treated on the premises are enrollees of the plan. None of the full-time physicians are members or directors of the corporation, nor do they receive anything of value from the corporation but their salaries, which are comparable to or below those earned by physicians in private practice.

During the period in question, three members of the board of directors received money from HCHP. ⁴ The board determined that these payments represented reasonable compensation for the services rendered. Otherwise, no member or director received any money or property from HCHP.

As of the time of the hearing, the plan served approximately 64,000 enrollees, most of whom resided in the greater Boston area. The majority were electing employees of about 1,700 employers, in addition to approximately 5,800 State and municipal employees. More than 3,000 persons were enrolled through State or Federal health care programs. ⁵ HCHP provides health services in a broader range and at a lower cost than traditional health insurance coverage through an insurance plan such as Blue Cross/Blue Shield.

The Cambridge Center also operates as a clinical training center, through residency programs for medical students and doctors intending to become "primary care physicians" (the modern-day successor to the general practitioner), and specialists in internal medicine. These programs are operated according to standards developed for formal teaching hospitals by the American Medical Association. ⁶ The board found that "the activities conducted by (HCHP) at the subject premises may be described as a hospital operation." These findings were, among others, the basis of the board's decision that the property in issue was exempt under G.L. c. 59, § 5, Third. ⁷

The assessors argue that the decision of the board is unsupported by the evidence of record and erroneous as matter of law. Although there is no finding that HCHP is a health maintenance organization (HMO) under G.L. c. 176G, many of the findings of the board as to the nature of HCHP indicate that it operates in a fashion comparable to an HMO. The HMO is a relatively new phenomenon. See Baystate Medical Center v. Blue Cross of Mass., Inc., --- Mass. ---, Mass.Adv.Sh. (1981) 317, 416 N.E.2d 1352 (1981). ⁸ So, too, HCHP reflects recent developments in the delivery of health care services. We have recognized that an HMO is "an entity which provides a full range of health care benefits to voluntarily enrolled members either directly or by contractual agreements. Enrolled members purchase the services of an HMO for a prepaid or aggregate fixed sum." Id. --- Mass. at --- n.2 at 317 n.2, 416 N.E.2d 1352. At the same time, we noted the "evidence which establishes that HMO enrollees receive high quality care at a lower cost as much as one-fourth to one-third lower than traditional care in some parts of this country." Id. --- Mass. at --- n.12, at 322 n.12, 416 N.E.2d 1352, quoting from S.Rep.No. 93-129, 93rd Cong., 1st Sess. 1, 2 (1973).

The board has made similar findings as to HCHP. Our affirmation of the board's decision is not based solely on the delivery by HCHP of high-quality medical care at a lower cost than is charged by conventional health care systems. Although laudable, such benefits, conferred by most HMO's or by HCHP on their enrollees, are not alone sufficient for entitlement to exemption as a charitable organization.

The third clause of G.L. c. 59, § 5, exempts from taxation property of a "charitable organization," defined as "a literary, benevolent, charitable or scientific institution ... incorporated in the commonwealth." Exemption is extended to the real property of a corporation with charitable purposes, provided it is occupied by the corporation for such purposes. See Meadowbrooke Day Care Center, Inc. v. Assessors of Lowell, 374 Mass. 509, 511, 373 N.E.2d 212 (1978); Milton Hosp. & Convalescent Home v. Assessors of Milton, 360 Mass. 63, 67, 271 N.E.2d 745 (1971). See also Massachusetts Medical Soc'y v. Assessors of Boston, 340 Mass. 327, 332, 164 N.E.2d 325 (1960). Thus, at the very least, the taxpayer must be a charitable organization in order for its property to qualify for exemption. This would deny exemption to those group practices which are nevertheless engaged in the practice of medicine for profit. See Milton Hosp., supra, 360 Mass. at 69, 271 N.E.2d 745. In addition, subpart (a) of the third clause of § 5 provides that exemption is not available even to ostensibly charitable organizations if "any of the income or profits of the business of the charitable organization is divided among the ... members (of the corporation), or is used ... for other than ... charitable ... purposes." This prohibition against inurement to "insiders" will preclude exemption for the property of a group medical practice or clinic where, for example, the physicians "employed" by it serve on its board or otherwise exert control over its finances. See Fisher School v. Assessors of Boston, 325 Mass. 529, 535, 91 N.E.2d 657 (1950); White, Tax Policy and Health Maintenance Organizations: The Case for a Section 501(c)(3) Tax Exemption, 6 Am.J.L. & Med. 283, 301-303 (1980). See also 4 A. Scott, Trusts § 372.1 (3d ed. 1967) ("if the payment of salaries is a mere device for securing to the beneficial owners the profits which may accrue, the institution is not charitable").

The record shows that no such inurements or commercial purposes exist in the HCHP. The assessors concede in their brief that "(t)here is no question that the purposes of HCHP as stated in its Articles of Organization ... are largely charitable in nature." The assessors specifically enumerate the...