U.S. v. Partners Healthcare System, Inc.
| Citation | 591 F.Supp.2d 116 |
| Decision Date | 30 September 2008 |
| Docket Number | Civil Action No. 05-11576-DPW. |
| Parties | UNITED STATES of America, Plaintiff, v. PARTNERS HEALTHCARE SYSTEM, INC., Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Elizabeth L. Davis, Stephen T. Lyons, U.S. Department of Justice, Tax Division, Washington, DC, for Plaintiff.
Christopher Kliefoth, Mark H. Churchill, McDermott, Will & Emery LLP, Washington, DC, Edward P. Leibensperger, Joseph H. Selby, McDermott, Will & Emery, Boston, MA, Thomas D. Sykes, McDermott Will & Emery LLP, Chicago, IL, for Defendant.
The United States commenced this action against Partners Healthcare System, Inc. ("Partners") to recover approximately $24.2 million paid as a refund for taxes originally collected under the Federal Insurance Contributions Act ("FICA") on payments made to medical residents in calendar years 2001, 2002, and 2003. This motion for summary judgment presents two questions: (1) whether the payments received by the residents were "wages" subject to FICA taxes under 26 U.S.C. § 3121(a) and, if so, (2) whether they fell under the "student exception" of 26 U.S.C. § 3121(b)(10). While I find the first question may be answered "YES" on this limited summary judgment record, given the austere and demanding approach to summary judgment developed recently in the courts regarding the second question, an answer must be deferred until after trial.
The following facts are presented in the light most favorable to Partners.1
Partners was formed in 1994 by Massachusetts General Hospital ("MGH") and Brigham and Women's Hospital ("BWH"). Pl.Ex. 1. The organization, which originally included MGH, BWH, and their affiliated hospitals, now includes North Shore Medical Center, Faulkner Hospital, Newton-Wellesley Hospital, Spaulding Rehabilitation Hospital, Youville Hospital and Rehabilitation Center, Partners Community HealthCare, Inc., Dana-Farber/Partners CancerCare, and Partners Home Care. Id.
Partners is a Massachusetts nonprofit organization exempt from tax under § 501(c)(3) of the Internal Revenue Code. Def. Statement of Facts, Ex. B. Its purpose, as stated in its application for § 501(c)(3) status, is "to organize, operate and support the comprehensive health care systems" of its member hospitals. Pl.Ex. 2. at PHS000185. To that end, its primary function is "to coordinate and to provide strategic planning opportunities" so that its member hospitals can more efficiently deliver high-quality patient care, medical education, and research. Id. at PHS000188.
Partners has a mission consisting of three functions: patient care, medical education, and medical research. Thiboult Decl. ¶ 3; Weinstein Decl. ¶ 4. With respect to education, Partners is a major teaching affiliate of Harvard Medical School, and most of the attending physician staff at MGH and BWH hold Harvard Medical School faculty appointments. Weinstein Decl. ¶ 4. Partners also coordinates the residency and fellowship programs of its member hospitals under its Graduate Medical Education ("GME") division. Pl.Ex. 5; Thibault Decl. ¶ 6. GME training programs, sponsored primarily by MGH and BWH, include approximately 100 residencies and fellowships that are accredited by the Accreditation Council for Graduate Medical Education ("ACGME").2 Pl.Ex. 5; Weinstein Decl. ¶¶ 3, 5.
Interns, residents, and fellows are medical school graduates who are undergoing training in a specialty or subspecialty. Pl. Ex. 6 at 3. The primary goal of this training is the development of practical skills. Weinstein Decl. ¶ 7. Interns are typically residents in their first year of training out of medical school. Id. ¶ 11. Residency programs extend from a minimum of three years to a maximum of eight years, depending on the specialty. Id. The term "fellow" refers to a physician who has completed a residency program and is pursuing advanced training in a subspecialty. Pl.Ex. 6 at 3. Fellowship programs generally require an additional one to three years of training. Weinstein Decl. ¶ 11.
Most states, including Massachusetts, require a medical school graduate to complete at least one year of an accredited residency program before it will grant a physician's license. Id. ¶ 10. It is unlikely, however, that a physician could establish a practice without completing a residency program.3 Id. Upon completion of a residency, physicians receive a certificate and become eligible for board certification. Id. ¶¶ 7, 11.
Each Partners GME program tailors the resident selection process to meet its particular needs, but they follow the same general model. Churchill Decl. Ex. 1 at 8. Applicants who have graduated from an accredited or recognized foreign medical school submit applications, including letters of recommendation and transcripts, directly to their department of interest. Id. Recruitment committees in each department review the applications and select candidates to interview. Id. Typically, an organized matching program then matches residents with programs.
Once accepted to a Partners residency program, physicians sign an engagement contract. Pl.Ex. 7. The contract details the respective responsibilities of the resident and Partners. Residents have a number of responsibilities:
provide patient care, under appropriate supervision, as assigned by the training program director or his/her designed, consistent with the educational goals of the program and the highest standards of patient care ("patient care" includes responsibility for associated documentation in the medical record, which should be completed in a timely fashion, and attendance at patient care rounds as assigned)
make appropriate use of the available supervisory and support systems, seeking advice and input from the attending staff physician/s when and as appropriate, and in accordance with the Hospital Guidelines for Supervision of Residents and Clinical Fellows
participate fully in the educational and scholarly activities of the training program as specified by the training program director, including attendance at didactic conferences and other responsibilities which may include a research project, completion of examinations maintenance of procedure logs or other items
develop a personal program of learning to foster continued professional growth, with guidance from the teaching staff
assume responsibility, as called upon, in teaching more junior trainees and medical students, within the scope of the training program
participate in improving the quality of education provided by the training program, in part by submitting at least annually confidential written evaluations of the faculty, the program and the overall educational experience
adhere to established practices, procedures and policies of the Hospital, the Hospital's Medical/Professional Staff, the Department and affiliated training sites
participate in institutional programs, councils or committees and other medical staff activities, as appropriate abide by the institutional and program-specific Resident Duty Hours Policies and, as scheduled by the program director, accurately report his/her duty hours
comply with institutional requirements for annual health and safety training, vaccinations and TB testing.
Id. at 1. Additionally, residents must satisfy licensing requirements, ACGME requirements, and any other requirements specific to their program. Id. at 2.
For its part, Partners or the hospital provides "a suitable academic environment," a training program that meets ACGME standards, and documentation of residency completion. Id. It also provides "Compensation and Benefits." Id. Residents receive an "annual salary" that varies depending on the number of years of training the resident has completed.4 Id.; Churchill Decl. Ex. 1 at 5-6. Each resident receives an IRS Form W-2, Wage and Tax Statement, detailing the amount paid to the resident during the period at issue. Pl.Ex. 6 at 6.
Benefits include health, life, and disability insurance, confidential professional assistance and counseling, job-related health services, tax-advantaged retirement savings accounts, and malpractice insurance of $5 million per claim and $10 million annual aggregate per physician.5 Pl.Ex. 7 at 2, 7. Departments may also provide residents with on-call rooms, uniforms, laundry service, meals, pagers, email access, and parking. Id. at 2. Residents are entitled to a minimum of ten vacation days, twelve sick days, and family or personal medical leave of up to twelve weeks. Id. at 9-10. Residents pay no tuition to participate in a residency program and they are not required to register for any credit hours in connection with the program. Pl. Ex. 6 at 4.
Supervised direct involvement in patient care is "essential" to the training experience of Partners residents. Thibault Decl. ¶ 9. The Chairman of the Department of Surgery at MGH explained, "You can read and study for years about how to ride the bike, but the only way you can really learn to ride one is to get on the bike and do it." Warshaw Decl. ¶ 9. Residents are actively supervised by attending physicians, with the degree of supervision depending on the competence of the individual resident. Ausiello Decl. ¶ 17. Residents have no hospital privileges or authority to admit or discharge hospital patients, but they may perform procedures and provide treatment when an attending physician is not physically present. Id. at ¶¶ 25-26. Ultimately, however, an attending physician is responsible for the care of the patient, and in surgical programs, must be present for the critical portion of any surgery. Warshaw Decl. ¶ 6.
Partners also provides academic learning opportunities for residents, such as conferences, seminars, and research projects. Thibault Decl. ¶ 9. Resident attendance at rounds and many of the lectures and conferences is mandatory. Warshaw Decl. ¶ 13. Residents have required reading from...
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