Wexford Medical Group v. City of Cadillac

Citation474 Mich. 192,713 N.W.2d 734
Decision Date03 May 2006
Docket NumberDocket No. 127152.,Calendar No. 4.
PartiesWEXFORD MEDICAL GROUP, Petitioner-Appellant, v. CITY OF CADILLAC, Respondent-Appellee.
CourtMichigan Supreme Court

Honigman Miller Schwartz and Cohn L.L.P. (by John D. Pirich and Stewart L. Mandell), Lansing, for the petitioner.

McCurdy & Wotila, P.C. (by Roger Wotila and Cynthia Wotila), Cadillac, for the respondent.

Butzel Long, P.C. (by E. William Shipman), Detroit, for amici curiae Michigan Rural Health Clinics Organization.

Dykema Gossett P.L.L.C. (by Phyllis Donaldson Adams, Stewart A. Binke, and Christine Mason Soneral), Detroit, for amici curiae Michigan Association of Homes and Services for the Aging.

Payne, Payne, Broder & Fossee, P.C. (by Carol L. Fossee and Kenneth A. Krasity), Bingham Farms, for amici curiae McLaren Health Care Corporation.

Lewis, Reed & Allen, P.C. (by Richard D. Reed and Matthew L. Lager), Kalamazoo, for amici curiae Michigan Municipal League and Michigan Townships Association.

Hall, Render, Killian, Heath & Lyman, P.L.L.C. (by Kimberly J. Commins and Michael J. Philbrick), Troy, for amici curiae Michigan Health & Hospital Association.

Opinion

MICHAEL F. CAVANAGH, J.

This case calls on this Court to interpret certain provisions of the General Property Tax Act (GPTA), MCL 211.1 et seq. Specifically, we must decide whether the Tax Tribunal improperly denied petitioner's request to be exempt from ad valorem property taxes because of its claimed status as a charitable institution under MCL 211.7o and 211.9(a), and its claim that it serves a public health purpose as described in MCL 211.7r. Because there is no statutory language that precludes finding petitioner exempt as a charitable institution, and because exempting petitioner on that basis fully comports with the reasoning of our previous cases, we hold that petitioner does in fact qualify for that exemption. In refusing to grant the exemption, the Tax Tribunal adopted a wrong principle and misapplied the law by failing to distinguish ProMed Healthcare v. City of Kalamazoo, 249 Mich.App. 490, 644 N.W.2d 47 (2002), and by focusing only on the amount of free medical services plaintiff provided. Instead, the tribunal should have considered plaintiff's unrestricted and open-access policy of providing free or below-cost care to all patients who requested it.

Our finding in that regard makes it unnecessary to determine whether petitioner also exists for a public health purpose. As such, we reverse the part of the Court of Appeals judgment that held that petitioner was not a charitable institution and vacate the part of the judgment that held that petitioner did not exist for a public health purpose. The matter is remanded to the Tax Tribunal for entry of a judgment for the petitioner.

I. BACKGROUND

Petitioner Wexford Medical Group is a nonprofit corporation that provides health care in Wexford County, Michigan, which is a federally designated health professional shortage area. Petitioner does business as Great Lakes Family Care. Petitioner is a § 501(c)(3)1 (nonprofit) organization and is owned jointly by Trinity Health Care and Munson Health Care, two other § 501(c)(3) organizations. Petitioner's articles of incorporation identify petitioner's mission as "providing access to quality and affordable health care services to the communities it serves." Both its statement of purpose and its bylaws further declare that petitioner will, among other things, conduct its activities within the confines of the rules governing § 501(c)(3) organizations, prevent inurement of funds to private individuals, and refrain from political activities.2

In accord with its mission, petitioner has a "charity care" policy and an "open-access" policy for Medicare and Medicaid patients. The charity care policy provides free and discounted health care to anyone whose income is up to twice the federal poverty level. Under its open-access policy, patients are treated on a first-come, first-served basis, and petitioner places no limit on the number of Medicare and Medicaid patients it will treat. In 2000, two patients took advantage of the charity care program; 11 patients used it in 2001. The total value of care rendered to these 13 patients was $2,400. Petitioner also reported that 50 percent of its patients utilized Medicare or Medicaid, which it stated was a significantly higher percentage than was true for other providers in the area.

In the years at issue, petitioner's annual budget was $10 million, and it handled approximately 40,000 to 44,000 patient visits a year. Petitioner's expected fee collection was as follows: 83 percent recovery from self-pay patients, 75 percent from Blue Cross Blue Shield patients, 60.3 percent from Medicare patients, and 40.4 percent from Medicaid patients. Under its policy of accepting patients who cannot pay their Medicare or Medicaid co-pays, petitioner provided below-cost health care totaling nearly $2 million more than its receipts. Overall, petitioner suffered financial losses in 1999, 2000, and 2001 of $575,000, $731,000, and $673,000, respectively. These losses were subsidized by its parent companies. And while petitioner's goal was to eventually become profitable, its agent testified that any surplus would be invested back into the organization in accord with its statement of purpose.

Petitioner also engaged in a variety of health-based community services such as offering classes, lectures, training, testing and screening, and sports physicals. Other of its community endeavors included treating communicable diseases such as human immunodeficiency virus-acquired immune deficiency syndrome (HIV-AIDS), tuberculosis, hepatitis, and meningitis; treating maladies such as diabetes, obesity, and heart disease; and providing educational services such as disease screening blood-borne pathogen instruction, defibrillator training, and first aid instruction. A significant number of these and other services provided by petitioner are not provided by anyone else in the community.

After respondent assessed and taxed petitioner's property in 2000 and 2001,3 petitioner appealed the assessments to the Tax Tribunal. Petitioner argued that it was entitled to the GPTA's charitable institution exemption, MCL 211.7o, and its public health purpose exemption, MCL 211.7r, so it should not have to pay ad valorem property taxes.

MCL 211.7o creates the ad valorem property tax exemption for charitable institutions. Section 70(1) states as follows:

Real or personal property owned and occupied by a nonprofit charitable institution while occupied by that nonprofit charitable institution solely for the purposes for which it was incorporated is exempt from the collection of taxes under this act.

The corollary statute addressing personalty, MCL 211.9(a), exempts from taxation

[t]he personal property of charitable, educational, and scientific institutions incorporated under the laws of this state.

MCL 211.7r, which contains the public health purpose exemption, states, in pertinent part:

The real estate with the buildings and other property located on the real estate on that acreage, owned and occupied by nonprofit trust and used for hospital or public health purposes is exempt from taxation under this act, but not including excess acreage not actively utilized for hospital or public health purposes and real estate and dwellings located on that acreage used for dwelling purposes for resident physicians and their families.

The Tax Tribunal upheld the assessment, finding that petitioner did not qualify for either exemption. With respect to the charitable institution exemption, the tribunal held that while petitioner extended charity care and indigent services to the community, its primary purpose was to operate as a typical family medical practice. It found that it could not distinguish petitioner's case from ProMed, supra. The tribunal commented:

While, unlike ProMed, Petitioner is able to document the number of individuals it has served under its charity care policy, serving 13 patients under that program in a two-year time period is not sufficient for a medical practice that has up to 44,000 patient visits per year.

Citing petitioner's $10 million annual budget, the tribunal concluded that "[a] charity care write-off of approximately $2,400 is not an appropriate level of charity care to qualify Petitioner as a charitable institution."

Petitioner appealed the tribunal's decision,4 and relying heavily on ProMed, supra, the Court of Appeals affirmed the tribunal's decision. Wexford Med Group v. Cadillac, unpublished opinion per curiam of the Court of Appeals, issued August 24, 2004, 2004 WL 1882645 (Docket No. 250197). The Court of Appeals held that petitioner "failed to present evidence that its `provision of charitable medical care constituted anything more than an incidental part of its operations.' Specifically the evidence indicated that Wexford provided no-cost services to only two people in 2000, and eleven people in 2001, which amounted to writing off $129.13 in 2000, and $2,229.09 in 2001." Id., slip op at 2, quoting ProMed, supra at 500, 644 N.W.2d 47. The Court of Appeals was also not persuaded by petitioner's argument that it had written off losses sustained from underpayments by Medicare and Medicaid, reasoning as follows: "That the amount of payment under these programs often does not cover the cost of providing the service does not change the character of the service from service in exchange for payment to charity. Further, it is undisputed that Wexford's aim is to become profitable." Wexford, supra at 2. The Court was similarly unpersuaded by petitioner's argument that it was a charitable institution because it provided health care in an area deficient of such services.

With respect to whether petitioner served a public health purpose that would entitle it to ad...

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