Sturdy Memorial Foundation, Inc. v. Board of Assessors of the Town of North Attleborough (April 22, 2002)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



STURDY MEMORIAL FOUNDATION,   v.   BOARD OF ASSESSORS
INC.						     OF THE TOWN OF 
     NORTH ATTLEBOROUGH

Docket Nos. F246018, 		     Promulgated:
	       F251112,			April 22, 2002
		  F255652			   

	These are appeals under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate taxes on certain real estate in the Town of North Attleborough assessed under G.L. c. 59, § 38 for fiscal years 1998, 1999 and 2000.
Commissioner Scharaffa heard the appeals and was joined in the decision for the appellee by Chairman Burns and Commissioners Gorton, Egan and Rose.
These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

Eric W. Wodlinger, Esq. and Max Volterra, Esq. for the appellant.

Robert C. Bliss, Esq. for the appellee.




FINDINGS OF FACT AND REPORT
	On January 1, 1997, January 1, 1998 and January 1, 1999, the relevant assessment dates for fiscal years 1998, 1999 and 2000, respectively ("the fiscal years at issue), the appellant, Sturdy Memorial Foundation, Inc.         ("the Foundation") was the assessed owner of real estate consisting of five acres, improved with a 12,000 square foot two-story building known as the North Attleborough Medical Center ("NAMC"), located at 140 Draper Avenue in the Town of North Attleborough ("the subject property").  The Foundation leased most of the subject property to Sturdy Memorial Associates, Inc. ("Associates"), a separate corporation established by the Foundation in 1980.  The Board of Assessors for the Town of North Attleborough ("Assessors") valued the subject property at $770,300 for fiscal year 1998 and $807,600 for fiscal years 1999 and 2000 and accordingly assessed a tax on the subject property at $11,870.32 for fiscal year 1998, $11,718.28 for fiscal year 1999, and $12,017.09 for fiscal year 2000.  The appellant paid the assessed tax for each year without incurring interest. 
For each fiscal year at issue, the appellant timely filed with the Assessors an application for abatement of real estate taxes, claiming a charitable property tax exemption pursuant to G.L. c. 59, § 5, Third for the subject property.  Upon denial of each application for abatement, the appellant seasonably filed its appeal with the Appellate Tax Board ("Board").  On the basis of the foregoing, the Board found it had jurisdiction over these appeals.
At all times relevant to this appeal, the Foundation was a health care corporation which qualified as a charitable organization under Section 501(c)(3) of the Internal Revenue Code ("Code").  The Foundation's corporate purpose, according to its Restated Articles of Organization, was "[t]o support the advancement of the knowledge and practice of, and education and research in, medicine, surgery, nursing and all other subjects relating to the care, treatment and healing of humans . . . and provided further, that it shall operate exclusively for the benefit of Sturdy Memorial Hospital, Inc. ["the Hospital"] and its affiliated organizations . . . ."  
Linda Shyavitz, the President of the Hospital and also the Executive Director of the Foundation and of Associates, testified that in the mid-1980's, the Foundation perceived a need for medical care in the service area of the Hospital, as articulated by members of the Foundation's board of directors, who were prominent members of the community, and by members of the North Attleborough Board of Selectmen.  The Foundation believed further that a group medical practice model was becoming the preferred model over the traditional sole practice model of health care delivery.  According to Ms. Shyavitz, this model was "quickly copied" by many of the larger hospitals in Massachusetts like Beth Israel.  She further testified that "that model became very, very attractive to young physicians who were leaving training," because it offered young physicians professional collegiality and support, coverage of all the business aspects of practice for which physicians had no training in medical school, and a steady salary from the beginning of practice during the ninety-day waiting period before income from third party insurers "begins to start trickling in."  
Therefore, in order to "recruit quality medical manpower to serve all of our service area," the Foundation decided to use funds from its endowment to establish a group medical practice in North Attleborough.  Ms. Shyavitz testified that an earlier attempt by the Foundation to sponsor a group of established existing physicians hoping to establish a private medical practice in             North Attleborough failed because of the physicians' lack of resources and their unwillingness to be held personally liable in the endeavor.  The Foundation thus purchased the subject property in North Attleborough and leased it to its subsidiary, Associates, for the subsidiary to start a group practice in the Hospital's service area.  
Associates qualified as a charitable organization for federal tax purposes pursuant to Code Section 501(c)(3).  Its corporate purpose, according to its Restated Articles of Organization, was as follows:
[t]he corporation is organized and shall be operated exclusively for the benefit of the Sturdy Memorial Hospital, Inc., and its affiliated organizations . . . and in furtherance hereof shall render medical services and provide health education to persons in the Hospital's service area.

Ms. Shyavitz testified that because of legal constraints in Massachusetts prohibiting non-physicians from engaging in the practice of medicine, the majority of Associates' board of directors were physicians.  At the time of the hearing of these appeals, Associates' board of seven directors contained a simple majority of physicians, four physicians and three non-physicians.  Associates occupied several properties owned by the Foundation in the Hospital's service area and operated group medical practices at these properties.  In North Attleborough, Associates operated the subject property doing business as NAMC.  
During the fiscal years at issue, Associates employed six physicians at NAMC, none of whom were corporate officers or members of the board of directors of Associates.  As testified to by Ms. Shyavitz, Associates perceived itself as competing with other physician employers in the surrounding area, and therefore, it utilized professional recruiters to hire its physicians and offered them competitive wages.  NAMC physicians were salaried employees whose compensation was determined by a separate committee of the board of directors of Associates, the Compensation Committee.  The Compensation Committee consisted of the three non-physician Associates board members.  No physicians participated in the Compensation Committee's meetings.  
Joseph F. Clark, the Vice President for Administrative Services of the Hospital and the Treasurer of Associates and a member of the Compensation Committee, testified that Associates paid its physician employees a competitive "going rate" of compensation, based on information from its professional recruiters and from the Medical Group Management Association's published data on this topic.   Ms. Shyavitz testified further that the Compensation Committee reviewed certain additional criteria including the physicians' quality of care administered, efficiency in the use of NAMC resources, service on Hospital committees, being "available if requested to participate" in community education or screening programs, and acceptance of Medicare and Medicaid patients.  These salaries were further adjusted for individual productivity measured by the extent to which the physician's net collections exceeded the physician's budgeted collections.  
An additional Incentive Compensation Plan, incorporated into the physicians' employment contracts, provided that a physician retained fifty percent of any excess productivity generated for Associates, measured by the extent to which a physician's net collections exceeded his or her anticipated productivity for the year.  Associates provided monthly accounting statements to each physician to show them a summary of their collected revenue and allocated expenses.
Ms. Shyavitz testified that Associates did not purchase ongoing practices because it believed this would be contrary to its charitable purpose.  However, Associates did hire established physicians and offered them the salary they were earning in their private practice at the time of hiring.  During the fiscal years at issue, Associates had hired one physician for the NAMC practice who was engaged in private practice in North Attleborough at the time of his hiring.
As part of the group practice model, Associates provided each physician with a support staff, equipment, supplies, and billing and collection services.  Associates also paid the Foundation for the rent of the NAMC physicians' offices.  Furthermore, Associates paid the physicians' malpractice insurance fees and all start-up expenses for its new physicians.  Associates also regulated certain financial aspects of the physicians' practices.  The physicians' employment contracts prescribed the number of hours each physician employee must schedule patients and also required physicians to maintain a certain number of billable hours.  Associates also determined the fees to be charged for services. 


Mr. Clark testified that physicians were able to make recommendations for fees, but Associates made the final determination as to the fee schedule, which was required to be uniform for physicians employed by Associates at its various sites.  In making its final determination as to fees, Associates considered the amounts that third-party insurers paid for services.  
The Foundation made cash advances to Associates for the operation of Associates' several sites, including NAMC, during the fiscal years at issue.  By 1999, these advances totaled $2,381,527.  However, the financial statements for Associates submitted into evidence did not indicate what portion of these advances was applied toward NAMC versus other medical centers operated by Associates.  Mr. Clark testified that this working capital was needed to pay the salaries of new physicians, because the physicians' collections from services were generated mostly from  third-party insurers, and therefore, these collections were delayed as long as ninety days from the date of service.  He also testified that advances from the Foundation were also applied toward Associates' operating deficits.  Associates paid no interest on the advances from the Foundation, and none of these sums had been repaid or forgiven at the time of the hearing of these appeals.  Associates' books reported overall operating deficits for each of the fiscal years at issue but did not identify at trial whether NAMC operated at an overall loss.  
As a requirement of employment, all physicians at NAMC were required to be on staff at the Hospital.  Mr. Clark testified that the purpose of this requirement was to ensure that the physicians passed the Hospital's screening and background checks.  Mr. Clark also testified that while the physicians were not required to refer their patients to the Hospital, the practical effect of employing only     on-staff physicians was that they tended to refer patients to the Hospital for procedures that the Hospital performed.  However, patients could request to have their procedures performed at another hospital.  
At the time of the hearing, Associates employed six physicians, two of whom were part-time, at NAMC.  When NAMC first opened its doors with one physician in 1988, Associates found that after about three to six months, the physician's panel was "full," defined as between 2,000 to 2,500 patients.  Associates hired new physicians as the wait for scheduling new patient physicals grew to about three to four months.  According to Mr. Clark, a physician's panel was "almost full" when the wait for new patient physical exams was between one to two months.  He stated that each full-time physician ideally should have a panel of approximately 2,000 to 2,500 patients.  
NAMC received approximately 18,000 patient visits annually.  Associates' physicians accepted Medicare and Medicaid patients, and according to Mr. Clark's testimony, they did not discriminate on the basis of residency, age, sex or race.  However, patients could schedule appointments with an Associates physician only if the physician was accepting new patients.  Moreover, NAMC did not accept walk-in patients; all patients were seen on an  appointment-only basis.   
Associates conducted a program of medical education, lectures and free health care screenings, including skin cancer screenings, in the nine communities that Associates served.  Some programs were conducted at Associates' various primary care facilities, including NAMC, but other larger programs were conducted at the Hospital and other community facilities such as schools.  Ms. Shyavitz testified that during the fiscal years at issue, Associates and the Hospital conducted free skin cancer screenings approximately once a month.  However, there was no evidence indicating the number of free clinical or educational programs actually conducted on premises at NAMC.
On the basis of the above evidence offered at the hearing of these appeals, the Board found that the Foundation was not entitled to a property tax exemption for the subject property that it leased to Associates, because NAMC was conducted as a commercial health care clinic.  Evidence of the commercial nature of NAMC included the following findings.  First, the Board found that Associates' physicians, who accepted patients only by appointment and not on a walk-in basis, could refuse to treat non-established patients if their panel of patients was considered "full" by Associates' standards, as is typical of a private practice.  Therefore, the Board found that the Foundation did not meet its burden of proving that the 18,000 "patient visits" reflected service to a sufficiently large and undifferentiated segment of the community, as opposed to service to a limited class of established patients of NAMC, including repeat visits by the same patients.  Moreover, while Associates' physicians treated Medicare and Medicaid patients, Associates set the fees for services in keeping with the rate paid by commercial third-party insurance carriers.  The Foundation offered no evidence of care provided to patients who could not afford these services or who were uninsured, nor did they offer any evidence of care provided at less than the fees Associates established.  Accordingly, the Board found that the appellant did not meet its burden of proving that Associates' operation of NAMC benefited a sufficiently large or indefinite portion of the community.  
The Board further found that Associates' physicians at NAMC, whose salaries were in keeping with data from professional recruiters and the Health Care Management Association, were not paid less than the salary of comparable physicians.  Moreover, as evidenced by billable hours requirements and criteria reviewed by the Compensation Committee, the physicians' salaries were related at least in part to their productivity.  Because of the incentive bonus included in the employment contracts, the physicians also shared in the profits that they generated for Associates when they reached a surplus of collections.  The Board found that Associates reinforced the commercial aspects of Associates' practice by providing the physicians with monthly statements detailing their revenue collections as compared with their allocated expenses.  
Furthermore, although Associates, a non-profit organization, hired and employed the physicians, this fact did not alter the conclusion that the physicians were in the conduct of a commercial medical practice for profit.  In fact, Associates' control and organization of NAMC as a group practice reflected its desire to compete with other physician employers, including private employers, in the hiring and retention of its physician staff.  The competitive nature of NAMC was further demonstrated by Associates' use of professional recruiters to hire physicians, its payment of salaries that were in keeping with a medical trade association's current data, and its compensation system that rewarded physician employees for their productivity.
The Board considered all of these commercial aspects of Associates' practice and, for reasons which are explained in the Opinion that follows, the Board found that the appellant failed to meet its burden of proving that Associates' occupation of the subject property was in furtherance of Associates' charitable purpose.  Instead, the Board found that Associates' practice was conducted as a commercial enterprise for profit.  Therefore, the Board found that the Assessors' denial of the charitable exemption for the property leased to and occupied by Associates for the conduct of the NAMC practice was proper.

OPINION
	"[S]tatutes granting exemption from taxation are strictly construed."  Animal Rescue League of Boston v. Assessors of Bourne, 310 Mass. 330, 332 (1941).  The removal of large segments of property from taxation increases the burden on the remaining property; therefore, "[a] taxpayer is not entitled to an exemption unless he shows that he comes within either the express words or the necessary implication of some statute conferring this privilege upon him."  Milton Hospital & Convalescent Home v. Board of Assessors of Milton, 360 Mass. 63, 67 (1971) (quoting Boston v. Quincy Mkt. Cold Storage & Warehouse Co., 312 Mass. 638, 654 (1942) (other citations omitted)). Accordingly, "[a] corporation claiming that its property is exempt under § 5, Third, has the burden of proving that it comes within the exemption, and that it is in fact operated as a public charity."  Town of Norwood v. Norwood Civic Association, 340 Mass. 518, 525 (1960) (citing American Inst. For Economic Research v. Assessors of Great Barrington, 324 Mass. 509, 512-14 (1949)).  The organization bears the burden of proving that it is a charitable organization and that it occupies the property in furtherance of the charitable purposes for which it was organized.  See Board of Assessors of Hamilton v.       Iron Rail Fund of Girls Club of America, Inc.,           367 Mass. 301, 306 (1975).   Cases addressing charitable exemptions for health care corporations have emphasized this same principle. See Harvard Community Health Plan, Inc. v. Assessors of Cambridge, 384 Mass. 536, 541 (1981) ("Exemption is extended to the real property of a corporation with charitable purposes, provided it is occupied by the corporation for such purposes.").  See also, Children's Hospital Medical Center v. Board of Assessors of Boston, 388 Mass. 832, 838 (1983).
    An important determination of whether an organization is in fact operated as a public charity is whether the operation of the program "'lessen[s] any burden government would be under any obligation to assume.'"           Western Massachusetts Lifecare Corp. v. Board of Assessors of Springfield, 434 Mass. 96, 105 (2001) (quoting Boston Chamber of Commerce v. Assessors of Boston,              315 Mass. 712, 717 (1944)).  An organization's Code Section 501(c)(3) status is not dispositive in determining whether its property qualifies for the Massachusetts property tax exemption.  See H-C Health Services v. Board of Assessors of South Hadley, 42 Mass. App. Ct. 596, rev. denied,     425 Mass. 1104 (1997).  Rather, the Massachusetts courts strictly analyze the actual occupation and use of the property.  Furthermore, the Supreme Judicial Court has recognized "the manifold new forms in which charity may find expression" but nonetheless warned that "the more remote the objects and methods become from the traditionally recognized objects and methods the more care must be taken to preserve sound principles and to avoid unwarranted exemptions from the burdens of government."  Boston Chamber of Commerce, 315 Mass. at 718.
The relevant provision of G.L. c. 59, § 5, Third, exempts from taxation the following:
real estate owned by . . . a charitable organization and occupied by . . . another charitable organization or organizations . . . for the purposes of such other charitable organization or organizations;

Pursuant to this provision, the Foundation must establish two criteria: (1) that Associates, doing business as NAMC, as the occupant of its property, was a charitable organization, and (2) that its occupation was in furtherance of the charitable purposes for which it was organized.  See Board of Assessors of Hamilton v.       Iron Rail Fund of Girls Club of America, Inc.,           367 Mass. 301, 306 (1975).  The Assessors did not challenge the status of Associates as a charitable organization, but they challenged its occupation of the property as not in furtherance of its charitable purpose.  
	The promotion of health is not alone sufficient to establish a charitable purpose.  See Milton Hospital & Convalescent Home, 360 Mass. at 67.  All charitable organizations, including health care organizations,     must strictly adhere to the requirements of                  G.L. c. 59, § 5, Third, including the prohibition against the use of income or profits for other than charitable uses.  See Assessors of Lancaster v. Perkins School,     323 Mass. 418, 420 (1948).  Furthermore, as the Court in Harvard Community Health Plan acknowledged, a commercial purpose will prevent a health care organization from entitlement to a charitable use property tax exemption.  See Harvard Community Health Plan, 384 Mass. at 543 (finding that a health care organization providing benefits to a sufficiently large class of individuals may be entitled to exemption only "[a]bsent proscribed inurements or commercial purpose, see G.L. c. 59, § 5, Third . . . ." (emphasis added)).  To the extent that an organization is simply conducting a business for profit, it is not a charitable practice but a commercial enterprise.         See Hairenik Association, Inc. v. City of Boston,        313 Mass. 274, 279 (1943).  As explained below, the Board found and ruled that the operation of NAMC at the subject property violated the prohibition against the use of income and profits and was conducted as a commercial enterprise.  

The payment of bonuses to physician employees in accordance with the Incentive Compensation Plan violates G.L. c. 59, § 5, Third (a).

As detailed in their employment contracts, Associates paid the physicians a bonus in accordance with an Incentive Compensation Plan.  This bonus equaled fifty percent of the excess productivity that was generated for Associates, measured by the extent to which the physician's net collections exceeded his or her anticipated productivity for the year.  Ms. Shyavitz testified that this incentive program was designed to reward productivity and to insure that physicians used the organization's resources to their maximum efficiency.  However, the distribution of profits to private parties is prohibited by G.L. c. 59, § 5, Third, which provides in paragraph (a) that:
[i]f any of the income or profits of the business of the charitable organization is divided among the stockholders, the trustees or the members, or is used or appropriated for other than literary, benevolent, charitable, scientific or temperance purposes . . . its property shall not be exempt;

As detailed in the Incentive Compensation Plan, Associates' physicians received a portion of the excess productivity that they generated for Associates.  The Board found that the excess productivity was "income or profits" as that term is used in § 5, Third.  As explained at the hearing, Associates allocated its expenses to each of the employee physicians.  Individual statements detailed the extent to which each physician's income exceeded that physician's allocated share of expenses.  Therefore, regardless of whether Associates' books reported an overall deficit for its operation of NAMC, physicians were capable of producing surpluses in their individual practices, as measured by the extent to which their collections exceeded their allocated share of expenses.  The Board found that the distribution of profits to the individual physicians benefited the physicians and achieved the purpose of encouraging them to increase their net collections.  Therefore, the distribution of profits by the Incentive Compensation Plan did not achieve a charitable purpose but rather an entrepreneurial purpose and benefit to a limited class of beneficiaries, and therefore, was in violation of       G.L. c. 59, § 5, Third (a).   See Perkins School, 323 Mass. at 422; Boston Symphony Orchestra v. Board of Assessors of City of Boston, 294 Mass. 248, 254 (1936); Franklin Square House v. City of Boston, 188 Mass. 409, 410-11 (1905).  Accordingly, the Board found and ruled that the inclusion of the Incentive Compensation Plan in the physicians' employment contracts barred the charitable exemption for the property occupied by Associates doing business as NAMC.   

Associates operated NAMC as a commercial practice in violation of G.L. c. 59, § 5, Third.

The operation of a private business is not charitable, no matter how noble its pursuits. 
See Massachusetts Medical Society v. Assessors of Boston, 340 Mass. 327, 333 (1960) (denying exemption to professional association despite "most laudable" goal of improving the medical profession).  Private organizations are charitable only when they perform activities which advance the public good, thereby relieving the burdens of government to do so.   See, e.g., Molly Varnum Chapter DAR v. City of Lowell,   204 Mass. 487 (1909).  However, to the extent that an organization is conducting a business for profit, it is not relieving government of a burden and, accordingly, it is not a charitable endeavor.  See Hairenik Association,    313 Mass. at 279.  
Milton Hospital and Convalescent Home v. Board of Assessors of Milton, 360 Mass. 63 (1971), strongly analagous to these appeals, illustrates that Associates was, in fact, conducting a private medical practice.  The charitable organization in that case, Milton Hospital & Convalescent Home ("Milton Hospital"), utilized part of its property for a medical practice.  It added a five-story wing to its existing building and rented eighty percent of the wing to physicians who were members of Milton Hospital's staff.  Id. at 64.  In seeking to extend its charitable exemption to this eighty percent portion of the building, Milton Hospital argued that the occupancy by the physicians on its staff was in fact occupancy by the hospital for the charitable purposes for which it was organized.  Id.  
The Court acknowledged that "[i]t [was] undisputed that the hospital became a better hospital by reason of the proximity of the offices rented to physicians and the greater availability of the doctors, particularly when needed in emergencies."  Id. at 66.  Moreover, "[t]here [was] no question that the officers of the hospital exercised sound judgment and acted in good faith and in the best interests of the hospital" and "there [was] likewise no question that they were not motivated by any desire to realize a financial profit from the rental of the suites."  Id. at 69.  Nonetheless, the Supreme Judicial Court upheld the Board's denial of the charitable use property tax exemption, finding that the occupancy of the suites by the physicians did not constitute occupancy "by the hospital for the charitable purposes for which it was organized."  Id. at 70.  Instead, the Court found that the occupation of the premises was by private physicians who "were free to conduct their private practices therein as they saw fit, treating whatever patients and as many patients as they wished, and charging them for professional services whatever sum the physicians determined, all without any supervision, control or limitation by the hospital."  Id. at 65-66.  
Therefore, even though the proximity of the doctors improved Milton Hospital's performance, and that "[t]here [was] no question that the officers of the hospital exercised sound judgment and acted in good faith and in the best interests of the hospital" and "there [was] likewise no question that they were not motivated by any desire to realize a financial profit from the rental of the suites," the Court found that these factors did not alter the fact that the physicians' offices operated privately and independently from the hospital and its charitable purposes.  Accordingly, the Court affirmed the Board's finding that the occupancy and use of the property by the physicians was "for the conduct of their private medical practices for profit," rather than "by the hospital for the charitable purposes for which it was organized."         Id. at 70.   
The Board noted that the physicians in Milton Hospital operated independently from each other, while the NAMC physicians were employees of Associates, a subsidiary of the Hospital.  However, the Board found this distinction to be one without significance.  In reviewing the facts of these appeals, the Board found that Associates operated NAMC as an independent physician practice like the private practices in Milton Hospital.  For example, while all the physicians employed by Associates were on staff at the Hospital, the employee physicians' exact responsibilities to the Hospital in conjunction with their staffing privileges, including service on Hospital committees and being "available if requested to participate" in community education or screening programs, were vague.  These details were not specifically outlined in the physicians' employment contracts, nor in any other written documentation submitted by the Foundation.  The majority of patients seen by the physicians were not referred to the Hospital, nor, as testified to by Ms. Shyavitz, were physicians required to refer patients to the Hospital.  Associates, as the medical organization, conducted the practice of medicine at the premises, and Associates, not the Hospital, had the power to hire and fire employee physicians.  The Board, therefore, found that the Hospital exerted little control over the day-to-day operations of Associates' physicians' practices beyond the initial allowance of staff privileges.        
Although a health care organization can be charitable (see Harvard Community Health Plan, 384 Mass. at 543), commercial practices that provide health care services are not entitled to the charitable property tax exemption: "The hospital is not incorporated for the purpose of engaging in the practice of medicine for profit, and if it were it would not be a 'charitable organization' under the statute."  Milton Hospital, 360 Mass at 69.  The commercial aspects of Associates' practice, as separate from the hospital's charitable practice, was no less apparent here than in Milton Hospital.  For example, although physicians were required to accept Medicare and Medicaid patients, the appellant offered no evidence that physicians provided care to patients who were uninsured, or that they provided services to patients at less than the cost established with reference to third party insurance carrier charges.  Although charging fees for services will not     necessarily preclude an organization's charitable status            (see New England Sanitarium v. Inhabitants of Stoneham, 205 Mass. 335, 342 (1910)), the Court has nonetheless found that the provision of lower-cost services is a strong indication of whether the organization is providing a charitable service as opposed to a commercial venture.  See Harvard Community Health Plan, 384 Mass. at 540 ("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.'" quoting             S. Rep. No. 93-129, 93rd Cong., 1st Sess. 1, 2 (1973));    see also New England Legal Foundation v. City of Boston, 423 Mass. 602, 610 (1996).  
Testimony from the appellant's witness also revealed a competitive motivation for establishing Associates' practice.  As testified to by Ms. Shyavitz, Associates organized the NAMC as a group medical practice with the specific intent to compete with other physician employers, including private employers.  Associates' board understood that this model, which was "quickly copied" by many of the larger hospitals like Beth Israel, was becoming the preferred model over the traditional sole practice, and so "very, very attractive to young physicians who were leaving training."  Associates further improved upon the attractiveness of this model by offering a turn-key operation by which it covered the physicians' expenses such as office rent, start-up expenses, and even malpractice insurance.  The effort to make Associates more competitively attractive to its potential employees further demonstrated the commercial nature of its practice conducted on the subject property.  See Children's Hospital Medical Center v. Board of Assessors of Boston,          353 Mass. 35, 42 (1967) (recognizing that "competition with commercial industry" can frustrate an organization's charitable nature).  The commercial nature of the physicians' employment was further revealed by their employment contracts, in which Associates specifies requirements for billable hours.  This focus on the volume of patient treatment emphasized productivity, as would be typical of a private, commercial practice. 
Additionally, the Supreme Judicial Court has found that "selection requirements, financial or otherwise, that limit the potential beneficiaries of a purported charity will defeat the claim for exemption."  Western Massachusetts Lifecare Corp, 434 Mass. at 104 (citing Boston Symphony Orchestra, 294 Mass at 255-256 (finding that the charitable exemption was properly denied where an educational organization charged substantial admission fees and gave seating preferences to season ticket holders)).  Here, the Board found that Associates' requirement for a scheduled appointment and the lack of reduced-cost care created barriers to the provision of services to patients in need.  The Board also found that Associates' physicians could refuse to accept and treat non-established patients if their panel of patients was considered "full," as is typical of a private practice.  Moreover, the Board found that the Foundation did not establish that the 18,000 "patient visits" reflected an undifferentiated segment of the community, as opposed to visits by established patients of Associates at NAMC, including repeat visits by the same patients.  Based on these findings, the Board ruled that the Foundation failed to meet its burden of proving that Associates was treating people "of a sufficiently large or indefinite class so that the community [was] benefited by its operations."  Harvard Community Health Plan,         384 Mass. at 543 (citing Children's Hospital Medical Center, 353 Mass. at 44, Assessors of Boston v. Garland School of Home Making, 296 Mass. 378, 388-89 (1937),       4 A. Scott, Trusts at 2897-2898 (3d ed. 1967)).  
The provision of health to the established patients of Associates or to a limited portion of the community was not sufficient to demonstrate that the organization was charitable.  See Massachusetts Medical Society, 340 Mass. at 332 ("But if the dominant purpose of [an organization's] work is to benefit its members or a limited class of persons it will not be so classed [as a charitable organization], even though the public will derive an incidental benefit from such work."); see also Marshfield Rod & Gun Club, Inc. v. Board of Assessors of the Town of Marshfield, 25 Mass. App. Tax Bd. Rep. 338 (1998) ("If the dominant purpose of its work is to benefit the members, such organization will not be classified as 'charitable' even though the public will derive an incidental benefit." (citing Massachusetts Medical Society, 340 Mass. at 332)).  The Board found that Associates' appointment-only policy and policy limiting each physician's roster of patients favored established patients of Associates.  Moreover, any evidence of free clinical and educational programs failed to indicate whether and how often such programs were held at the subject property and therefore, was insufficient to demonstrate Associates' benefit to a sufficiently large segment of the community.  Accordingly, the Board found and ruled that the Foundation did not meet its "grave burden" of proving that Associates "serv[ed] a large enough segment of the population" to satisfy the community          benefit requirement.  Harvard Community Health Plan,     384 Mass. at 543 (citing Meadowbrooke Day Care Center, Inc. v. Assessors of Lowell, 374 Mass. 509, 513 (1978)).  To the contrary, the Board found that the turn-key operation of Associates actually provided a proscribed benefit to the employee physicians, a limited class of individuals.     See Jacob's Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313 (1946) (citing Little v. Newburyport, 210 Mass. 414, 415 (1912)). 
Furthermore, the Foundation could not claim a charitable exemption for the property Associates occupied in furtherance of its private business merely on the basis of Associates' relationship to the Hospital.  The Board found the facts of these appeals to be analogous to Harvard Student Agencies, Inc. v. Board of Assessors of Cambridge, 2000 ATB Adv. Sh. 925.  In that appeal, the taxpayer, Harvard Student Agencies ("HSA") was an affiliate of Harvard University, a non-profit organization, which organized and managed student-staffed businesses "where goods and services were provided to purchasers at market prices."  Id. at 939.  
The Board found many commercial aspects of HSA's endeavors, including the facts that Harvard students, a limited class of beneficiaries, were paid for their efforts and gained no greater educational benefit other than a generalized employment experience "in a manner no different from innumerable part-time employment opportunities available to college students."  Id. at 940.  Moreover, "[t]he general public received no benefit except goods or services for which they paid market prices."  Id.  The Board thus declined to find that HSA occupied the property in furtherance of an exempt educational purpose.  Instead, the Board found that HSA was a commercial organization which occupied the premises for the conduct of its commercial endeavors.  Id. at 940-41.  Similarly, the operation of Associates' turn-key practice primarily benefited the employee physicians, a limited class of beneficiaries.  Accordingly, the Board found and ruled that the similar facts in Harvard Student Agencies warranted a denial of charitable exemption in these appeals.
The Board found that the Associates' lack of an overall profit from its operations in the years at issue was not persuasive evidence of the charitable nature of its operation of NAMC.  First of all, the lack of profit is not determinative of whether an organization is occupying property in furtherance of a charitable purpose.  See, e.g., Brockton Knights of Columbus Bldg. Ass'n, Inc. v. Assessors of Brockton, 321 Mass. 110, 115 (1947) (in finding an organization's operation not to be in furtherance of a charitable purpose, the court found that "[t]he fact that no profit was derived by the taxpayer from the operation of the property does not change the result.").  Moreover, the Board found that a major contributing factor to Associates' reported deficit was its provision of a "turn-key" private medical operation in which it absorbed physicians' expenses for rent and other operating expenses such as malpractice insurance, medical supplies, equipment, staff and especially, its assumption of all start-up costs for new physicians.  The Board thus found that, while the lack of a profitable return is not determinative of an organization's charitable nature, the Associates' deficit was particularly unpersuasive due to its voluntary assumption of these additional expenses.  Furthermore, the Board found and ruled that, because Associates expects its employee physicians to "break even" after a few years of practice, the operating deficit Associates reported during the fiscal years at issue was merely a snapshot of its financial situation and not a stable indicator of its long-term performance.  Additionally, the Incentive Compensation Plan, incorporated into the physicians' employment contracts, provided for the payment of bonuses to the physicians equal to fifty percent of the profits they generated for Associates, as measured by the extent to which their collections exceeded their allocated share of Associates' expenses.  While Associates carried an overall deficit on its books, the NAMC physicians were nonetheless capable of producing profits from their individual practices.  
Finally, the salaries paid to the employee physicians was compelling evidence of the commercial nature of Associates' practice.  First, these salaries were based upon "the going rate" for all physicians, including physicians in private practice, as established by the data of the medical trade associations and professional recruiters.  In fact, established physicians hired by Associates, including one physician employed at NAMC during the fiscal years at issue, would be offered the same salaries they were earning in their private practices.  Moreover, the Board considered the Associates' assumption of the physicians' expenses to be part of the physicians' total compensation packages, thereby increasing the competitiveness of their salaries.  Most importantly, because these salaries were linked to the physicians' individual productivity, they confirmed the commercial nature, as opposed to charitable nature, of the physicians' practices at Associates.  See Chisago Health Services v. Commissioner of Revenue, 462 N.W.2d 386, 390 (Minn. 1990) (finding that where "the CHS physicians' salaries take into account an individual doctor's productivity measured by the services he or she generates . . . there is a substantial nonpublic aspect to the way in which the physicians practice in the medical clinic facilities").  
Based on the evidence, the Board found that Associates' group practice was "treating whatever patients and as many patients as [Associates] wished," separately from the charitable endeavor of the Hospital.         Milton Hospital, 360 Mass. at 65.  The nature of Associates' group practice was commercial as opposed to charitable and thus squarely within the prohibition "of engaging in the practice of medicine for profit" declared by the Court in Milton Hospital, 360 Mass. at 69.  Moreover, the commercial aspect of Associates, as evidenced by the market value fees and by-appointment-only patient visits, prevented it from serving a large enough class of beneficiaries for it to meet the requirements of         G.L. c. 59, § 5, Third.  Regardless of whether it served a need for medical services in the Hospital's service area, Associates was providing this need by means of a commercial enterprise.  Therefore, the Board found that the Assessors properly denied the charitable exemption for the fiscal years at issue.
	
Conclusion.
"'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.'"  Schlaiker v. Assessors of Great Barrington,      365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  Based on the foregoing, the Board found and ruled that the Foundation failed to meet its burden of proving that the subject property occupied by Associates qualified for the property tax exemption for charitable organizations.  Accordingly, the Board issued a decision for the appellee in these appeals.

					    APPELLATE TAX BOARD	
							
By:____________________________
					    Abigail A. Burns, Chairman




A true copy:



Attest: _____________________
	    Clerk of the Board
						

 The Foundation leased 1,000 square feet of the property in each fiscal year to Dr. Roberta Wang, who was in private practice.  The parties agreed that the portion of the property occupied by Dr. Wang did not qualify for the charitable exemption from property taxes.  
 The practice was originally located at a different location in North Attleborough about three miles away from the current site.  Associates moved NAMC to the Draper Street location in 1993.
 There was no formal written lease reflecting this arrangement.  The Foundation determined the amount of the monthly rent by a vote of the Foundation board at the beginning of each year, and it was intended to cover the operating expenses of the Draper Avenue building.  
 The hearing officer asked Ms. Shyavitz whether twenty-five percent of NAMC's patients were referred to the Hospital, a statistic which the Foundation had requested the Board to find in a motion for additional findings of fact filed after the promulgation of Sturdy Memorial Foundation, Inc. v. Board of Assessors of the Town of North Attleborough, 23 Mass. App. Tax Bd. Rep. 77 ("Sturdy I").  Ms. Shyavitz responded, "I can't even imagine from where that number came," and that she would be "skeptical" that this figure was accurate.
   According to an affidavit submitted by Mr. Clark, the two part-time physicians were internists or general practitioners who typically serviced adult patients.  One part-time internist worked half-time, while the other worked about seventy percent. 
 Ms. Shyavitz testified that the incentive bonus was capped at a certain amount.  However, she did not indicate the amount of the cap, and no documents detailing the incentive bonus were produced.
 According to the testimony of Ms. Shyavitz, the Incentive Compensation Plan was not the only bonus paid by the Hospital or its affiliates.  In fiscal year 1997, "the hospital significantly exceeded its own budgeted performance so that the hospital's gain from operations was significantly greater than the hospital was budgeted to do, and that really grew out of continuing to maintain our costs at a very low and cost-effective level . . . ."  In recognition that the Hospital's success was due to the efforts of all employees to work efficiently, the Hospital's board chose to pay bonuses to all employees of the Hospital, as well as the Hospital's affiliates, including the Foundation.  However, the Hospital board was diligent "to make sure that that bonus was appropriate for a not-for-profit institution," and accordingly paid an equal bonus to all full-time employees and a prorated share to all part-time employees.  Because the charitable status of the Hospital was not at issue in these appeals, the Board did not address whether the payment of this bonus amounted to the distribution of income or profits to members of the Hospital or its affiliates.  However, the Board did note the contrast between the payment of the Hospital bonus equally to all employees versus the payment of the Incentive Compensation Plan bonus to the employee physician in direct proportion to the profit that the physician generated, and further noted that Ms. Shyavitz classified only the former payment as specifically "appropriate for a not-for-profit institution."
  The Board notes that the payment of physicians' rent and start-up expenses, rather than prove the lack of private inurement, has in some contexts actually raised potential issues of private benefit to the physicians.  See Rev.Rul. 97-21 (analyzing tax consequences of physician recruitment incentives provided by nonprofit hospitals). 

ATB 2002-238