Charitable immunity argued at high court

By Alan Cooper, Virginia Lawyers Weekly – January 14, 2008

The comments of several justices of the Supreme Court of Virginia no doubt pleased a group of plaintiffs’ attorneys who traveled to Richmond to hear arguments on the contention of the University of Virginia Health Services Foundation that it has charitable immunity.

Donald R. Morin had barely started his argument on behalf of the foundation when Justice G. Steven Agee asked him if Charlottesville Circuit Judge Edward L. Hogshire had not weighed the multi-part test for charitable immunity established in Ola v. YMCA of South Hampton Roads Inc. (VLW 005-6-098). The 2005 case was the court’s most thorough analysis of the concept in many years, and Agee wrote it.

Morin acknowledged that Hogshire had but responded that he had misapplied the test in analyzing the foundation.

Later, Agee noted that the size of the bonuses the foundation pays physicians who work for it depends on the amount of money they and their departments produce, not on the amount of charitable work they do.

That remark seemed to support the contention of plaintiffs’ attorneys that the foundations are not true charities because they are set up to funnel money to doctors who treat physicians largely as private physicians in addition to teaching at the hospital.

Morin countered that the foundation’s role in providing education, research and medical care for indigents makes it a charity.

He seemed prepared for the observation of Chief Justice Leroy Rountree Hassell Sr. that the payment of annual bonuses to physicians ranging from $70,000 to more than $850,000 “raises a big eyebrow.”

Those amounts must be viewed in the context of the salaries necessary to attract the best talent to the world-class medical school, Morin said. As large as those salaries might appear, they put the medical school only in the middle range of salaries paid by other teaching hospitals, he said.

In fact, Morin said, Hogshire’s decision appeared to be “colored by the fact that [he] just felt that the physicians were paid too much.”

Morin also appeared to be waiting for Hassell’s observation that the foundation appears to have “a highly aggressive collection function.”

Most of the foundation’s collection efforts are directed at managing receipt of payments from insurance companies, with only a small part of the work devoted to the pursuing patients in court, Morin said. Patients with the ability to pay should pay, he said, but any patient who walks through the door receives care, and the physician usually does not know whether he has insurance.

Matthew B. Murray, who argued for the plaintiffs along with R. Frazier Solsberry and L. Steven Emmert, said the foundation is a very efficient business that takes in more than $200 million annually and writes off about $1.5 million. Many business with no thought of being a charity would be happy with a bad debt ration that small, he said.

Emmert suggested that the foundation and hospital are so closely integrated that Virginia Code § 8.01-38 eliminates the charitable immunity argument. That statute generally limits the charitable immunity of a hospital to circumstances in which no charge for treatment is ever made.

He also argued that it is inconsistent for the foundation to base its tax-exempt status on its support for the hospital, a state entity, when the hospital itself would not be eligible for charitable immunity.

Justice Donald W. Lemons said he found the relationship between the hospital and the foundation to be more symbiotic than integrated and suggested that the nature of the foundation’s tax-exempt status is not dispositive or even particularly helpful in the charitable immunity analysis.

Several justices suggested that the refusal of the foundation to accept donations undercuts its charitable immunity argument. Morin said the foundation does not accept them because it does not want to interfere with the hospital’s efforts to solicit donations. Lemons, noting the bonuses the foundation pays to physicians and its retention of some of its revenue, suggested that it might not accept donations because it doesn’t need them.

Ola provided traction for the assertion that foundations at the state’s teaching hospitals have charitable immunity. Virginia Beach attorney Glen A. Huff has won rulings from at least four different judges in Portsmouth and Norfolk that the Eastern Virginia Medical School Physicians and Surgeons Health Services Foundation has such immunity.

Virginia Beach Circuit Judge H. Thomas Padrick, sitting by designation in Charlottesville, ruled in an earlier case that the U.Va. foundation does not have immunity. Last year, Fairfax Circuit Judge Randy I. Bellow, also sitting by designation in Charlottesville, ruled a few months’ after Hogshire’s decision that it did.

The Supreme Court is expected to decide the case on March 2.