St. John's Health System, Inc. v. Twitty, et al.

 

ST. JOHN’S HEALTH SYSTEM, INC., )

)

Complainant, )

)

v. )

)

JEAN TWITTY, Greene County Assessor, ) Appeal No. 00-32500

BRENDA BELL, Dent County Assessor, ) Appeal No. 00-55500

JACK HARRIS, Phelps County Assessor, ) Appeal No. 00-78000

ROGER HARRISON, Pulaski County Assessor, ) Appeal No. 00-80000

STAN CONWAY, Shannon County Assessor, ) Appeal No. 00-87000 & 00-87001

BILL CRABTREE, St. Clair County Assessor ) Appeal No. 00-83500

BRUCE WILSON, Texas County Assessor, ) Appeal No. 00-90000

BRENDA DAY, Wright County Assessor, ) Appeal No. 00-94000

)

Respondents. )

DECISION AND ORDER

Holding: Complainant did not provide persuasive evidence that the primary and inherent purpose of the subject clinics is the provision of cost-based and subsidized medical care. Complainant failed to establish that the physician compensation plans utilized by the SJRMO clinics and the Mercy clinics do not provide for profit-sharing with the physicians. Accordingly, the requests for exemption are denied.

SUMMARY

Complainant filed appeals from the local Boards of Equalization of Greene, Dent, Phelps, Pulaski, Shannon, St. Clair, Texas, and Wright counties claiming exempt status for the 2000 tax year on the following medical clinics:

In the interest of judicial expediency and economy, the parties agreed to the consolidation of the above-cited appeals. Thereafter, the parties agreed to waive the evidentiary hearing and submit the case for decision on the basis of the following evidence:

1. The direct testimony and exhibits filed by each party; and

2. The deposition testimony and exhibits of Dr. Jon Roberts, Dr. David O. Barbe, Gerald Dowdy, and Elysa Fabian.

The parties also submitted briefs to the Commission.

Complainant was represented by Michael P. Merrigan. Respondents were represented by Theodore L. Johnson III, and Glenn P. Green.

ISSUES

Do the operations of the subject medical clinics evidence a primary and inherent charitable use or a mere secondary and incidental charitable use? Further, does the compensation packages for the physicians allow them to share in the net proceeds, i.e. profits, of the operation of the clinics?

FINDINGS OF FACT

1. The subject properties consist of nine medical clinics in eight counties. The clinics in Birch Tree, Eminence, Houston, Mountain Grove, Osceola, and Republic, Missouri (hereafter SJRMO Clinics) provide family practice medical services in a clinic setting. The clinics at Salem, Rolla, and Waynesville/St. Robert, Missouri (hereafter Mercy Clinics) provide medical services in a clinical setting.

2. Complainant’s goal has been to provide primary care physicians in rural areas. Complainant’s Exhibit R- Dowdy at 5.

3. Many of the subject clinics were acquired by Complainant from private-practice physicians. There was no change in the primary use of those medical clinic practices once they were acquired and operated by SJRMO. Respondents’ Exhibit – Deposition of Elysa Fabian, at 69- 70. Physicians who sold their practices and went to work for St. John’s have practiced in the same manner that they had before the transition. Respondents’ Exhibits – Deposition Upon Oral Examination of Dr. Jon Roberts, at 11, 16 – 17; Deposition of David O. Barbe M.D., at 14 – 15.

4. Fees for medical services at SJRMO clinics are set by the Board based on a market analysis of the usual and customary rates in the area. Complainant’s Exhibit R – Fabian, at 9.

5. The only medical services provided by the subject clinics on a “at cost or less” basis are services to patients covered by Medicare, Medicaid, and charity care.

6. Some physicians operating SJRMO clinics exercised discretion in setting fees and determining when charity care was appropriate. Respondents’ Exhibit – Deposition Upon Oral Examination of Dr. Jon Roberts, at 11, & 16 – 17.

7. The Mercy clinics have used the same fee structure established by the SJRMO board.

8. Complainant failed to distinguish how much charity care was provided at any of the subject clinics.

9. The primary purpose of the operation of the subject clinics is to provide access to primary care for the communities that the clinics serve.

10. Complainant has subsidized such clinics in years where they have not been self-sustaining, however, it appears that Complainant has the goal that the clinics become self-sustaining over the long term. Respondents’ Exhibits – Deposition of Gerald Dowdy, at 20 & 41; Deposition of Elysa Fabian, at 70 – 71.

11. Complainant has extended medical services to Medicare and Medicaid patients even though such reimbursements only cover cost or some fraction of the cost of the services rendered.

12. The Birch Tree, Eminence, Houston, Mountain Grove, Osceola, and Republic clinics are owned and operated by St. John’s Regional Medicine of the Ozarks (SJRMO), a Missouri Nonprofit Corporation. Complainant’s Exhibit E. SJRMO is a wholly owned subsidiary of St. John’s Health System, Inc. (Complainant) which is also a Missouri Nonprofit Corporation. Complainant’s Exhibit C. As of the tax day, the Rolla, Salem, and Waynesville/St. Robert clinics were owned by St. John’s Health System, Inc. operating as part of the “Mercy Medical Group” under that system. Respondents ‘Exhibit – Deposition of Gerald Dowdy at 4 – 5.

13. The physician compensation plan used by SJRMO clinics is complicated and certain terms are not defined in the written agreement. The formula for practice compensation provides that the physician receives as compensation the greater of :

(A) the physicians’ draw (85% of previous year’s cash compensation or 100% of income guarantee), or

(B) the fiscal year cash compensation calculated as follows:

“-Calculate Net Professional Revenue of each physician in the business unit;

-Calculate Net Ancillary Revenues of all physicians in the business unit that are allocated to each physician in the business unit based on the physician’s percentage of Net Professional Revenue to the business unit’s Total Net Professional Revenue. …

-Add each physician’s Net Professional Revenue and allocated Net Ancillary Revenue to determine the physician’s Total Combined Revenue;

-Calculate the Amount Available for Provider Compensation by applying the following percentages:

Level of Total Combined Revenue			% of Total Combined Revenue For Provider Comp
$0 to $225,000			45%
$225,000 – $325,000			55%
325,000 and above			70%

 

-Deduct the cost of physicians benefits, physician extender salary and physician extender benefit costs from the Amount Available for Physician Compensation.”

Complainant’s Exhibit N, Attachment A, at 2 – 3.

14. The SJRMO physician compensation plan fails to clarify whether revenue is measured in terms of patient load (expressed in billings) or receipts. Complainant’s Exhibit N – Attachment A. SJRMO physicians testified that the formula is applied to receipts/actual collections. Respondents’ Exhibits – Deposition upon Oral Examination of Dr, Jon Roberts, at 18 – 19, & 26; Deposition of David O. Barbe, M.D., at 11 – 12.

15. Mercy Medical Group’s compensation plan directs that any year-end balance after expenses are deducted from revenues to go to the physicians in terms of production bonus. Respondents’ Exhibit – Deposition of Gerald Dowdy, at 24 – 28, 40 – 41.

CONCLUSIONS OF LAW

Jurisdiction

Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decisions of the respective County Boards of Equalization.

Burden of Proof

Although a taxing statute is construed strictly against the state, an exemption statute is strictly construed against the one claiming the exemption. State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979). “The law disfavors claims for exemption from taxation. The substantial burden of establishing the property falls within the exempted class is on the person claiming exemptions under the referenced constitutional and statutory provisions. To prevent the curtailing of the purpose and intended scope of a tax exemption, the tax exemption statute is to be strictly but reasonably construed.” Twitty v. State Tax Commission of Missouri, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995) (citations omitted). Accordingly, in order to prevail, Complainant must demonstrate by substantial and persuasive evidence, that it is entitled to an exemption.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Statutory Exemptions

Properties which can be exempted from taxation are set out within our Constitution and the statutes enacted to enforce that Constitution, to wit:

. . .all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, . . .may be exempt from taxation by general law but any such law may provide for approximate restitution to the respective political subdivisions of revenues lost by reason of the exemption. All laws exempting from taxation property other than the property enumerated in this article, shall be void.

 

 

Article X, Section 6, Mo. Const. of 1945.

In support of this Constitutional provision, the Legislature has enacted Section 137.110, RSMo, which provides in relevant part:

The following property shall be exempt from taxation:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, education or charitable purposes;

 

 

Section 137.110, RSMo.

Case Law on Charitable Use

1. In order for a property to be exempt from taxation for state, county or local purposes, the following tests must be met:

A. The property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945). “Charity” is therein defined as “. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.” Salvation Army at 830.

B. The property must be owned and operated on a not-for-profit basis. The property “must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.” Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978).

C. The dominant use of the property must be for the benefit of an indefinite number of persons and must directly or indirectly benefit society generally. “It is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity”. Franciscan at 224. See also, Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

2. “Exclusive use” has been construed by our courts to mean the “primary and inherent use” of the property rather than “a mere secondary and incidental use.” Central States Christian Endeavors Association v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995).

3. Salvation Army, supra, indicates that the provision of products or services to the public at cost or less constitutes a gift. Id., at 830. Provision of services “at cost or less” does not mean that it is impermissible for the operator “…at times or even fairly regularly to operate in the black rather than on a deficit basis, provided of course, that any excess of income over expense is achieved incidentally to the accomplishment of the dominantly charitable objective and is not a primary goal of the project….” Tri-State Osteopathic Hospital Association v. Blakeley, 898 S.W.2d 693 (Mo. App. S.D. 1995).

Subject Property Operations

1. The provision of services to Medicare, Medicaid, and other patients qualifying for charity care on a cost-based or subsidized basis does not appear from the evidence to be the priority of the clinic operations. The procedure for qualifying for charity care is suggestive of an incidental purpose.

2. Complainant has not provided persuasive evidence that the primary and inherent purpose of the subject clinics is the provision of cost-based and subsidized medical care.

3. Complainant failed to establish that the physician compensation plans utilized by the SJRMO clinics and the Mercy clinics do not provide for profit-sharing with the physicians.

4. Complainant failed to establish entitlement to an exemption on any of the nine appealed clinics.

DECISION

Use

Exemption law requires actual and regular use exclusively for a charitable objective. “Exclusive use” has been construed by our courts to mean the “primary and inherent use” of the property rather than “a mere secondary and incidental use.” Central States Christian Endeavors Association v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995). Charity is defined as “. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.” Salvation Army v. Hoehn, 188 S.W.2d 826, 830 (Mo. banc 1945).

The required elements under this prong of the Franciscan test are (1) whether the primary and inherent use of the property is for a gift (2) to an unlimited class of people (3) which works to accomplish one of the specifically listed goals for the recipient.

Under the first element one must analyze what the primary and inherent use of each subject clinic is and evaluate what constitutes a gift. The clinics in Birch Tree, Eminence, Houston, Mountain Grove, Osceola, and Republic (hereafter SJRMO Clinics) provide family practice medical services in a clinic setting. The clinics at Salem, Rolla, and Waynesville/St. Robert (hereafter Mercy Clinics) provide medical services in a clinical setting, however, the record does not specify whether the services provided are general or specialized in nature. However, on the whole, Complainant’s goal has been to provide primary care physicians in rural areas. Complainant’s Exhibit R- Dowdy at 5.

Medical services from primary care physicians can be provided on a for-profit and/or charitable basis. We must look at the manner in which these medical services are provided in order to determine whether the clinics’ primary and inherent purpose is to provide a gift of such medical services. The discussion in Salvation Army indicates that the provision of products or services to the public at cost or less constitutes a gift. Id., at 830. Provision of services “at cost or less” does not mean that it is impermissible for the operator “…at times or even fairly regularly to operate in the black rather than on a deficit basis, provided of course, that any excess of income over expense is achieved incidentally to the accomplishment of the dominantly charitable objective and is not a primary goal of the project….” Tri-State Osteopathic Hospital Association v. Blakeley, 898 S.W.2d 693 (Mo. App. S.D. 1995) (Emphasis supplied).

SJRMO Clinics

Of the six SJRMO clinics at issue, at least five (Birch Tree, Eminence, Houston, Mountain Grove, and Osceola) were practices that were purchased from private-practice physicians. There was no change in the primary use of those medical clinic practices once they were acquired and operated by SJRMO. Respondents’ Exhibit – Deposition of Elysa Fabian, at 69- 70. Physicians who sold their practices and went to work for St. John’s indicate that they are practicing in the same manner that they had before the transition. Respondents’ Exhibits – Deposition Upon Oral Examination of Dr. Jon Roberts, at 11, 16 – 17; Deposition of David O. Barbe M.D., at 14 – 15.

Complainant’s Chief Operating Officer for St. John’s Regional Medicine of the Ozarks (SJRMO) testified that fees for the medical services at SJRMO clinics are set by the Board after the central business office has performed a market analysis of the usual and customary rates in the area and made recommendations to the Board. Complainant’s Exhibit R – Fabian, at 9. The only medical services which appear from the record to be provided by the subject clinics on a “at cost or less” basis would be services to patients covered by Medicare, Medicaid, and charity care. The SJRMO clinics at issue receive the following percentages of revenue from Medicare and Medicaid services:

Complainant’s Exhibit L. Complainant failed to distinguish how much charity care was provided at each clinic as such costs were lumped into the category of “uncompensated care” which includes contractual allowances for Medicare and Medicaid, managed care contract discounts, bad debt, and charity. Complainant’s Exhibit L and R – Fabian, at 7.

Complainant has no policies, targets, or limits established for the percentage of medical care that it provides to Medicare and Medicaid patients. Complainant’s Exhibit R – Fabian, at 9. Complainant has no specific policy or procedure regarding the amount of charity care to be provided, however, it has an established mission, vision, and values for the operation of its clinics. Id. The mission statement stresses a concern for people who are economically poor. Complainant’s Exhibit O. As to the process for obtaining charity care, Ms. Fabian testified that it is clinic policy to request payment at the time of services. The clinic will bill insurance companies on behalf of the patient, including Medicare and Medicaid. If patients are unable to pay at the time of services, the clinics work with them to establish an acceptable payment plan. If they are able to establish that they are unable to make payments, charity care is provided. Complainant’s Exhibit R – Fabian, at 10 – 11.

Respondents offered the testimony of Dr. Jon Roberts. Dr. Jon Roberts was formerly a private practitioner who sold his clinical practice at the Birch Tree and Eminence locations to SJRMO and went to work for SJRMO at these clinics. Concerning the transition from a private medical practice to a SJRMO clinic, he testified as follows:

Q: Following the sale and following your execution and entry into employment with St. John’s who did you work for or who was your supervisor or who gave you instructions as to your work in these clinics?

 

A: Immediate supervisor was George Flynn.

Q: And what types of instruction did he give you after you entered into employment following the sale in 1991?

A: Basically we were left alone. That was one of the good things with working with St. John’s that they did not put any demands on us and they let us continue to practice the same way we were practicing before our association with St. John’s. That was the reason we chose to go with St. John’s instead of going with some other organization. Right up front we wanted to set what we were going to charge. We were wanting to give free service if we felt like we didn’t want to charge a patient. We talked to Mr. Flynn about it and he said, well, since you are giving half of it up out of your salary we can give half of it out from St. John’s if you feel like somebody warrants a no charge, then we were allowed to do that. And so these are the type of agreements that we had. It may not have been in writing but in fact we were able to follow through with it.

Respondents’ Exhibit – Deposition Upon Oral Examination of Dr. Jon Roberts, at 11. He testified that he had discretion to set the fees charged for services and determine when charity care would be provided and that this arrangement has continued since affiliation with St. John’s. Id., at 16 – 17. The policy on charity care has changed through the years. According to Dr. Roberts, the general practice has been that the physicians and St. John’s shared the income loss evenly, though there was a period of time when the cost of the charitable services was charged solely against the physician’s income. Id. 22 – 23.

Respondents also offered the testimony of Dr. David O. Barbe. Dr. Barbe also sold his medical practice, clinic building, and equipment in Mountain Grove, Missouri, to St. John’s Health System, Inc. and went to work for St. John’s at said clinic. This transaction took place in 1997. Dr. Barbe judged that the affiliation with St. John’s has allowed the clinic to add two new physicians, so the clinic can handle a larger patient load, and they have not had to cut back on any services that might have otherwise been at risk. Respondents’ Exhibit – Deposition of David O. Barbe M.D. at 29 – 30. Dr. Barbe described the process to access charity care at the Mountain Grove clinic as follows:

Q: Do you know of any manner when somebody is registering as a new patient that they would be informed that despite what their financial circumstances are, they could receive medical care from your facility?

A: They are — I was going to say “regularly,” but that may be –our reception desk and checkout clerks are well versed in St. John’s charity policy and know how to implement that and which forms to sign and which buttons to push to see that program implemented and to assist the patient in applying for that or qualifying for that charity care. So, I guess from that standpoint, the answer is mostly yes to that, to your last question.

Our girls are pretty much patient advocates along those lines. They’re pretty good about being sensitive to the patient’s financial status and helping them apply either for charity care through St. John’s or exploring other options like Medicaid to help subsidize or underwrite their care.

Q: Do you know in what manner those staff members try to find out whether a particular patient is within that charity category?

A: They know whether or not there is insurance based on when they come to check out. They ask, you know, “How do you want to pay for this?” When it’s self pay, usually they get a sense in terms — based on if the person is eager and willing, and, you know, whips their checkbook out and says, “Sure, here’s my hundred dollars.” I think as they are asked if payments can be made or can I defer this until I get paid at the end of the month, then I think they advance the issue of charity care or make some inquiries. I don’t know exactly what their script is for that, but that’s my speculation as to how it happens.

Id., at 23 – 25.

Mercy Clinics

The Mercy clinics are operated for the primary purpose of “provid[ing] medical services through physicians specializing in a number of medical specialties.” Complainant’s Exhibit R – Dowdy, at 4. The Mercy clinics have used the same fee structure established by the SJRMO board, but in the future will set their own fees.

Like the SJRMO clinics, the only medical services which appear from the record to be provided by the subject clinics on a “at cost or less” basis would be services to patients covered by Medicare, Medicaid, and charity care. The Mercy clinics at issue receive the following percentages of revenue from Medicare and Medicaid services:

Complainant’s Exhibit L. Complainant failed to distinguish how much charity care was provided at each clinic as such costs were lumped into the category of “uncompensated care” which includes contractual allowances for Medicare and Medicaid, managed care contract discounts, bad debt, and charity. Complainant’s Exhibit L and R – Dowdy, at 6.

Complainant has no policies, targets, or limits established for the percentage of medical care that it provides to Medicare and Medicaid patients. Complainant’s Exhibit R – Dowdy, at 9. Complainant has no specific policy or procedure regarding the amount of charity care to be provided, however, it has an established mission, vision, and values for the operation of its clinics which stresses a concern for people who are economically poor. Id., Complainant’s Exhibit O. As to the process for obtaining charity care, Mr. Dowdy testified that it is clinic policy to request payment at the time of services. The clinic will bill insurance companies on behalf of the patient, including Medicare and Medicaid. If patients are unable to pay at the time of services, the clinics work with them to establish an acceptable payment plan. If they are able to establish that they are unable to make payments, charity care is provided. Complainant’s Exhibit R – Dowdy, at 10.

Conclusion

From the whole of the testimony and exhibits, this Hearing Officer finds that the primary purpose of the operation of the subject clinics is to provide access to primary care for the communities that the clinics serve. Complainant has subsidized such clinics in years where they have not been self-sustaining, however, it appears that Complainant has the goal that the clinics become self-sustaining over the long term. Respondents’ Exhibits – Deposition of Gerald Dowdy, at 20 & 41; Deposition of Elysa Fabian, at 70 – 71.

Thus far in the clinic operations, Complainant has extended medical services to Medicare and Medicaid patients even though such reimbursements only cover cost or some fraction of the cost of the services rendered. The provision of these instances of cost-based and subsidized services does not appear from the evidence to be the priority of the clinic operations. The procedure for qualifying for charity care is suggestive of an incidental purpose.

Accordingly, this Hearing Officer is not persuaded that the primary and inherent purpose of the subject clinics is the provision of cost-based and subsidized medical care.

Operation

Exemption law requires ownership and operation on a non-profit basis. The Birch Tree, Eminence, Houston, Mountain Grove, Osceola, and Republic clinics are owned and operated by St. John’s Regional Medicine of the Ozarks (SJRMO), a Missouri Nonprofit Corporation. Complainant’s Exhibit E. SJRMO is a wholly owned subsidiary of St. John’s Health System, Inc. (Complainant) which is also a Missouri Nonprofit Corporation. Complainant’s Exhibit C. As of the tax day, the Rolla, Salem, and Waynesville/St. Robert clinics were owned by St. John’s Health System, Inc. operating as part of the “Mercy Medical Group” under that system. Respondents’ Exhibit – Deposition of Gerald Dowdy at 4 – 5.

As discussed, supra at 10, the clinics operate as primary health care clinics. The key element of this prong is that the property “must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.” Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978) (emphasis supplied).

The physician compensation plan used by SJRMO clinics is complicated and certain terms are not defined in the written agreement. The formula for practice compensation provides that the physician receives as compensation the greater of :

(A) the physician’s draw (85% of previous year’s cash compensation or 100% of income guarantee), or

(B) the fiscal year cash compensation calculated as follows:

“-Calculate Net Professional Revenue of each physician in the business unit;

-Calculate Net Ancillary Revenues of all physicians in the business unit that are allocated to each physician in the business unit based on the physician’s percentage of Net Professional Revenue to the business unit’s Total Net Professional Revenue. …

-Add each physician’s Net Professional Revenue and allocated Net Ancillary Revenue to determine the physician’s Total Combined Revenue;

-Calculate the Amount Available for Provider Compensation by applying the following percentages:

Level of Total Combined Revenue			% of Total Combined Revenue For Provider Comp
$0 to $225,000			45%
$225,000 – $325,000			55%
325,000 and above			70%

 

-Deduct the cost of physicians benefits, physician extender salary and physician extender benefit costs from the Amount Available for Physician Compensation.”

Complainant’s Exhibit N, Attachment A, at 2 – 3. Complainant explains the compensation package as a biweekly draw based upon historical productivity plus a bonus where the physician’s production exceeds established production levels. Complainant’s Exhibit R – Fabian, at 8-9. In this explanation, there is no clarification as to whether the term “production” is measured in terms of patient load (expressed in billings) or receipts. Dr. Roberts testified that the percentage available for provider compensation was applied to receipts and not gross or net billings. Respondents’ Exhibit – Deposition upon Oral Examination of Dr, Jon Roberts, at 18 – 19, & 26. Dr. Barbe testified that in 1999, the physician compensation package switched from a gross charges-based formula to a net revenue-based formula which used actual collections for determination of the appropriate physician compensation. Respondents Exhibit – Deposition of David O. Barbe, M.D., at 11 – 12.

The Mercy Medical Group’s physician compensation package provided that the physician would receive 85% of the previous year’s compensation plus an equal division between physicians of any remaining revenues after deduction of expenses. Respondents’ Exhibit – Deposition of Gerald Dowdy, at 24 – 28, 40 – 41. Administrator Dowdy testified that “…our compensation plan allows for at the end of the year the revenues minus expenses if there is any left that is not spent, that goes to the physicians in terms of production bonus.” Id.

In light of the testimony provided in this case, Complainant failed to establish that the physician compensation plans utilized by the SJRMO clinics and the Mercy clinics do not provide for profit-sharing with the physicians.

Given the findings and conclusions under the first two prongs of the Franciscan test, this Hearing Officer concludes that no further analysis is necessary. Complainant has failed to establish entitlement to an exemption on any of the nine appealed clinics.

ORDER

The assessed values for the subject clinics as determined by the Assessors and approved by the various Boards of Equalization are hereby affirmed.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with these appeals shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collectors of Greene, Dent, Phelps, Pulaski, St. Clair, Shannon, Texas, and Wright Counties as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in these appeals. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED December 3, 2002.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer