Court Opinion

ID: 9370011
Source: CourtListenerOpinion
Date Created: 2023-02-10 16:08:43.65462+00
Date Added: 2024-06-11T17:16:18.540011
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Phoenixville Hospital, LLC,            :   CASES CONSOLIDATED
                  Appellant            :
                                       :
            v.                         :
                                       :
County of Chester Board of             :
Assessment Appeals, Phoenixville       :
Area School District and               :   No. 1281 C.D. 2021
Borough of Phoenixville                :
                                       :
                                       :
Phoenixville Hospital, LLC,            :
                  Appellant            :
                                       :
            v.                         :
                                       :
County of Chester Board of             :
Assessment Appeals and                 :   No. 1285 C.D. 2021
Phoenixville Area School District      :   Argued: November 16, 2022

BEFORE:     HONORABLE RENÉE COHN JUBELIRER, President Judge
            HONORABLE PATRICIA A. McCULLOUGH, Judge
            HONORABLE ANNE E. COVEY, Judge
            HONORABLE MICHAEL H. WOJCIK, Judge
            HONORABLE CHRISTINE FIZZANO CANNON, Judge
            HONORABLE ELLEN CEISLER, Judge
            HONORABLE LORI A. DUMAS, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE FIZZANO CANNON                    FILED: February 10, 2023

            Phoenixville Hospital, LLC (Hospital), appeals from a decision of the
Court of Common Pleas of Chester County (trial court). After thorough review, we
agree with the County of Chester Board of Assessment Appeals (Board) that
Hospital has waived all issues on appeal. Accordingly, we dismiss the appeal.
               We dismiss as moot Hospital’s application for relief seeking to strike
the brief filed by Patientrightsadvocate.org and Families USA as amici curiae in
support of the Board. We likewise dismiss as moot the conditional application of
the Phoenixville Area School District (District) to strike the brief filed by the
Hospital and Healthsystem Association of Pennsylvania as amicus curiae in support
of Hospital.

                                    I. Background
               In 2017, Reading Health System, now known as Tower Health, LLC
(Tower Health), bought several for-profit hospital facilities and related properties
formerly owned by Community Health Systems, a for-profit entity, in Montgomery
and Chester Counties. Trial Ct. Op. at 11-12. Tower Health, a limited liability
company (LLC) with federal nonprofit status under 26 U.S.C. § 501(c)(3), created a
new LLC to run each of the purchased hospital facilities as a nonprofit entity. Id. at
11. Tower Health is the sole member of each new LLC. Id. at 11 & 13. Hospital is
one of the new LLCs and operates a hospital facility in Chester County. Id. at 12-
13.
                The Board denied Hospital’s application for a property tax exemption
for tax years 2018 through 2021. Hospital appealed to the trial court, which held a
de novo trial. The trial court also denied the property tax exemption, finding that
Hospital failed to sustain its burden of proving entitlement to a tax exemption as a
nonprofit entity.

                                           2
             Hospital then appealed to this Court. In response to the trial court’s
directive to file a concise statement of errors complained of on appeal pursuant to
Rule 1925(b) of the Pennsylvania Rules of Appellate Procedure (1925(b)
Statement), Pa. R.A.P. 1925(b), Hospital filed a 19-page 1925(b) Statement
containing some 87 issues and sub-issues. Application to Dismiss, Ex. A. In its
subsequent opinion pursuant to Rule 1925(a) of the Pennsylvania Rules of Appellate
Procedure (1925(a) Opinion), Pa. R.A.P. 1925(a), the trial court stated that
Hospital’s 1925(b) Statement failed to comply with the rule’s conciseness
requirement and hindered the trial court in preparing its 1925(a) Opinion. 1925(a)
Op. at 3.
             Before this Court, Patientrightsadvocate.org and Families USA filed a
joint brief as amici curiae in support of the Board’s denial of the property tax
exemption. Hospital has filed an application for relief seeking to strike the brief of
the amici because it discusses matters not in the record. The District has filed a
conditional cross-application seeking to dismiss the amicus brief of the Hospital and
Healthsystem Association of Pennsylvania in the event that this Court strikes the
brief of Patientrightsadvocate.org and Families USA.

                                       II. Issues
             Hospital raises six issues in its brief on appeal, which we combine into
three issues. First, Hospital asserts that it had standing to apply for a real estate tax
exemption for tax year 2018 even though, at the time the application was filed in
2017, Hospital was not the legal owner of the property at issue. Second, Hospital
contends that the trial court improperly considered expert testimony asserting legal
conclusions and matters not included in the expert’s report and erred by precluding

                                           3
Hospital from presenting rebuttal expert testimony. Third, and primarily, Hospital
maintains that it met all of the factual and legal requirements for a property tax
exemption. In addition, Hospital argues that this Court should grant Hospital’s
application for relief and strike the brief filed by the amici because the brief
improperly contained information not in the record before this Court and presented
arguments not raised by the parties.
                 The Board opposes each of Hospital’s arguments. Further, the Board
has filed an application for relief seeking dismissal of this appeal. The Board posits
that Hospital waived all of its issues on appeal because it filed a 1925(b) Statement
that failed to comply with the rule’s conciseness requirement.
                 We have reordered our discussion of the issues for convenience and
clarity.

                                          III. Discussion1
                                A. Standing for Tax Year 2018
                 The Board argues that for tax year 2018, Hospital had no standing to
seek a tax exemption because Tower Health’s purchase of the affected properties

       1
           As this Court has stated:
                 Our appellate role in cases arising from non-jury trial verdicts is to
                 determine whether the findings of the trial court are supported by
                 competent evidence and whether the trial court committed error in
                 any application of the law. The findings of fact of the trial judge
                 must be given the same weight and effect on appeal as the verdict of
                 a jury. We consider the evidence in a light most favorable to the
                 verdict winner. We will reverse the trial court only if its findings of
                 fact are not supported by competent evidence in the record or if its
                 findings are premised on an error of law. However, [where] the
                 issue . . . concerns a question of law, our scope of review is plenary.

                                                   4
was not complete or certain at the time it filed its applications for the tax exemptions
in 2017. However, the asset purchase agreement was pending for several months
before the deed transferring the properties was recorded in October 2017. See Trial
Ct. Op. at 21 & 23-24; Reproduced Record (RR) at 999a-1000a; Hospital’s Br. at 6.
Moreover, the purchase transaction was complete before the Board’s hearing on
Hospital’s application for a property tax exemption. See RR at 1643a-44a (reciting
that transaction closed on October 1, 2017), 766a & 772a (Board decisions reciting
that Board hearings were held on October 19, 2017 and September 12, 2018). Had
the application for tax exempt status been delayed until the purchase transaction was
complete and the deed recorded, the 2017 filing window for 2018 tax exempt status,
which was May 1 to August 1, see RR at 752a & 756a, would have expired.
Therefore, as the equitable owner of the property, Hospital maintains it was an
aggrieved party entitled to apply for a tax exemption, in accordance with Section
8844(c)(1) & (2) of the Consolidated County Assessment Law (CCAL),2 53 Pa.C.S.
§ 8844(c)(1) & (2) (relating to annual appeal deadlines).
                The trial court opined that Hospital lacked standing to apply for a 2018
tax exemption because neither Tower Health nor Hospital was the record owner of
the property at issue at the time the application was filed.                     The trial court
acknowledged that equitable ownership would be sufficient to confer standing. Trial

Newman & Co. v. City of Phila., 249 A.3d 1240, 1244 n.5 (Pa. Cmwlth. 2021) (additional citations
and quotation marks omitted). Specifically, in tax assessment appeals, the trial court is the finder
of fact, and all matters of credibility and evidentiary weight are within its province; such findings
are binding on appeal if they are supported by substantial evidence of record. Lutheran Home v.
Schuylkill Cnty. Bd. of Assessment Appeals, 782 A.2d 1, 6 (Pa. Cmwlth. 2001) (first citing Appeal
of M.W. Kellogg Co., 492 A.2d 130 (Pa. Cmwlth. 1985); and then citing St. Margaret Seneca Place
v. Bd. of Prop. Assessment, Appeals & Rev., 640 A.2d 380 (Pa. 1994)).
       2
           53 Pa.C.S. §§ 8801-8868.

                                                 5
Ct. Op. at 21 & 23-24. However, the trial court deemed the purchase agreement
insufficiently certain to confer equitable ownership status. Id. at 23-24. The trial
court pointed to the conditional and complex nature of the purchase agreement and
the number of conditions, including a $590 million bond issue, that had to be
satisfied for the purchase of the multiple properties involved in Tower Health’s
purchase transaction, which included properties in both Montgomery and Chester
Counties. Id. at 12 & 23-24. The trial court also observed that settlement for the
transaction did not occur until October 2017, after several continuances. Id. at 24.
               However, the trial court did not cite any authority to support its
determination that the contingent nature of the purchase transaction deprived
Hospital of standing in 2017 to pursue a tax exemption for the 2018 tax year. See
Trial Ct. Op. at 21 & 23-24. We are likewise unaware of any such authority.3
               Accordingly, we agree with Hospital that it had standing to seek a tax
exemption prospectively for tax year 2018 while Tower Health’s purchase
transaction was pending.

                              B. Waiver of Issues on Appeal
               Rule 1925(a) of the Pennsylvania Rules of Appellate Procedure
requires a trial court, upon receipt of a notice of appeal from its decision, to provide
a written opinion explaining the reasons for its decision. Pa. R.A.P. 1925(a). Rule
1925(b)(4) provides, in pertinent part:

       3
          Moreover, it is logical that the conditional nature of a purchase agreement should neither
defeat equitable ownership nor impede the prospective purchaser’s ability to seek a tax exemption
for the ensuing year. Depending on the amount at issue and the purchaser’s financial
circumstances, the purchaser may need to know whether a tax exemption is available before
finalizing the purchase transaction, as the purchase might not be financially feasible if the
exemption will not be available.

                                                 6
            (b) Direction to file statement of errors complained of on
            appeal; instructions to the appellant and the trial court.—
            If the judge entering the order giving rise to the notice of
            appeal (“judge”) desires clarification of the errors
            complained of on appeal, the judge may enter an order
            directing the appellant to file of record in the trial court
            and serve on the judge a concise statement of the errors
            complained of on appeal (“[1925(b)] Statement”).
                   ....
                   (4) Requirements; waiver.
                          (i) The [1925(b)] Statement shall set forth
                          only those errors that the appellant intends to
                          assert.
                          (ii) The [1925(b)] Statement shall concisely
                          identify each error that the appellant intends
                          to assert with sufficient detail to identify the
                          issue to be raised for the judge . . . .
                          ....
                          (iv) The [1925(b)] Statement should not be
                          redundant or provide lengthy explanations as
                          to any error. Where non-redundant, non-
                          frivolous issues are set forth in an
                          appropriately concise manner, the number of
                          errors raised will not alone be grounds for
                          finding waiver.
                          (v) Each error identified in the [1925(b)]
                          Statement will be deemed to include every
                          subsidiary issue that was raised in the trial
                          court . . . .

Pa. R.A.P. 1925(b)(4).
            Here, the trial court ordered Hospital to file a 1925(b) Statement.
Hospital filed a 1925(b) Statement that was 19 pages long with 43 numbered issues
and 45 sub-issues in paragraph 43, for a total of 87 issues and sub-issues.
Application to Dismiss, Ex. A. In its Rule 1925(a) opinion, the trial court posited
                                          7
that Hospital violated Rule 1925(b)’s conciseness requirement. 1925(a) Op. at 3.
Notably, the trial court expressly declared that the 1925(b) Statement’s lack of
conciseness hampered its issuance of the 1925(a) Opinion. Id.
                Consistent with the trial court’s Rule 1925(a) Opinion, the Board filed
an application for relief in the form of a motion to dismiss the appeal. The Board
argues that Hospital’s failure to comply with Rule 1925(b) waived all issues. We
agree.
                In Eiser v. Brown & Williamson Tobacco Corp., a plurality of our
Supreme Court opined that the number of issues in a 1925(b) statement should not,
standing alone, result in waiver. 938 A.2d 417, 427 n.16 (Pa. 2007). The current
Rule 1925(b)(4)(iv) reflects that principle. See Pa. R.A.P. 1925(b)(4)(iv).4 In
determining whether waiver is appropriate, a court should consider whether the
circumstances indicate a lack of good faith by the appellant. Eiser, 938 A.2d at 427
n.16.        However, lack of good faith may be inferred from the degree of
noncompliance with Rule 1925(b), including lack of conciseness; a 1925(b)
statement must not be “so lengthy that it does not meet the goal of narrowing down
the issues previously raised to the few that are likely to be presented to the appellate
court without giving the trial judge volumes to plow through.” Commonwealth v.
Reeves, 907 A.2d 1, 2-3 (Pa. Super. 2006);5 see also Jones v. Jones, 878 A.2d 86,
89-90 (Pa. Super. 2005) (7-page statement listing 29 issues in narrative form showed

         “The [1925(b)] Statement should not be redundant or provide lengthy explanations as to
         4

any error. Where non-redundant, non-frivolous issues are set forth in an appropriately concise
manner, the number of errors raised will not alone be grounds for finding waiver.” Pa. R.A.P.
1925(b)(4)(iv).
         5
        Although not binding, Superior Court decisions are persuasive authority in this Court.
See Lerch v. Unemployment Comp. Bd. of Rev., 180 A.3d 545, 550 (Pa. Cmwlth. 2018).

                                              8
lack of good faith effort to comply with Rule 1925(b); “such ‘voluminous’
statements do not identify the issues that [a]ppellant actually intends to raise on
appeal because the briefing limitations contained in [Pennsylvania Rule of Appellate
Procedure] 2116(a)[ ] make[] the raising of so many issues impossible”); Kanter v.
Epstein, 866 A.2d 394, 401 (Pa. Super. 2004) (raising an “outrageous” number of
issues in a 1925(b) statement “deliberately circumvent[s] the meaning and purpose
of Rule 1925(b) and . . . effectively preclude[s] appellate review . . .”); Mundy v.
Bureau of Admin. Adjudication (Pa. Cmwlth., No. 1984 C.D. 2012, filed Apr. 5,
2013)6 (first citing Eiser; then citing Jones; and then citing Reeves).
               Here, our review of Hospital’s 1925(b) Statement reveals a significant
number of issues that are redundant and/or not concise. Issues and sub-issues are
set forth and discussed in a level of detail more appropriate to a brief than a statement
of issues, in violation of Rule 1925(b)(4)(iv). As a result, many issues that should
constitute single short paragraphs are needlessly expanded, broken out into parts,
and distributed into numerous paragraphs or subparagraphs. Hospital has also
thereby ignored Rule 1925(b)(4)(v)’s admonition that error statements are deemed
to include all subsidiary issues properly raised in the trial court. Although the
number of issues alone generally does not trigger waiver, that principle applies only
where the stated issues are concise and not redundant. See Pa. R.A.P. 1925(b)(4)(iv).
That is not the case here. Rather, Hospital forced the trial court to “plow through” a
mass of issues that the trial court expressly stated created an impediment to its

       6
         We cite this unreported opinion as persuasive authority pursuant to Section 414(a) of this
Court’s Internal Operating Procedures. 210 Pa. Code § 69.414(a).

                                                9
consideration of the issues and preparation of the 1925(a) Opinion.7 1925(a) Op. at
3; see Reeves, 907 A.2d at 2-3.
              Significantly, in its docketing statement, Hospital was able to keep its
statement of issues to two pages with eight issues. Its appellate brief ultimately
raised only six issues, which this Court consolidated to three issues for discussion.
Thus, there was neither need nor justification for a 1925(b) Statement that listed
nearly 11 times more issues than the docketing statement, over 14 times more issues
than the statement of questions in Hospital’s brief, and nearly 30 times the number
of actual issues discerned by this Court.
              This case is analogous to others where waiver has been found. See,
e.g., King v. Riverwatch Condo. Owners Ass’n (Pa. Cmwlth., No. 881 C.D. 2014,
filed Apr. 24, 2015), slip op. at n.6 (finding waiver where 1925(b) statement of errors
was 18 pages long and contained 51 paragraphs); Tucker v. R.M. Tours, 939 A.2d
343 (Pa. Super. 2007), aff’d, 977 A.2d 1170 (Pa. 2009) (finding waiver where
1925(b) statement of errors was 16 pages long and contained 76 paragraphs plus
exhibits). Indeed, this Court is unaware of any similarly egregious instance where
waiver was not found.
              For these reasons, we conclude that Hospital has waived all of its issues
on appeal for failure to comply with Rule 1925(b). Nevertheless, we address
Hospital’s appellate issues for completeness, and note that, even if Hospital had not
waived all issues on appeal, we would affirm the trial court’s decision on the merits.

       7
         At oral argument, Hospital’s counsel indicated that the 1925(b) Statement was initially
made lengthy to ensure that nothing was missed, and was then pared down later for briefing. This
kitchen-sink approach to the 1925(b) Statement is contrary to the very purpose of Rule 1925(b),
which is intended to narrow the issues the trial court must review and address in its 1925(a)
Opinion. See Commonwealth v. Reeves, 907 A.2d 1, 2-3 (Pa. Super. 2006).

                                              10
                     C. Entitlement to Real Estate Tax Exemption
                 1. General Legal Requirements for Tax Exemption
               Pursuant to article VIII, section 2(a)(v) of the Pennsylvania
Constitution, the General Assembly may by law exempt from taxation “[i]nstitutions
of purely public charity . . . .” PA. CONST. art. VIII, § 2(a)(v). In order to implement
article VIII, section 2(a)(v), the General Assembly enacted the Institutions of Purely
Public Charity Act,8 commonly known as Act 55.                  In order to qualify for an
exemption as an institution of purely public charity, an entity must meet both the
constitutional requirements set forth in Hospital Utilization Project v.
Commonwealth, 487 A.2d 1306 (Pa. 1985), known as the HUP test, and the
statutory requirements of Act 55. See Mesivtah Eitz Chaim of Bobov, Inc. v. Pike
Cnty. Bd. of Assessment Appeals, 44 A.3d 3, 9 (Pa. 2012). The entity must also
comply with any additional and not inconsistent requirements of the CCAL. See 53
Pa.C.S. § 8812(a)(3) & (c).
               The party seeking a tax exemption has the burden of proving its
entitlement to the exemption. See Section 236 of the Tax Reform Code of 1971,9 72
P.S. § 7236; Fayette Res., Inc. v. Fayette Cnty. Bd. of Assessment Appeals, 107 A.3d
839, 844-45 (Pa. Cmwlth. 2014).

                                      2. The HUP Test
                                  a. Legal Requirements
               In order to qualify for an exemption under any law enacted pursuant to
article VIII, section 2, an entity must show that it is an institution of “purely public
      8
          Act of November 26, 1997, P.L. 508, No. 55, 10 P.S. §§371-385.
      9
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.

                                              11
charity” by satisfying the five criteria of the HUP test; specifically, the entity must
show that it:
                (a) Advances a charitable purpose;
                (b) Donates or renders gratuitously a substantial portion of
                its services;
                (c) Benefits a substantial and indefinite class of persons
                who are legitimate subjects of charity;
                (d) Relieves the government of some of its burden; and
                (e) Operates entirely free from private profit motive.

HUP, 487 A.2d at 1317.
                An institution advances a charitable purpose “if it benefits the public
from an educational, religious, moral, physical or social standpoint.”            City of
Washington v. Bd. of Assessment Appeals, 704 A.2d 120, 122-23 (Pa. 1997) (citing
HUP, 487 A.2d at 1315). An institution can advance a charitable purpose even
where it accepts payment from those who are able to pay or from Medicare or
Medicaid. See St. Margaret Seneca Place v. Bd. of Prop. Assessment, Appeals &
Rev., 640 A.2d 380, 383 (Pa. 1994) (finding that accepting Medicaid payments was
“perfectly consistent” with a nursing home’s charitable purpose). Further, an
institution relieves the government of some of its burden where “the institution bears
a substantial burden that would otherwise fall to the government”; the institution
need not “fully fund[] the care of some people who would otherwise be fully funded
by the government.” Id. at 384.
                The final criterion of the HUP test, operating “entirely free from private
profit motive,” is a major issue in this appeal. In applying this criterion, “surplus
revenue is not synonymous with private profit . . . .” Guthrie Clinic, Ltd. v. Sullivan
Cnty. Bd. of Assessment Appeals, 898 A.2d 1194, 1199 n.6 (Pa. Cmwlth. 2006) (first
                                            12
citing Wilson Area Sch. Dist. v. Easton Hosp., 747 A.2d 877, 880 (Pa. 2000); and
then citing St. Joseph Hosp. v. Berks Cnty. Bd. of Assessment Appeals, 709 A.2d
928, 938 (Pa. Cmwlth. 1998)). Instead, the analysis focuses on how such revenue is
used, specifically:
             1) Whether the utilization of the revenue is made with the
             expectation of a reasonable return or some non-monetary
             benefit;
             2) Whether the utilization of the revenue ultimately
             supports or furthers the eleemosynary nature of the
             charitable entity; and
             3) Whether the utilization of the revenue inures, directly
             or indirectly, to any private individual related to the
             charitable entity or related organization(s).

Wilson, 747 A.2d at 880. Under the third of these factors, in determining whether
revenue is used in furtherance of an institution’s charitable purpose, courts consider
the compensation of the institution’s executives to determine whether it includes a
“private or pecuniary return.” HUP, 487 A.2d at 1312 (quoting Episcopal Acad. v.
Philadelphia, 25 A. 55, 56 (Pa. 1892)). That analysis requires consideration of
whether the amount of executive compensation is reasonable, and the extent, if any,
to which it is based on the financial performance of the institution. Compare, e.g.,
Wilson, 747 A.2d at 881 (upholding a tax exemption where hospital executives
received reasonable salaries and no bonuses or fringe benefits), with In re Dunwoody
Vill., 52 A.3d 408, 423 (Pa. Cmwlth. 2012) (denying exemption where, inter alia,
“a substantial percentage” of executive compensation was based on the institution’s
financial or marketplace performance).

                                         13
                                      b. Analysis
             Although the evidence described above can be construed as relating to
all of the HUP test’s criteria, the trial court posited that Hospital “chose to address
only whether it met the charitable purpose test” based on “the very fact that it is an
acute care hospital with an open admission policy . . . .” Trial Ct. Op. at 28. The
trial court concluded that the “evidence fails to speak to whether [Hospital] meets
all the criteria set forth in the variety of tests that govern exemption from real estate
taxation.” Id. at 29. Nonetheless, the trial court went on to acknowledge and discuss
Hospital’s arguments under some other factors of the HUP test.

                                   i. Profit Motive
             As this Court has explained, “the diversion of surplus monies into other
entities that have a profit motive is evidence of a profit motive.” Phoebe Servs., Inc.
v. City of Allentown, 262 A.3d 660, 670 (Pa. Cmwlth. 2021), appeal denied, 273
A.3d 509 (Pa. 2022). Here, the trial court found the record did not support the
reasonableness of the management fees and bond interest charges. Thus, the trial
court inferred a profit motive in the payment and collection of unsupported fees and
charges.
             The trial court found that Tower Health generates income solely
through charges it imposes on various LLCs, including Hospital, in the form of
management fees, central business office fees, and bond issue interest payment
obligations. Trial Ct. Op. at 13. In the trial court’s view, Tower Health drew money
from the hospitals without sufficient explanation and “at an alarming rate.” Id.
(citing RR at 1087a-89a). The trial court observed that Tower Health charged
Hospital $3,500,000 in management fees for 2018, an amount that increased to

                                           14
$21,700,000 by 2020. Id. The trial court found no evidence was presented to support
the reasonableness of these “ever-increasing” management fees. Id. at 14.
             The trial court found that Tower Health improperly charged exorbitant
fees to all of the hospital LLCs and applied hospital funds for purposes other than
support of the specific hospital. Trial Ct. Op. at 38. Hospital did not scrutinize
whether the fees were reasonable for the services provided by Tower Health. See,
e.g., RR at 127a & 152a (testimony by Hospital’s chief executive officer (CEO) that
he did not know what percent of $58 million in capital expenditures by Tower Health
was allocated to Hospital); Trial Ct. Op. at 36 (observing that “[n]o one questioned”
the Tower Health executive salaries or why the management fees were so high).
Further, the trial court found that “Tower Health presented no justification for taking
such large sums as a management fee . . . .” Trial Ct. Op. at 27.
             The trial court also found the use of interest payments on the bonds for
acquisition of properties other than the hospitals at issue was improper and that
“[n]ot one penny from the bonds were [sic] applied to support and to increase the
efficiency and facilities of each hospital.” Trial Ct. Op. at 38-39. The trial court
explained that the purchase transaction to acquire the various hospitals involved in
Tower Health’s asset purchase was funded by a $590 million bond issue that served
as both purchase funds and operating capital. Id. at 12. Although the individual
LLCs did not receive any of the bond issue proceeds directly, they are all part of an
“obligated group,” members of which pledged their assets as collateral for the bond
issue and pay proportional shares of the interest on the bonds. Id.
             Moreover, as discussed below, the trial court observed that the federal
excise tax charged to Tower Health because of its excessive executive compensation
was then assessed by Tower Health against the hospital LLCs; the trial court

                                          15
concluded “the payments from each hospital to Tower [Health] clearly was [sic] not
then applied to the hospitals’ benefit, but rather to their detriment.” Trial Ct. Op. at
39.10
               We find no error in the trial court’s reasoning. Therefore, we agree
with the trial court that Hospital failed to sustain its burden of demonstrating the
absence of a profit motive behind its management fees and bond interest payments.
               Diversion of money to employees through excessive salaries and fringe
benefits may also evidence a private profit motive. Phoebe Servs., 262 A.3d at 670
(first citing St. Margaret, 640 A.2d at 385; and then citing Dunwoody Vill., 52 A.3d
at 422-23).      Notably, tying executive compensation to the entity’s financial
performance is indicative of a profit motive. See Phoebe Servs., 262 A.3d at 670
(citing Dunwoody Vill., 52 A.3d at 423).
               Here, the trial court pointed to substantial salary increases paid to
Tower Health executives, purportedly connected to their work in support of the 2017
multi-property purchase transaction. Trial Ct. Op. at 14. However, the trial court
found Tower Health’s executives did nothing other than foster the purchase
transaction, and there was no evidence that the executives’ services helped any
individual hospital provide its services. Id. Further, the trial court observed that
Tower Health was subject to a federal excise tax as a nonprofit entity paying its
executives more than $1,000,000 per year. Id. at 16. The trial court intimated that
imposition of the excise tax, which Tower Health passed on to Hospital and the other

        10
          The trial court did not cite to the record for its findings, and Hospital challenges many
of them as not supported by the record. However, the trial court’s decision is supported more by
the evidence it found absent than the purported evidence it referenced.

                                                16
new LLCs, was an indicator of unreasonably high executive salaries. See id. at 27-
28.
              The trial court also found that Tower Health’s executive compensation
bonus incentives were weighted 70% on financial performance and 30% on patient
care and patient satisfaction. Trial Ct. Op. at 15. Although Hospital asserts this
figure is without evidentiary support,11 Hospital witnesses acknowledged that 40%
of the bonus incentives, their largest single component, was based on achieving
financial performance goals. RR at 371a, 373a, 739a & 746a. The trial court made
no finding of the percentage relationship between potential bonuses and base
salaries. However, even accepting, arguendo, Hospital’s assertion that the financial
performance component was 40% rather than 70% of the bonus incentive, we
nonetheless conclude that tying 40% of incentive bonuses to financial performance
is substantial, as discussed below.
              Further, according to the trial court, “[H]ospital’s expert witness on
compensation . . . testified that this incentive compensation plan was specifically
designed to impact the behavior of the employees and management team. The plan
was to focus their attention on the incentive compensation to drive their behavior to
make more money.” Trial Ct. Op. at 35-36. The trial court found “[i]t was very
clear from the testimony of all the witnesses that the health system was set up to be
profitable and to reward executives at all levels when it was. Its goal went far beyond
self-support.” Id. at 36.
              Hospital justified its compensation incentives by asserting that
otherwise it could not attract and retain qualified executives. Trial Ct. Op. at 36; RR

       11
          During cross-examination, there was an assertion, which the witness disputed, that 70%
of the bonus incentive was tied to financial performance. See RR at 373a-75a.

                                              17
at 743a (opining that “it was necessary for the organization to be competitive to
retain the executive team because of the heavy lift . . . that was going to be needed
to integrate [the purchased] hospitals into Tower Health”), 744a (stressing the need
to retain “key members of the team through what was going to be a very difficult
and challenging integration”) & 747a (asserting that performance incentives are
“necessary to attract and retain a high quality, high performance executive team”).
The trial court found insufficient support for Hospital’s assertion. Trial Ct. Op. at
36. Instead, the trial court rejected Hospital’s reasonableness argument regarding
Tower Health’s executive salaries in scathing terms:
             The evidence demonstrated that [the CEO] and the Board
             of Tower Health were no more tha[n] corporate health care
             raiders. No one questioned the executives of Tower
             Health for what they were being paid $2,500,000 per year
             or why they drained $22,000,000 per year from, for
             example, [Hospital]. Within three weeks of trial, Tower
             [Health] dismissed as employees the President of [the]
             Jennersville [facility] and Brandywine Hospital along with
             other executives and announced that [the] Jennersville
             [facility] would close. Other [h]ospitals have been sold,
             are for sale, or will just be given away as seems will be the
             case with Brandywine Hospital. The goal as evident from
             the financial documentation offered at trial was simple and
             direct – drain the juice out of the hospitals until there was
             nothing left but a dried-out husk and then leave, close the
             doors, or sell what was left. [The] Jennersville [facility] is
             now closed, Brandywine for sale and while this harvesting
             strategy may not have killed [Hospital], it is left with little
             more than a skeleton.

Trial Ct. Op. at 36-37.
             In Dunwoody Village, this Court explained that the requirements of the
HUP test are separate from those of Act 55. 52 A.3d at 422 (explaining that “an
entity seeking a tax exemption as an institution of purely public charity must first

                                           18
meet the constitutional requirements of the HUP test before the question of whether
it satisfies the corresponding statutory criteria in Act 55 can be addressed”) (citing
Mesivtah Eitz Chaim).      For example, Act 55 requires an applicant for a tax
exemption to demonstrate, in part, that employee compensation “is not based
primarily upon the financial performance of the institution.” Dunwoody Vill., 52
A.3d at 421 (quoting Section 5(c)(3) of Act 55, 10 P.S. § 375(c)(3)) (additional
quotation marks omitted). However, the HUP test, which must be satisfied first,
may preclude a tax exemption even though less than the majority of an employee’s
compensation is based on the institution’s financial performance. Dunwoody Vill.,
52 A.3d at 422.
             In Dunwoody Village, executive compensation “included incentives
related to [the institution’s] financial or marketplace performance,” such that
compensation was based “in part” on the institution’s annual financial performance.
52 A.3d at 422-23. This Court observed that the CEO’s maximum incentive bonus
was 24% of salary and the chief financial officer’s was 18-19%. Id. at 423. Thus,
we observed that “a substantial percentage” of compensation was based on financial
performance. Id. Notably, there was no discussion in Dunwoody stating how much
of the bonus incentive was tied to financial performance rather than other criteria.
See id. Nonetheless, we affirmed a lower court’s decision that the institutional
taxpayer “failed to establish that it operate[d] entirely free from private profit
motive.” Id. (additional citation omitted).
             Phoebe Services concerned an application for an exemption from a
business privilege tax imposed by a city ordinance. At issue was whether the
nonprofit taxpayer was a “business” within the meaning of the ordinance, which
defined that term as “any activity carried on or exercised for gain or profit in the

                                         19
[c]ity.” 262 A.3d at 663. The city argued that the taxpayer operated with a profit
motive because its executive compensation included bonuses based on financial
performance. Id. at 666. This Court found cases analyzing the HUP test’s “private
profit motive” criterion, including Dunwoody Village, to be instructive. Id. at 669.
Contrary to the city’s argument, however, we found the executive compensation in
Phoebe Services was “not directly tied to the financial status of the nonprofit.” Id.
at 671. Thus, Phoebe Services is distinguishable from Dunwoody Village in this
regard.
               There is no bright-line test of what constitutes a substantial percentage
of compensation based on financial performance. In the circumstances of this case,
however, we cannot say that basing 40% of the total incentive bonus on financial
performance was not substantial. Therefore, we conclude that the trial court did not
err in finding Hospital failed to prove it operated free from a profit motive.

                                   ii. Gratuitous Services
               The trial court also rejected Hospital’s position that it renders a
substantial portion of its services gratuitously. The trial court pointed to Hospital’s
own application for a sales tax exemption, in which Hospital stated it provided
services to 199,405 people, of whom 152, only .076%, received free services, and
10,483, or 5%, received fee reductions.12 Trial Ct. Op. at 17; RR at 937a. Hospital
acknowledged that only about 5% of its patients received fee reductions of at least
10% of the cost of goods or services provided to them. RR at 937a. The trial court
found that the percentage of uncompensated care provided by Hospital was “clearly

       12
          The trial court’s calculation of .00076% and .050% mistakenly reflects the raw quotients
as percentage figures.

                                               20
not substantial.” Trial Ct. Op. at 29. The trial court further found that Hospital’s
evidence of the amounts and percentages of uncompensated care compared to its
total operating expenses “carrie[d] little weight” under the HUP test. Id. The trial
court’s findings of fact were supported by competent evidence. See RR at 937a.
Accordingly, we will not disturb them on appeal.
               Hospital also offered testimony that it satisfied the gratuitous services
requirement for a property tax exemption because of shortfalls in reimbursement
received for care provided to insured patients through Medicare and Medicaid.13
Trial Ct. Op. at 18; see RR at 356a-60a. However, although a Hospital witness
testified that Hospital had a master charge list reflecting the gross charge for each
medical service, no such sheet was produced in evidence and no witness testified to
those charges. Trial Ct. Op. at 18; see RR at 134a. As the trial court characterized
the evidence, Hospital negotiates payments with “a wide variety of third-party
payors” and then incorrectly “argues that because these negotiations result in the
acceptance of payments that are less than what is initially requested on the master
charge sheet, which are inflated to begin with,[14] [Hospital] must be considered to
have offered uncompensated care.” Trial Ct. Op. at 19.
               Hospital correctly asserts that reimbursement shortfalls from Medicare
and Medicaid may constitute donations of gratuitous services. See Wilson Area Sch.
Dist., 747 A.2d at 878 (stating that “the total value of [the h]ospital’s services that

       13
          The testimony given actually related specifically to Act 55 criteria, not the HUP test.
See RR at 317a & 350a. However, a gratuitous service requirement exists in both Act 55 and the
HUP test.
       14
           For example, Hospital’s CEO testified that the master charge list of gross charges was
irrelevant and insignificant regarding the amounts Hospital actually receives for services, but that
he nonetheless sent a letter to community leaders in December 2018 stating that he was excited to
share news about a reduction of 30% in master charge list amounts. RR at 134a-35a.

                                                21
were rendered gratuitously to individuals . . . includ[es] traditional uncompensated
charity care, Medicaid and Medicare shortfalls, and bad debt expenses”); St.
Margaret Seneca Place, 640 A.2d at 382-83 (positing that “[o]ur prior decisions do
not equate the acceptance of Medicaid payments as the equivalent of conducting a
business for profit. The decision to accept Medicaid payments to help defray the
cost of care for residents is perfectly consistent with a finding that the nursing home
advances a charitable purpose.”); Lewistown Hosp. v. Mifflin Cnty. Bd. of
Assessment Appeals, 706 A.2d 1269, 1272 (Pa. Cmwlth. 1998) (stating that shortfalls
in cost reimbursement by Medicare and Medicaid reflect gratuitous donation of
services). However, the trial court rejected Hospital’s argument that reimbursement
shortfalls for Medicare and Medicaid patients constituted gratuitous services in this
case. We discern no error in the trial court’s determination.
              First, the trial court observed that Hospital did not consider whether
patients with Medicare or Medicaid coverage also had supplemental insurance to
cover shortfalls in Medicare or Medicaid reimbursements. Trial Ct. Op. at 20 & 30.
In addition, the trial court rejected the reliance on “Trend Reports”15 by Hospital’s
accounting expert, Robert Cepielik (Cepielik), to support his payment shortfall
calculations; the trial court found the Trend Reports were “unreliable” and based on
“numbers not properly audited.”           Id. at 30. The trial court likewise rejected
Cepielik’s testimony that his opinion was based on “[generally accepted accounting
principles (GAAP)]-like” numbers,16 positing that “[t]here is no such thing. This is

       15
          Robert Cepielik (Cepielik) used the trend report to identify gross charges for Medicaid
recipients. RR at 343a.
       16
          When asked whether he followed GAAP in calculating the amount of Hospital’s
uncompensated care, Cepielik hedged in acknowledging that the financial information on which
he relied was not GAAP information. See, e.g., RR at 342a (stating that a Medicare provider’s

                                               22
a binary selection.       Figures relied upon either were or were not prepared in
accordance with GAAP. These were not.”17 Id.
               Moreover, in considering whether Hospital’s gratuitous services
relieved the government of some of its burden, the trial court observed that Medicare
reimburses about 9% of the master charge sheet amounts, while Blue Cross pays
only 5.73% of such amounts. Trial Ct. Op. at 32. The trial court found that “[a]
clear financial reason to take more government insurance patients is the higher
reimbursement rate.” Id. The trial court reasoned further:
               The testimony and data clearly lead to a conclusion that
               the government is assuming more of [the] obligation or
               burden to provide health care. One could conclude that in

report was “not a GA[A]P number [but] an input into calculating a GA[A]P number”), 353a
(explaining that “[b]ooks and records of the organization are maintained to support GA[A]P . . .
financial statements. The information that I’m deriving here are GA[A]P type numbers or fit into
their GA[A]P number.”) & 379a (explaining that provider and statistical (PS&R) reports are not
GAAP revenue numbers; “[t]hey are close but they don’t exactly align [sic] up”). The following
colloquy during cross-examination is emblematic of Cepielik’s equivocal testimony about his
reliance on non-GAAP figures:
                      Q       [The] PS&R report is not prepared in accordance
               with generally accepted accounting principles?
                       A     I would say it provides important information when
               you’re looking at GA[A]P numbers.
                      Q       It’s not prepared in accordance with GA[A]P.
                       A      It is prepared in accordance with GA[A]P. It’s
               reflective of information that shows payment information like a
               checkbook shows payment information to the extent that it
               represents what it represents. It’s input to a GA[A]P number.
Id. at 379a.
        17
           We note that the specific recognition of GAAP calculations, like that of calculating
gratuitous services as a percentage of operating expenses, is found in Act 55 rather than expressly
required under the HUP test. See 10 P.S. § 375(f)(3). The trial court acknowledged as much in
its discussion of GAAP in relation to the HUP test. Trial Ct. Op. at 30 n.2.

                                                23
               1985, the Supreme Court recognized in HUP that if the
               government was only paying for 11% of the population’s
               health care, a given hospital [was] relieving the government
               of 89% of its burden. In 2019, the government was now
               paying nearly one-half of the population’s health care
               costs. Rather than relieving the government of a burden,
               [Hospital’s] financial model in place is to increase [the]
               burden on the government and reliance on government
               insurance payments.

Id. at 31-32 & nn.3-4 (first citing Health Care Fin. Rev., 199218; and then citing U.S.
Census Bureau Current Population Survey, 2020 Annual & Economic Supplement).
In addition, the trial court found that the evidence showed the costs listed on the
master charge sheet were “meaningless” and that “the reimbursement percentage
stated above is likely higher or is closer to actual costs of services.” Trial Ct. Op. at
32; see also RR at 134a-35a (testimony by Hospital’s CEO that the master charge
list of gross charges was irrelevant and insignificant regarding the amounts Hospital
actually receives for services). The trial court reasoned:
               There was no testimony as to the cost of a procedure or
               what any of the now multiple insurance plans pay for that
               procedure. That information was solely within the control
               of [] Hospital. It could have produced the agreements and
               financial arrangements, under a confidentiality agreement
               if necessary, thus allowing a proper analysis[,] but it did
               not. The conclusion left to be reached is that such
               information would not support [Hospital’s] exemption
               argument. Although uncompensated Medicare costs may
               be considered in an exemption analysis, the evidence

       18
           The Health Care Financing Review was a journal “released from 1979 and 2009 with
the goal of presenting information and analyses on a broad range of health care financing and
delivery issues to improve the understanding of the Medicare and Medicaid Programs and the U.S.
health care system”; it is currently archived on the website of the Centers for Medicare & Medicaid
Services. See https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/Archives/HCFR (last visited Feb. 9, 2023).

                                                24
             offered at trial leaves the court merely to speculate as to
             the amounts of uncompensated care.

Trial Ct. Op. at 32-33.
             The trial court similarly found Hospital failed to establish that its bad
debt write-offs constituted gratuitous donations of care for tax exemption purposes.
Although Hospital offered expert testimony concerning the amount of bad debt
write-offs, there was no evidence concerning the reason for nonpayment or whether
any patients whose debts were written off actually had the means to pay. See RR at
334a & 340a. The trial court explained that write-offs for patients who have the
financial means to pay “is not charity when [H]ospital decided not to pursue the
collection of these accounts”; thus, Hospital’s ever increasing []bad debt[] write-offs
do not equal an increase in donated care, to those []who otherwise could not afford
to pay.” Trial Ct. Op. at 33 (additional quotation marks omitted).
             We agree with the trial court that Hospital failed to show the amount of
gratuitous services it provided because it did not provide information concerning
whether patients receiving free, discounted, or unreimbursed services actually had
the ability to pay the full costs. Although inability to pay is not expressly part of the
HUP test, it was recognized as relevant to gratuitous services in St. Margaret Seneca
Place. See 640 A.2d at 384; accord Dunwoody Vill., 52 A.3d at 421 (affirming a
finding that the operator of a nonprofit retirement community failed to demonstrate
that it relieved the government of part of its burden, where most of its residents could
afford to pay the applicable fees and costs). We conclude that the trial court did not
err in determining that gratuitous services to persons who can afford to pay do not
satisfy any factor of the HUP test.

                                           25
                                 3. Act 55 Factors
                              a. Legal Requirements
             The requirements of Act 55 are similar but not identical to those of the
HUP test. The statement of legislative purpose of Act 55, set forth in Section 2(b),
provides in full:
             It is the intent of the General Assembly to eliminate
             inconsistent application of eligibility standards for
             charitable tax exemptions, reduce confusion and
             confrontation among traditionally tax-exempt institutions
             and political subdivisions and ensure that charitable and
             public funds are not unnecessarily diverted from the public
             good to litigate eligibility for tax-exempt status by
             providing standards to be applied uniformly in all
             proceedings throughout this Commonwealth for
             determining eligibility for exemption from State and local
             taxation which are consistent with traditional legislative
             and judicial applications of the constitutional term
             “institutions of purely public charity.”

10 P.S. § 372(b); see also WRC N. Fork Heights, Inc. v. Bd. of Assessment Appeals,
917 A.2d 893, 907 n.15 (Pa. Cmwlth. 2007). Consequently, Act 55’s requirements
are specified in much greater detail than the HUP test provides.
             Section 5(a) of Act 55, 10 P.S. § 375(a), requires an entity seeking a tax
exemption as an institution of purely public charity to satisfy Sections 5(b) through
5(f). Although Section 5 is lengthy, the following provisions are most pertinent here:
             (c) PRIVATE PROFIT MOTIVE.—The institution must
             operate entirely free from private profit motive.
             Notwithstanding whether the institution’s revenues
             exceed its expenses, this criterion is satisfied if the
             institution meets all of the following:
                    (1) Neither the institution’s net earnings nor
                    donations which it receives inures to the benefit of
                    private shareholders or other individuals . . . .

                                         26
                       ....
                       (3) Compensation, including benefits, of any director,
                       officer or employee is not based primarily upon the
                       financial performance of the institution.
                       ....
               (f) GOVERNMENT SERVICE.—The institution must
               relieve the government of some of its burden. This
               criterion is satisfied if the institution meets any one of the
               following:
                       (1) Provides a service to the public that the
                       government would otherwise be obliged to fund or
                       to provide directly or indirectly or to assure that a
                       similar institution exists to provide the service.
                       ....
                       (3) Receives on a regular basis payments for services
                       rendered under a government program if the
                       payments are less than the full costs incurred by the
                       institution, as determined by generally accepted
                       accounting principles.
                       ....

10 P.S. § 375(c)(1) & (3) & (f)(1) & (3).

                                           b. Analysis
               For this test, the trial court opined that Hospital focused solely on the
“community service” factor. Trial Ct. Op. at 39-40. Reiterating the Act 55
requirement that calculations be based on GAAP, 10 P.S. § 375(f)(3), the trial court
rejected Cepielik’s calculations as noncompliant, as it had under the HUP test,
because they were based on “GAAP-like” or “non-GAAP numbers.”19 Id. at 40.

       19
         The trial court did not separately discuss other Act 55 factors, instead referring generally
to its HUP discussion. Trial Ct. Op. at 39-40.

                                                27
The trial court suggested Cepielik could and should simply have obtained audited
financial statements, which are prepared in accordance with GAAP. Id. Therefore,
the trial court inferred from the failure to produce or use such reports that they would
have been unfavorable to Hospital’s position. Id.
             The trial court found Hospital failed to demonstrate that it applied
GAAP in calculating its financial evidence. Trial Ct. Op. at 30. We discern no error
in the trial court’s finding. Therefore, we agree with the trial court that Hospital
failed to demonstrate compliance with Act 55’s requirements.

                                  4. CCAL Factors
                               a. Legal Requirements
             The CCAL “is to be read in para materia with” Act 55; Act 55
supersedes any inconsistent provision of the CCAL. 53 Pa.C.S. § 8812(c).
             Under Section 8812(a)(3)(i) and (iii) of the CCAL, any hospital that is
“founded, endowed, and maintained by public or private charity” is exempt from
county and local taxes so long as the following apply:
             (i) The entire revenue derived by the entity is applied to
             support the entity and to increase the efficiency and
             facilities of the entity, the repair and the necessary increase
             of grounds and buildings of the entity and for no other
             purpose.
             (ii) The property of purely public charities is necessary to
             and actually used for the principal purposes of the
             institution and not used in such a manner as to compete
             with commercial enterprise.

53 Pa.C.S. § 8812(a)(3)(i) & (ii). The CCAL applies to all second class A through
eighth class counties. Chester County is a third class county.

                                           28
                                      b. Analysis
             The trial court limited its discussion of the CCAL to Section 8812(b)(1),
which renders real property subject to taxation if “any income or revenue is derived,
other than from the recipients of the bounty of the institution or charity.” 53 Pa.C.S.
§ 8812(b)(1); Trial Ct. Op. at 41. The trial court did not separately discuss other
CCAL factors, referring again instead generally to its HUP and Act 55 discussions.
Trial Ct. Op. at 41.
             The trial court found that Hospital derived income from other than the
recipients of its bounty because non-employee physicians with privileges at Hospital
are part of for-profit medical practices and bill patients directly for their services.
Trial Ct. Op. at 41.      Moreover, Hospital pays some independent contractor
physicians to provide services in operating and emergency rooms; the trial court
found that the income used to pay these physicians “was not derived from the
recipients of [H]ospital’s services.” Id. at 41-42. The trial court concluded that
allowing physicians from for-profit practices to have staff privileges at Hospital’s
facility violates the CCAL.
             We question the trial court’s reasoning on this issue.             Section
8812(b)(1) of the CCAL, cited by the trial court, renders taxable “all property from
which any income or revenue is derived, other than from the recipients of the bounty
of the institution or charity.” 53 Pa.C.S § 8812(b)(1). The trial court interpreted this
provision to mean that “[H]ospital cannot use property it owns to derive[] income
from sources other than patients.” Trial Ct. Op. at 41. However, it is unclear how
the trial court thought Hospital received such income. Where third-party physicians
who are members of for-profit medical practices serve patients at Hospital’s facility
pursuant to their staff privileges, the patients pay the doctors, not Hospital, for those

                                           29
services. Id. In addition, those patients are also Hospital patients paying separately
for Hospital’s services, so any patient payments made to the third-party doctors are
still being paid by the recipients of Hospital’s bounty. To the extent that Hospital
purchases some physician services from a medical group owned by Tower Health,
the trial court did not explain how that constitutes income or revenue to Hospital.
                For these reasons, we believe the trial court erred in finding that
Hospital derived income other than from the recipients of its bounty. However,
because we have determined that the trial court correctly found Hospital failed to
meet the requirements of the HUP test and Act 55, any error in the trial court’s
analysis under the CCAL was harmless.

                    D. Improper Consideration of Expert Testimony
                Hospital argues that the trial court erred in considering the testimony of
the taxing bodies’ expert witness, Bruce Loch (Loch), because his testimony
improperly offered legal conclusions and those conclusions were contrary to existing
law. Hospital’s Br. at 29-37. According to Hospital, Loch improperly asserted that
(1) Medicare reimbursement shortfalls and bad debt write-offs did not constitute
gratuitous services, (2) 70% of the bonus incentives for Hospital’s executives was
based on Hospital’s financial performance, (3) Cepielik relied on calculations
regarding gratuitous services that were not in accordance with GAAP, and (4)
granting hospital privileges to non-employee physicians violated CCAL
requirements for tax exempt status.20 Id. Because the trial court’s opinion, which
decided the tax exemption applications of all three LLCs, was consistent with Loch’s
assertions, Hospital infers that the trial court must have relied improperly on Loch’s
      20
           Issues (1) and (4) are discussed in previous sections of this opinion.

                                                 30
testimony in deciding this case. See id. We believe this inference is largely
unsupported by the record, and further, any error the trial court may have made was
insufficient to require reversal of its decision.
               Regarding the connection between executive bonuses and financial
performance, Hospital correctly observes that the trial court relied on Loch’s
testimony that 70% of Hospital’s executive bonus incentives were tied to financial
performance goals. See Trial Ct. Op. at 35 (citing Loch’s testimony as the source of
the 70% figure). As Hospital explains, Loch reasoned that
               taking into account both the 40% [financial] performance
               goal based upon the operating margin of [Hospital], and
               the “[c]ircuit [b]reaker”[21] goal based upon the operating
               margin of Tower [Health], which reduces the entire bonus
               by 50% if not achieved, an executive would be eligible to
               earn only 30% of an annual maximum bonus if [Hospital]
               and Tower [Health] do not achieve their operating margin
               goals (60% of bonus based upon [] Hospital’s non-
               financial goals multiplied by 50% if the [c]ircuit [b]reaker
               is not achieved = 30% eligibility).
               Thus, 70% of [] Hospital executive bonus amount is based
               upon [] Hospital and Tower [Health] both meeting
               threshold financial goals for operating margin.

Hospital’s Br. at 32 (quoting RR at 871a).
               Hospital insists that Loch’s calculation in this regard was “tortured
logic.” Hospital’s Br. at 33. In Hospital’s view,
               the circuit breaker served not as a “financial goal” that
               would increase incentive bonus compensation; rather, it

       21
          As Hospital explains, “Tower [Health]’s incentive compensation plan included a ‘circuit
breaker’ designed as a ‘safety valve’ to ensure that, if the system fell below a certain level of
financial performance, the award of incentive compensation would be prudent and would not cause
financial harm to an already financially stressed organization.” Hospital’s Br. at 14 (citing RR at
433a-34a).

                                               31
               functioned as a fail-safe to allow Hospital to reduce or
               withhold altogether incentive compensation in bad years.
               Thus, meeting the circuit breaker threshold did not result
               in any additional compensation, but failing to meet the
               threshold might, at the discretion of the Executive
               Compensation Committee, result in the reduction or
               elimination of incentive compensation.

Id.
               Thus, Hospital draws a distinction between bonus incentives, which
allowed executives to receive bonuses for achieving financial goals, and the circuit
breaker, which allowed Tower Health to reduce or eliminate bonuses where
threshold financial goals were not achieved. Further, Hospital argues that it did not
rely substantially on financial performance in awarding executive bonuses because
application of the “circuit breaker” actually resulted in no executive bonuses during
most of the tax years at issue because of the COVID-19 pandemic. Hospital’s Br. at
61-62 & n.43. The trial court rejected these arguments, explaining:
               The bonus compensation plan remained in place, whether
               paid or not. The fact that the executive compensation plan
               was suspended only further serves to emphasize that
               [H]ospital did not operate entirely free from private profit
               motive. Contrary to [H]ospital[’s] arguments, the “circuit
               breaker” demonstrates that a bad year resulted in financial
               consequences to the executives. Whereas a good year or
               a “profitable” year resulted in large payouts to selected
               people.

Trial Ct. Op. at 37.22 We discern no error in the trial court’s reasoning. While 40%
of the bonus incentive was directly tied to financial goals, Tower Health also retained

       22
           In addition, we note that one of Hospital’s compensation experts specifically advocated
for executive incentives based on financial performance, asserting that successful financial
performance is “critical to an institution being able to meet [its] mission and essentially to be able
to fund [its] ability to be an ongoing institution and resource to the community.” RR at 738a. This
may be a sound business strategy, but it is directly contrary to the requirements of the HUP test

                                                 32
the power to reduce or eliminate the remaining portion of the bonus incentive where
threshold financial goals were not met, thus effectively tying all bonus incentives to
financial performance, not just the 70% posited by Loch.
              Moreover, as stated above, Hospital itself acknowledges that 40% of
the bonus incentives, their largest single component, was based on achieving
financial performance goals. RR at 371a, 373a, 739a & 746a. Although Hospital
contends that Loch’s 70% figure was improperly derived, it does not specifically
assert that basing 40% rather than 70% of the bonus incentives on financial
performance goals would render those bonus incentives compliant with the HUP test
or Act 55. Instead, Hospital suggests that the proper calculation is the percentage of
an executive’s overall compensation package that is tied to financial performance
and argues that percentage is not substantial. See Hospital’s Br. at 15-17 & 60-61.
The trial court obviously rejected Hospital’s argument, and we cannot say that
rejection was error.
              Next, regarding the flaws in Cepielik’s testimony based on non-GAAP
calculations, as discussed above, there was competent record evidence to support the
trial court’s conclusion on the GAAP issue without reliance on Loch’s testimony.
Indeed, the trial court did not mention Loch’s testimony in its GAAP discussion;
rather, the trial court’s discussion of the GAAP issue related solely to information
elicited from Cepielik on cross-examination. See Trial Ct. Op. at 30 & 40.
              Hospital also contends that the trial court erred in refusing to allow
rebuttal testimony by Cepielik in response to Loch’s testimony that Cepielik’s expert
opinion was unreliable because he improperly relied on non-GAAP numbers in

and Act 55 that executive compensation must not be tied to the entity’s financial performance if
the entity is to qualify for a tax exemption as a non-profit organization.

                                              33
formulating that opinion. Our review of the trial transcript indicates that despite an
objection by opposing counsel, Cepielik was allowed on redirect examination at trial
to explain at length the relationship between his opinion and GAAP, as follows:
                   [HOSPITAL COUNSEL]: When you did audits of
             hospitals and health care records did all the documents you
             reviewed in conducting your audits were they always
             prepared in accordance with GA[A]P?
                   [CEPIELIK:] No.
                   [DISTRICT COUNSEL:] Objection, relevance.
             Not relevant as [sic] him as an auditor.
                    THE COURT: It should be clear. I know we’re
             tired. Isn’t it clear that I think the witness’[s] testimony
             and I’m not giving you any idea of the weight or value but
             as I understand the testimony, you reviewed documents.
             Those documents in and of themselves were not prepared
             in accordance with GA[A]P but his phrase would have
             been used to input numbers into documents that may or
             may not have been prepared in accordance with GA[A]P.
             Isn’t that basically what his testimony is?
                   [CEPIELIK]: May I?
                     THE COURT: No. I think that is where we are
             now. We’re into what you would do with an audit which
             is irrelevant which [sic] it qualifies under the HUP test,
             Act 55.
                   [CEPEILIK]: GA[A]P numbers are GA[A]P
             numbers. There are certain numbers that are not GA[A]P
             numbers. I would say as an accountant this calculation is
             based upon GA[A]P and I’m happy to explain that further.
                   [HOSPITAL COUNSEL]:
                   Q      Can you explain further?
                   A    Sure. When you’re calculating revenue,
             again, remember, the whole start of this calculation is
             revenue. Revenue based upon my calculation of gross

                                         34
charges. The recording gross charges in their ledger when
those gross charges are earned. So that is based upon a
day in the patient service.
      Then you have to take that information from gross
charges and you have to put it down to the net realizable
value and come up with a GA[A]P revenue number. When
you come up with a GA[A]P revenue number from gross
charges you do what is called portfolio approach.
       That portfolio approach looks at what are the
collections, what are the statistics, what are the ultimate
net realizable value of that number. You sometime[s] do
it on a patient-by-patient basis. You sometimes do it on a
portfolio basis. That is what the accounting standard calls
for.
      So to get to a portfolio basis and reduce gross
charges, the net realizable value, you look at things like
what are collections over time. If you’re trying to estimate
what a cost is you estimate cost on a cost-to-charge basis.
       When I say that my calculation was based upon
GA[A]P numbers, it was. I use[d] GA[A]P numbers from
the ledger. I use[d] GA[A]P numbers from the financial
statements. And then where I needed to make estimate to
get down to what an estimated cost was, I used those inputs
that you would have used to run the books and records of
[H]ospital.
      Q    Were your estimates performed in accordance
with GA[A]P principles?
      A      Yes.
     Q      Is it necessary to have actual GA[A]P
documents in order to reach the conclusions you reached?
        A      Well again, the numbers that I used in my
calculations that were GA[A]P numbers, yes. Statistics,
by their very definition are not - - you can never have a
statistic that has a GA[A]P number but it’s an input into a
GA[A]P number.

                            35
                  Q      Is that something that you routinely do as an
             accountant?
                    A      Yes.
                    Q      Does that make your number any less
             reliable?
                    A      No.
                    Q      Is GA[A]P a process or is it a document?
                    A      GA[A]P principle, it’s both a concept and it’s
             a set of rules.

RR at 386a-89a. At the end of trial, Hospital attempted to recall Cepielik for rebuttal.
The colloquy on this issue was, in pertinent part, as follows:
                    [HOSPITAL COUNSEL]: [W]e never got any
             reasoning from Mr. Loch in his report as to why these
             documents were not – that Mr. Cepielik relied on – were
             not appropriate, and so we didn’t hear it for the first time
             until he testified, so we’d like the opportunity to just make
             two basic points regarding that testimony.
                   THE COURT: Quite honestly, I think the points
             have been made. Mr. Loch testified that he thought the
             documents should not be relied upon because they were
             not GAAP, using air quotes, qualified or GAAP prepared
             documents.
                    When your witness testified yesterday, I remember
             specifically there was an objection, and I answered it, so I
             remember what I said, and I have my notes. I looked at
             them at lunchtime. I said something to the effect that your
             expert testified that he relied upon information that was
             the data that would go into a GAAP prepared report. And
             it was all the same data. So, no, no further witnesses.

RR at 725a-26a.
             Before the trial court, Hospital did not explain what information, in
addition to the detailed testimony already presented to and acknowledged by the trial

                                          36
court, it wished to offer on rebuttal; nor does it do so in its brief before this Court.
We discern no error in the trial court’s refusal to allow, as rebuttal, evidence that
apparently had been previously presented.
             For these reasons, we conclude that, in the context of the trial court’s
overall reasoning, its allowance of Loch’s testimony and its disallowance of rebuttal
evidence were, at most, harmless error.

                      E. Applications to Strike Brief of Amici
             Hospital filed an application for relief asking this Court to strike the
brief of amici Patientrightsadvocate.org and Families USA on the basis that the brief
relied on matters that were outside the record or raised issues that were not preserved.
This Court does not consider evidence outside the record. See Tennyson v. Zoning
Hearing Bd. of W. Bradford Twp., 952 A.2d 739 (Pa. Cmwlth. 2008) (stating that
assertions outside of the record may not be considered on appeal). Further, we do
not consider any legal arguments not preserved by the parties and amici may not
assert such arguments. See Stilp v. Commonwealth, 905 A.2d 918, 928 n.14 (Pa.
2006) (noting that amici must take the issues as raised by the parties and cannot
inject new issues that the parties have not preserved). Therefore, we have not
considered any extra-record information contained in the brief filed by the amici.
Accordingly, we dismiss Hospital’s application for relief as moot.
             The District filed a conditional cross-application asking this Court to
strike the amicus brief of Hospital and Healthsystem Association of Pennsylvania in
the event that we strike the brief of Patientrightsadvocate.org and Families USA.
We likewise dismiss the District’s application as moot.

                                          37
                                  IV. Conclusion
             Based on the foregoing analysis, we grant the Board’s application for
relief and dismiss Hospital’s appeal because Hospital’s noncompliance with Rule
1925(b)(4) resulted in waiver of all issues on appeal. We dismiss as moot Hospital’s
application to strike the brief of amici Patientrightsadvocate.org and Families USA.
We likewise dismiss as moot the District’s conditional cross-application to strike the
amicus brief of Hospital and Healthsystem Association of Pennsylvania.

                                       __________________________________
                                       CHRISTINE FIZZANO CANNON, Judge

Judge Wallace did not participate in the decision in this case.

                                         38
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Phoenixville Hospital, LLC,              :   CASES CONSOLIDATED
                  Appellant              :
                                         :
            v.                           :
                                         :
County of Chester Board of               :
Assessment Appeals, Phoenixville         :
Area School District and                 :   No. 1281 C.D. 2021
Borough of Phoenixville                  :
                                         :
                                         :
Phoenixville Hospital, LLC,              :
                  Appellant              :
                                         :
            v.                           :
                                         :
County of Chester Board of               :
Assessment Appeals and                   :   No. 1285 C.D. 2021
Phoenixville Area School District        :

                                    ORDER

            AND NOW, this 10th day of February, 2023, the application for relief
of the County of Chester Board of Assessment Appeals is GRANTED and the appeal
of Phoenixville Hospital, LLC (Hospital) is DISMISSED. Hospital’s application to
strike the brief filed by Patientrightsadvocate.org and Families USA as amici curiae
is DISMISSED AS MOOT. The conditional cross-application of Phoenixville Area
School District to strike the brief filed by the Hospital and Healthsystem Association
of Pennsylvania as amicus curiae is DISMISSED AS MOOT.

                                       __________________________________
                                       CHRISTINE FIZZANO CANNON, Judge