Atlantic Health, still pondering property tax ruling, bolsters legal team

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Atlantic Health System is still weighing its options after a judge revoked the property tax exemption for Morristown Medical Center, in a ruling last week that could have major implications for hospitals and local governments across the state.In the meantime, though, the system has retooled its legal team.

Atlantic Health spokesman Rob Seman said the system has hired new counsel, Susan Feeney of McCarter & English. The Newark-based attorney is a prominent litigator in property tax law.

“It’s not unusual at the conclusion of litigation to change counsel going forward,” Seman said. “In this instance, we have a change in leadership at the top of the organization and felt it best to have a new perspective from new counsel.”

Atlantic Health recently named Brian Gragnolati to succeed longtime CEO Joseph Trunfio.

RELATED: Morristown hospital loses closely watched property tax case

The five-hospital system, which is based in Morristown, has spent years at the center of a closely watched case involving Morristown Medical Center’s property tax exemption. It was dealt a blow June 26, when tax court Judge Vito Bianco ruled in favor of the town of Morristown and decided the hospital should pay taxes on almost all of its property, pointing to the abundance of for-profit services on-site.

Attorneys for Atlantic Health had argued that nonprofit hospitals have long partnered with outside practices to deliver health care to the public. Published reports say the hospital could be on the hook for at least $2.5 million annually.

“The hospital argued that this is how modern hospitals are typically organized,” said David Wolfe, a Livingston-based property tax who attorney was not involved in the case. “And the court essentially said, ‘Well, if that is correct, then modern hospitals are not entitled to exemptions.’ ”

Wolfe, a member of Skoloff & Wolfe P.C., said he would be “shocked if they didn’t appeal — and it’s the type of case that, certainly, you would expect to proceed to the appellate division and potentially to the Supreme Court.” Such an outcome could raise the stakes for other nonprofit hospitals across the state.

He added that “municipalities are looking everywhere they can for ratables” and that there is a trend across New Jersey and the country of local governments re-examining whether such institutions should continue to be entitled to such exemptions. He noted Bianco’s decision relied heavily on the 2010 state Supreme Court case International Schools Services Inc. v. West Windsor, in which the municipality successfully argued to have the organization stripped of its exemption because the facility was intermingled with for-profit services.

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“I think as not-for-profit sectors become more and more complex, you may see more of these types of issues,” Wolfe said. “You see it in the education space, you could see it in the health care space.

“And I think as not-for-profits try and reinvent themselves and become more sophisticated and look for ways to better leverage the services that they provide the community, these are the types of considerations they’re going to need to keep in mind when making a decision about how to organize themselves.”

Wolfe also said it’s important to note that Bianco “did go out of his way to say that many of his rulings were based on the evidence as it was presented in this case and that the hospital had simply failed to establish many of the facts that it needed to establish to justify their exemption.” That doesn’t necessarily mean another hospital wouldn’t be able to establish those same facts.

Those are all considerations for Atlantic Health System as it ponders how to proceed. In the meantime, the organization called the decision “disappointing” and one with “serious consequences for both Morristown Medical Center as well as other health care systems in the state,” but said it doesn’t change the underlying mission of the hospital.

“After reviewing the decision in greater depth, we will evaluate our options and make a decision that is in the best long-term interest of the hospital, the patients we serve, and the greater community,” Seman said. “This decision is limited to the issue of property tax, and does not call into question the charitable status of the hospital. We remain a not-for-profit organization.”

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