Healthcare, Property Tax Exemptions and Implications from Recent Court Cases
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The American Hospital Association (AHA) survey for 2002 reported that of the
4,927 community hospitals responding to its survey, 46% belonged to a system, 27%
were in a network arrangement, and 71% participated in a group purchasing
In addition to developing new organizational arrangements, hospitals expanded
beyond the acute care services that previously characterized the traditional hospital.
Hospitals increasingly developed new services at both ends of the continuum of health
care services, such as preventive health and wellness programs, as well as post hospital
rehabilitation, long term care and hospice. No doubt these strategies enabled hospitals to
perform more competitively in a managed care environment. In addition they augmented
revenue that had been squeezed by increased operating costs, but lower inpatient
utilization. There is little doubt that vertical and horizontal integration and expansion of
nonprofit hospitals in the current competitive environment raised questions in the minds
of policy makers as well as the public about the appropriateness of tax exemptions
granted these hospitals. Frank and Salkever found that although financial pressure from
increased competition, not the charitable mission, was the principle driver of service
diversification, the provision of charity care had not deteriorated as a result.
Nevertheless, a spate of property tax challenges during the past sixteen years suggests
that hospital diversification and expansion at times conflicted with state tax exemption
Ibid. Paul J. Feldstein, Health Care Economics, Fifth Edition, Delmar Series in Health Services
Administration, ed. Stephen J. Williams (Albany, NY: Delmar Publishers, 1999) 307-11.
American Hospital Association, Hospital Statistics (Chicago: Health Forum LLC, 2004) 10.
Richard G. Frank and David S. Salkever, "Market Forces, Diversification of Activity, and the
Mission of the Not-for-Profit Hospitals," The Changing Hospital Industry: Comparing Not-for-Profit and for-Profit Institutions, ed. David M. Cutler (Chicago: University of Chicago Press, 2000) 210-11.