Nonprofit hospital services, property tax litigation, and the impact on litigants

Property tax exemptions are significant local government subsidies to nonprofit hospitals estimated to be in the billions of dollars. Challenges to hospitals' property tax exemptions have escalated during the past three decades as nonprofit hospitals have become increasingly competitive. This research examined five cases in which the property tax exemption for a hospital service had been denied and the hospital litigated to have the exemption granted. The focus of the research was the impact of the litigation on the parties in the lawsuit: the hospital or health system and the tax authority. Although the litigation did not have a significant adverse impact on either party with respect to the litigation costs or the cost of the denied or granted property tax exemption, social scientists and policy makers have reason to be interested in this area of research. The health care institutions that appealed a denial of a property tax exemption are very different from hospitals of just twenty years ago. Hospitals have organized into multi-institution, multi-market systems with fewer local community board members. At the same time, states and local communities have experienced financial pressure because of federal mandates, particularly Medicaid, reduced federal revenue sharing, and public resistance to increased taxes. The common question addressed by the courts in these cases was: what is charity and how much should be provided? An appropriate policy response that may reduce the incidence of these types of cases is community benefit accountability. Some states have adopted such a policy which requires that health systems report the type and amount of community benefit they are providing to the community in exchange for their exemption from property taxes.