The failure of community benefit.

Though proponents of tax exemption for health care providers continue to extol the virtues of the community-benefit test, Part II of this article illustrates that the train pretty much has already left the station on this front. Both the federal government and the states increasingly look to uncompensated care as the touchstone of exemption for health care providers. To a great extent, this transition back to a "relief of the poor" standard for exemption is the result of the inherent lack of precision in community benefit standards, along with the general trend of empirical evidence that nonprofit health care providers behave similarly to their for-profit counterparts. Faced with this situation, federal and state policymakers naturally have focused on charity care as the one quantifiable behavioral difference to justify exemption. Nevertheless, some empirical evidence suggests that nonprofits may engage in socially desirable behavior other than simply free care for the poor, and the arguments that a mixed ownership system provides the best overall health care model cannot be dismissed out of hand. Thus, despite my past criticisms of the community benefit formulation, I have come to the view that we should seriously consider the options available beyond complete repeal of the community benefit test or a return to a strict charity-care exemption standard. I continue to believe that we should demand a fairly high level of "accountability" from exemption, however, and that exemption should have some direct causal connection to whatever socially-desirable behavior we are seeking. While one option along these lines is to adopt Nina Crimm's approach of rewarding specific behaviors through a deduction or credit system, using "enhancing access" as a test of exemption may provide the best combination of flexibility and verifiable behavioral differences to support continued exemption for health care providers.