The Illinois Department of Revenue has revoked the tax-exempt status of a hospital in Champaign, finding that it doesn't provide enough free care to justify that status. The move was unprecedented for a state agency but was just one salvo in the war Illinois regulators are waging against nonprofit hospitals.

A study this spring by the Center for Tax and Budget Accountability, a Chicago-based group, found that Cook County nonprofits receive tax breaks--an estimated $326 million in federal, state and local exemptions--that are worth five times as much as the value of the charity care they provide. (The authors of the study suggested that the gap between tax break and care should be closer to $3 in breaks for every $1 in free care.)

The hospitals disputed the findings of the study. They said, for instance, that it did not credit their bad debt, which is largely accrued when patients don't pay for care rendered, and for running money-losing services such as trauma centers and burn units.

Lisa Madigan, the state attorney general, has promoted legislation that would require nonprofits to provide much more charity care to low-income residents of the state, and the Illinois Hospital Association has entered into negotiations with Madigan's office to craft new charity care requirements. For now, however, the two sides remain far apart. Madigan, for instance, wants hospitals to devote 8 percent of their annual revenues to charity care, while the association, noting the tight margins hospitals are operating with, is holding out for no more than 2 percent.

But Illinois is not alone in making this case. Lawsuits charging hospitals with providing inadequate charity care have become prevalent across the country over the last couple of years.

For its part, the hospital in Champaign is appealing the revenue department's action, saying it flies in the face of longstanding legal precedents.