An under-the-radar battle between hospital giant Advocate Aurora Health and south suburban Oak Lawn, Ill., has big financial implications for hospitals and local governments.

Oak Lawn officials are fighting Advocate's bid for a tax break on a new outpatient center near its Christ Medical Center in the village. While hospitals owned by nonprofits like Advocate have long qualified for property tax exemptions, stand-alone outpatient centers usually pay property taxes. The dispute comes at a time when hospitals are opening outpatient centers across metropolitan Chicago amid pressure to bring down healthcare costs.

A win for 28-hospital Advocate—the nation's 10th-largest nonprofit chain—could pave the way for more health systems to push exemptions beyond hospital campuses. That would take away millions of property tax dollars from municipalities, school districts and other government agencies, including Cook County's public hospital network, which provides far more care to uninsured patients than any other hospital group in the county.

"If more and more land is taken off the tax rolls, that means the county has less money to support its health system," says Margie Schaps, executive director of the Health & Medicine Policy Research Group.

Nonprofit hospitals are eligible for exemptions if they spend as much or more on charitable services as they would otherwise pay in property taxes. Historically, few outpatient centers have qualified for property tax exemptions because they're often leased, licensed or operated by for-profit entities. That could change as more nonprofit hospitals open their own outpatient centers.

The tax exemption application Advocate filed with the Cook County Board of Review late last year doesn't provide separate figures for charitable services at the outpatient center or the estimated property tax liability of that property. Instead, it provides combined figures for the 62,000-square-foot outpatient center, which opened in April, and Advocate Christ Medical Center, a far larger facility that has been open for decades. According to Advocate, the two provided a total of $61.5 million in charitable services and would have paid $27.3 million in combined property taxes last year without an exemption.

In a filing objecting to the application, Oak Lawn argues Advocate hasn't provided sufficient evidence of the charitable services it claims to have provided at the outpatient center.

The center aims to expand access to primary and specialty care, including cardiology and neurology, while also freeing up space at Advocate Christ a mile away. The 788-bed hospital has seen inpatient and outpatient volumes increase, due to continued service line expansion and the closure of other area hospitals, says spokeswoman Brigid Sweeney.

"We remain committed to Oak Lawn and the surrounding communities that we have been privileged to serve," Advocate says in an emailed statement. "Charity care and unreimbursed costs continue to grow and far exceed the value of our property tax exemption—both in Oak Lawn and across the system."

Based on the assessed value of Advocate's outpatient center and the tax rate in Oak Lawn, Mayor Sandra Bury estimates the village would lose $400,000 a year if the state grants the exemption. Local school districts have joined the village's objection to Advocate's application.

"Having the big guys get a tax break and the little guys struggle isn't helping anything," Bury says. "The biggest impediment I see to economic development in our community is high taxes."

Further complicating matters for the village is the fact that a payment in lieu of taxes, or PILOT, program under which Advocate Christ agreed to contribute $2.6 million over four years to help cover costs of municipal services, such as fire and police protection, expires in June.

Advocate Christ in 2018 spent $16.7 million on free care to poor people, or 1.5 percent of net revenue, which is in line with the area's largest nonprofit hospitals, according to state data. Meanwhile, Cook County Health's Stroger Hospital spent $324.6 million, or 54 percent of its revenue, on free care.

Advocate's cause could be helped by a recent ruling from the Circuit Court of Champaign County. After a 13-year legal battle, Judge Randall Rosenbaum in February ruled that the Carle Foundation is entitled to property tax exemptions on its main hospital in Urbana and separate properties where it operates a day care center and a power plant. "The ancillary services provided by these properties are reasonably necessary to the operations of the hospital," Rosenbaum wrote.

Some outpatient centers across Cook County are partially tax exempt, according to data from the Cook County assessor's office. An Oak Lawn facility operated by OSF Little Company of Mary Medical Center has had a partial exemption since 2015, paying $168,750 for tax year 2018. Northwestern Medicine's Glenview Outpatient Center also has had a partial exemption since 2015 and paid $617,000 for 2018.

Mayor Bury, a practicing optometrist in Oak Lawn, says she pays $40,000 in annual property taxes on her 3,500-square-foot clinic.

"A lot of people do charitable work in this community and don't ask for a free ride," she says. "I view it as the cost of doing business in this community—the cost of being humane."

This article was originally published in Crain's Chicago Business.