Within the health care industry, the move from regulatory cost controls to market competition has generated rapid and dramatic restructuring of providers. To enhance their competitive positions in the evolving market, many health care organizations are pursuing the ownership and integration of all elements and stages of health care delivery and payment, with the goal of increasing access to capital and lowering costs through administrative efficiencies and economies of scale. As of July 1994, 24 percent of hospitals were members of (...) an integrated delivery system, and 47 percent were involved in IDS development.IDSs pose a singular challenge to the Internal Revenue Service. The IRS recognizes that its traditional policies for granting tax exempt status are not flexible enough for the competitive and rapidly changing health care market. In recent years, the IRS has taken a more active role in scrutinizing emerging health care institutions seeking taxexempt status. (shrink)