Pressures to contain costs have given private hospitals the economic incentive to reduce provision of charity care services, shifting the burden onto government hospitals. Budget pressures on governmental units have produced resistance to any further shift in charity care burden. We observe in a lawsuit (State of Texas vs. Methodist Hospital System [MHS]) what appears to be a classic moral hazard situation. The government expects a certain (unspecified) level of charity care to be performed in exchange for tax exemptions; hospital management allegedly consumes perquisites and overstates reported charity care figures. Both sides use accounting numbers to defend their positions. The Case makes five contributions. First, it is relevant and flexible enough for use in several different accounting or business courses, including financial, audit, tax, not-for-profit, or ethics courses. Second, it provides students an introduction to not-for-profit accounting placed in an interesting and relevant context. Third, students must employ forensic skills, much as did the state attorney general. Fourth, the Case requires students to make several audit-related determinations, including knowledge of a client's business, fraud, and related-party transactions. Finally, as students progress through the case, they are required to consider several ethical issues
