Private ruling: GST and supply of medical services under agreement
Date of advice: 15 May 2018
Published: July 2018
Ruling period: Not applicable
Date scheme commenced: 15 May 201X

Ruling: Q1: Are you acting as a paying agent on behalf of a State Department of Health (Health Dept) in respect of services supplied by medical professionals and facilities to patients, or are you making a taxable supply to Health Dept in exchange for those payments? | A1: The services provided to Health Dept will be GST-free as per section 38-60 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Please refer to the reasons for decision for details. | Q2: Are you the recipient of a taxable supply from the sub-providers under the Sub-Provider Agreement or are you merely paying for those supplies on behalf of either Health Dept or the patient? | A2: Yes, you are the recipient of taxable supplies under the Sub-provider Agreement provided the supplies satisfy all of the requirements of section 9-5 of the GST Act. | Q3: Are you the recipient of a taxable supply from the medical practitioners under the Medical Practitioner Agreement or are you merely paying for those supplies on behalf of either Health Dept or the patient? | A3: Yes, you are the recipient of taxable supplies under the Medical Practitioner Agreement provided the supplies satisfy all of the requirements of section 9-5 of the GSTAct.

Relevant facts and circumstances: You are a member of a religious and health group and registered for goods and services tax (GST). A State Department of Health (Health Dept) wanted to outsource to the private sector, the treatment of public elective surgery patients who had been waitlisted on the public hospital waiting list. Health Dept entered into an Agreement with you. Under the Agreement you have a contract to treat patients. You receive a list of patients to treat and you work out the obligations of where, how and who will treat the patients. The Agreement states that ‘services’ means: ‘The services set out in this document as being obligations of the Service Provider including the Procedures, Consequential Treatment and new Treatment and all associated care, facilities and services necessary to be provided to a Patient by the Service Provider (including any Sub-Provider)’. ‘Sub-Provider’ means ‘a registered private health facility with which the Service Provider has an agreement to carry out the Procedures in accordance with the terms of the Agreement. ‘Patient’ means ‘a person who has elected to and has provided the necessary consent for a Procedure to be referred to the Service Provider’. You will engage a medical practitioner directly or enter into an agreement to have the treatment provided by a sub-provider. The Agreement outlines various qualification, training and service standards which you are responsible for upholding in relation to authorised surgeons and medical personnel. You must provide all facilities and equipment necessary for the performance of the service. Medical Practitioners do not bill Health Dept directly. You pay the doctor their service and cost of which is included in the agreed case payment price. Sub-providers You will ensure that you enter into corresponding agreements with sub-providers to provide treatment to patients, copies of which must be provided to Health Dept on request. You remain responsible for the performance of the services in accordance with the Agreement and duly indemnify the Health Dept. Payment Health Dept must pay you the agreed fee for each procedure. All costs are bundled into the case payment including pharmaceutical, radiology, accommodation/theatre fees and the doctors’ costs. The rates for procedures being performed by private sector are up to you to agree with medical practitioners. The doctor’s fees are included as part of the case payment. Invoices are submitted by you to Health Dept on a monthly basis for procedures performed during that month. Invoices must include details of the procedure, the patient and the relevant authorised medical personnel. In accordance with the arrangement made by you and the medical practitioner/sub-provider to which the patient has been referred, the payment of the patient’s account for medical services performed by a medical practitioner will ultimately be made by you. The Agreement is not intended to create a partnership, joint venture or agency relationship between the parties. The Sub-Provider Agreement You may refer public patients identified by the Health Dept to a sub-provider for treatment. This is done pursuant to the Sub-provider Agreement entered into between you and the relevant sub-provider. In accordance with the Sub-Provider Agreement, you agree to pay the prescribed fees to the sub-provider. Medical Practitioner Agreement Under the Medical Practitioner Agreement, the medical practitioner agrees to treat public surgical patients at the relevant facility. The medical practitioner accepts the patient as a ‘private patient’ and agrees that you are responsible for the payment of the patient’s expenses associated with treatment, including the medical practitioners, and any secondary practitioner’s, fees.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 – section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 – section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 – section 38-7 | A New Tax System (Goods and Services Tax) Act 1999 – section 38-60 | A New Tax System (Goods and Services Tax) Act 1999 – section 195-5 | Health Insurance Act 1973

Reasons for decision: Detailed Reasoning - Detailed reasoning: A supply is a taxable supply where the requirements of section 9-5 of the GST Act are satisfied. You make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with the indirect tax zone; and you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Supply of elective surgery and related services are not input taxed under Division 40 of the GST Act. Therefore, it is necessary to consider whether the supply of elective surgery and related services under the Agreement will be GST-free under Division 38 of the GST Act. Under section 38-7 of the GST Act, a supply of a medical service is GST-free. For the purposes of the GST Act, a medical service is defined in section 195-1 of the GST Act as: ● a service for which a Medicare benefit is payable, or ● any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply. Where the first requirement is not met, the requirements of the second limb of the definition of medical service must be met. That is, the supply is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply. Appropriate treatment is established where a practitioner assesses the recipient’s state of health and determines a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient and includes subsequent supplies for assessed process. In this case, if the Medicare benefit is payable for the supply of medical services by you to the patients referred to you by Health Dept, those services will satisfy the first requirement of the definition of medical services and will be GST-free. If the Medicare benefit is not payable for the medical services provided by you, then it is necessary to consider whether the supply of medical services would satisfy the second limb of the definition of medical service. The second limb of the definition of medical service contains a number of elements. All of these elements must be satisfied before a service will be a medical service under the second limb. | Detailed Reasoning - Service must be supplied by medical practitioner: The first element is that the service must be supplied by or on behalf of a medical practitioner or an approved pathology practitioner. Section 195-1 of the GST Act defines medical practitioner as a person who is a medical practitioner for the purposes of the Health Insurance Act 1973. The Health Insurance Act 1973 defines medical practitioner as a person registered or licensed as a medical practitioner under a law of a State or Territory that provides for the registration or licensing of medical practitioners but does not include a person so registered or licensed: (a) whose registration, or license to practice, as a medical practitioner in any State or Territory has been suspended, or cancelled, following an inquiry relating to his or her conduct; and (b) who has not, after that suspension or cancellation, again been authorised to register or practice as a medical practitioner in that State or Territory. In determining whether the medical services provided by you as a medical practitioner, it is relevant to consider whether you as an entity (company) can provide the medical services. The definition of medical service requires that the medical service should be supplied by a medical practitioner. It is considered that in this context, it is taken to be a requirement that the person who actually performs services must herself or himself, be a medical practitioner in relation to supplying services of that kind. Due to the very nature, a company cannot itself perform the services it may supply through others such as medical practitioner. Therefore, the consideration should be on the professional status of the person performing the services and not the company itself. All the medical professionals contracted by you to perform the services under the relevant agreements such as the sub-provider agreement and medical practitioner agreements are registered medical service providers. Therefore, we consider that the first element of the definition where the services should be provided by the medical practitioner would be met in this circumstance. | Detailed Reasoning - Appropriate treatment: The second element is that the service supplied must be generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply. ‘Appropriate treatment’ will be established where the practitioner assessed the recipient’s state of health and determines a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient and will include subsequent supplies for the assessed process. Appropriate treatment includes the principles of preventative medicine. In addition, the definition requires the treatment must be generally accepted in the medical profession as being necessary. The particular service being provided by the practitioner and the circumstances in which it is provided must be generally accepted by the medical profession. The words ‘generally accepted in the medical profession’ indicate that it will ultimately be the medical profession that determines what services will be generally accepted. As explained above, the services are determined by the medical profession to the extent what services are generally accepted in the medical profession as appropriate treatment. You are entitled to engage sub-providers to provide the necessary medical services to the patients referred by Health Dept. Both you and the sub-providers will engage medical practitioners to undertake the treatment or medical services to the patients. Therefore, it is the responsibility of the medical practitioners contracted by you or by the sub-providers to determine whether a treatment such as elective surgery or any other medical services are ‘appropriate treatment’ and generally accepted in the medical profession. Based on the facts provided and the key components of the medical practitioner agreements, it is our view that the treatment and other medical services provided by the medical practitioners contracted by you and the sub-providers will satisfy the second element of the definition of ‘appropriate treatment’. | Detailed Reasoning - Recipient of supply: Section 195-1 of the GST Act defines recipient in relation to a supply to mean the entity to which the supply was made. In some circumstances, the recipient of the supply is not the patient of the practitioner but is a third party. Appropriate treatment will not include supplies undertaken for a third party that does not encompass the concept of treatment. In some instances, medical services are made under multi-party arrangements where a medical practitioner supplies medical service to a person (patient) and the medical practitioner receives payment from a third party. The Commissioner generally treats these arrangements as involving a single supply with the payment from the third party being the consideration for the supply and the third party is the recipient of the supply. As the supply is not provided to the patient, the supply is not a GST-free. In this case, you provide the medical services to the patients referred by Health Dept and receive payments from Health Dept for the services provided to their patients under the Agreement. As explained above the medical services provided by you to the patients referred by Health Dept under the arrangement will be taxable supply to Health Dept. However, from 1 July 2012, where the third party is an insurer, an operator of a statutory compensation scheme or compulsory third party scheme (scheme operator), or an Australian government agency, the supply to the other entity will be GST-free to the extent that the underlying supply of the health service to the patient is a GST-free health supply under subdivision 38 – B of the GST Act. For administrative ease however, the parties may agree for the supply to the payer, or supplies of a kind that include that supply, not to be treated as GST-free. Subsection 38-60(3) of the GST Act provides that if: (a) a supply is a supply of a service to an Australian government agency; and (b) the service is the supplier making one or more other supplies of goods or services to an individual; and (c) at least one of the other supplies is wholly or partly GST-free under this Subdivision; the first-mentioned supply is GST-free to the extent that the other supplies mentioned in paragraph (b) are GST-free under this Subdivision. Under section 38-60 of the GST Act, there is no separate taxable supply made by the service provider to the insurer, the statutory compensation scheme, compulsory third party scheme operators or an Australian government agency where the service provider makes a supply to an individual. If a supply by a medical service provider to an individual in either wholly or partly GST-free under Subdivision 38-B of the GST Act (the underlying supply), then the supply of service of making the underlying supply by the medical service provider to an Australian government agent is GST-free, to the same extent as the underlying supply. | Detailed Reasoning - Australian government agent: The fact sheet for ‘Payments to government agencies under Division 81’ (QC 24540) provides that each of the following is an Australian government agency: ● the Commonwealth, a State or Territory ● a Commonwealth, State or Territory government department ● a body (whether or not it is an entity) established by the Commonwealth, a state or a territory to carryon activities ● a body (whether or not it is an entity) established for a public purpose by an Australian law ● a local governing body established by a state or territory law (such as a local municipal council) The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of ‘government entity’ in section 195-1 of the GST Act. Therefore, we consider that the Health Dept is an Australian government agent. Based on the facts provided, it is our view that the medical services provided by you to the patients referred to you by Health Dept will be GST-free under section 38-60 of the GST Act. | Detailed Reasoning - Supplies made by sub-providers: Under the Sub-provider Agreement medical practitioners engaged by the sub-providers would be providing medical services to the patients referred to you by Health Dept. However, Health Dept is not a party to the Sub-provider Agreement. You are liable to pay the Sub-providers for the medical services provided by them to the patients. It is considered that you are the recipient of the supply under the Sub-provider Agreement. The supplies provided by the sub-providers cannot be characterised as a GST-free medical service as the recipient of the supply is you. The supplies cannot be considered under section 38-60 of the GST Act as you are not an Australian government agent. Therefore, the supplies made by the sub-providers under the Sub-provider Agreement would be taxable provided the supplies satisfy all of the requirements of section 9-5 of the GST Act. And you would be entitled to claim GST credit for the acquisition made from the sub-provider provided the acquisition satisfy all of the requirements of 11-5 of the GST Act. | Detailed Reasoning - Supplies made by medical practitioners: You were initially engaged by Health Dept to provide the services to referred patients or to arrange for those services to be provided by either a sub-provider or a medical practitioner. In order to discharge your obligations and provide the contracted service, you have entered into Medical Practitioner Agreements with specific medical practitioners for the performance of those services on patients referred by you. For the same reasons discussed already, there is an agreement for service between you and the medical practitioner for which you have the liability to pay. This amounts to more than a payment arrangement. As explained above, the supplies provided by the medical practitioners cannot be characterised as a GST-free medical service as the recipient of the supply is you. Furthermore, you are not an Australian government agent. Therefore, the supplies made by the medical practitioners under the Medical Practitioner Agreement would be taxable provided the supplies satisfy all of the requirements of section 9-5 of the GST Act. And you would be entitled to claim GST credit for the acquisition made from the medical practitioners provided the acquisition satisfy all of the requirements of section 11-5 of the GST Act. | Detailed Reasoning - Option to treat the supply as taxable: Some entities have a variety of arrangements with medical service providers when a range of supplies are made to individuals. Depending on the nature and terms of the particular arrangement, some supplies will be GST-free and some supplies will be taxable. Medical service provider and the recipient of the supply (insurer, the CTP scheme or statutory compensation scheme operator, or the Australian government agency) may agree to treat the supplies as taxable. When a supply is treated as a taxable supply, a tax invoice is required to be issued. If a supplier has issued a tax invoice, the recipient is entitled to claim input tax credits for the GST paid on the acquisition to the extent that the acquisition is a creditable acquisition.