3 December 1999 GST/HST Interpretation 7741/HQR0001347 - Medical Clinic Contracting with Physicians

Dear Sir:

Thank you for your letter of September 21, 1998, following up our letter of August 31, 1998 (our file HQR0001198) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of a medical clinic. You asked us to review the information which may have previously been incorrectly presented by your office to see whether or not this review will change our reply of August 31, 1998. If there is no change in our reply, you would like a detailed explanation.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (the "CCRA").

On the basis of your letter as well as your previous letter of May 5, 1998 sent to our XXXXX and a copy of a sample written agreement, our understanding of the activities of the medical clinic is as follows:

1. The medical clinic (the Clinic) is incorporated under the laws of the XXXXX[.]

2. The medical services are provided by physicians (i.e., "medical practitioners") who have entered into written agreements with the Clinic to render their services to the patients to be treated at the Clinic.

3. The physicians who sign the agreements with the Clinic are independent contractors providing their services to the Clinic although rendered to individual patients.

4. The terms of the written agreements provide that the Clinic will collect the billings with respect to the medical services provided by the physicians and pay the physicians XXXXX of these billings. Specifically, the written agreement states that the "Clinic is compensated through direct billing to the XXXXX for providing medical services to its patients." This agreement also states that "Each physician shall invoice the Clinic for medical services rendered to its patients at a rate not greater than fifty XXXXX of the rate paid by the XXXXX to the Clinic for said patient service."

5. The Clinic services the needs of its patients and engages the services of medical staff including physicians to provide these services.

6. The physicians are not responsible to compensate the Clinic for access to its facility as they are subcontracted to perform services on behalf of the Clinic.

After further reviewing the information pertaining to your inquiry, we confirm that in the situation described above, it is our position that the Clinic would be making a taxable supply to the physicians that can be characterized as an administrative service. As we stated in our previous letter of August 31, 1998, our information is that pursuant to provincial law, only the physicians are permitted to render medical and surgical services and entitled to bill and receive remuneration from the XXXXX and the only situation where a medical clinic may bill the XXXXX is where it is submitting claims in the name of the physician using the physician's XXXXX billing number.

Notwithstanding the terms of the written agreements (referred to in items 2, 3, and 4 above), the physicians are remunerated by XXXXX or, where the services are not insured, by the individual patient, as the Clinic cannot be a provider of health care services or receive remuneration for such services. The individual physicians are legally liable for the amounts billed and the billings submitted to XXXXX for medical and surgical services rendered to insured patients must be submitted in the name of and signed by the physician who rendered the services.

Although the Medical Clinic becomes, by way of an internal arrangement with the physicians, entitled to the fees payable in respect of the physician's services, this arrangement does not alter the nature of the transaction, i.e., the fees are remuneration paid by the XXXXX to the individual physicians. This remuneration is for the supply by the physicians of health care services that they rendered to individuals and the total amount applicable to those services is the revenue of the physicians. It is our understanding that the XXXXX tracks all the remuneration paid to the physicians and does not recognize any "assignment" by the physicians of their fees to a clinic or corporation.

The provision of medical and surgical services constitutes the practice of medicine. By virtue of XXXXX, XXXXX XXXXX[.] Since the Clinic cannot endeavor to practice medicine, the patients consulting the physicians at the Clinic cannot be said to be patients of the Clinic. The written agreement between the Clinic and the physicians does negate the fact that the health care services provided by the physicians are with respect to the activities of the physicians and not of the Clinic. The written agreement is an internal arrangement between the Clinic and the physicians that reflects the business practices of the Clinic and is unrelated to the provision of health care services by the physicians.

The fees the Clinic does not remit to the physicians are in respect of a separate supply from the health care services rendered by the physicians for which the physicians received their remuneration from XXXXX (or their patients). This separate supply is a supply by the Clinic of an administrative service to the physicians consisting of billing on their behalf and providing the necessary equipment, supplies, overhead, etc., for their use. The amount of the physician's billings retained by the Clinic is therefore consideration paid by the physicians for this supply. There are no provisions in the Excise Tax Act (the "ETA") to exempt supplies of administrative services and accordingly, these supplies are taxable. If a registrant, the Clinic is required to collect the GST at the rate of 7% in respect of this consideration, i.e., the XXXXX of the billings in respect of the services provided by the physicians that the Clinic retains.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings, and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies & Governments Division