In the same case, one of the issues is whether or not the total membership fees received by the
taxpayer, being an HMO, representing (i) payments to hospitals, clinics, laboratories, doctors,
dentists and other healthcare providers in exchange of services the latter render to taxpayer’s
members; and (ii) payments to taxpayer itself in exchange of “actual and direct” medical and
hospital services it provides its members through its own clinics, x-ray and laboratory facilities,
should properly be considered part of taxpayer’s gross receipts subject to VAT.
As decided by the Court, based on the characteristics of an HMO, it is a service contractor under Section 108 of the NIRC. The amounts earmarked for payment, or actually paid, to hospitals and doctors form part and parcel of entire package offered to its members. There is no contract for administrative or management services between the HMO and its members that is distinct, independent or separable from a contract providing for the remittance of the fees payable to doctors and hospitals. The members to not deal directly with the doctors, hospitals and other medical service providers on the matter of the fees payable to the latter. It is in the nature of their health contract that the members are unaware or clearly without right to inquire, much less negotiate, the amount of their medical bills. Therefore, no portion of the money that go into the hand of the HMO is delineated for “delivery” to an identified third party. Rather, all moneys are surrendered to the HMO lump sum by its members in exchange of an obligation or service to ensure that medical services will be provided the members without the usual payment protocols. How the HMO does this is entirely the essence of its business as a service contractor. Further, there is no showing that the members have the right to require the HMO to account to them the management and disposition of the portions of their premiums which the HMO claims to be earmarked for the payment of contingent medical bills. All these negate the
As decided by the Court, based on the characteristics of an HMO, it is a service contractor under Section 108 of the NIRC. The amounts earmarked for payment, or actually paid, to hospitals and doctors form part and parcel of entire package offered to its members. There is no contract for administrative or management services between the HMO and its members that is distinct, independent or separable from a contract providing for the remittance of the fees payable to doctors and hospitals. The members to not deal directly with the doctors, hospitals and other medical service providers on the matter of the fees payable to the latter. It is in the nature of their health contract that the members are unaware or clearly without right to inquire, much less negotiate, the amount of their medical bills. Therefore, no portion of the money that go into the hand of the HMO is delineated for “delivery” to an identified third party. Rather, all moneys are surrendered to the HMO lump sum by its members in exchange of an obligation or service to ensure that medical services will be provided the members without the usual payment protocols. How the HMO does this is entirely the essence of its business as a service contractor. Further, there is no showing that the members have the right to require the HMO to account to them the management and disposition of the portions of their premiums which the HMO claims to be earmarked for the payment of contingent medical bills. All these negate the
concept of “money in trust.” (Medicard Philippines, Inc. vs. Commissioner of Internal
Revenue, CTA Case No. 7948, June 5, 2014)
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