Edited version of your private ruling

Authorisation Number: 1012468933297

Ruling

Subject: Supply of medical screening services

Question 1:

Is the supply of medical screening services by X a GST-free supply of medical services under section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?

Answer:

No, the supply of medical screening services by X is not a GST-free supply of medical services under section 38-7 of the GST Act.

Question 2:

If the supply of medical screening services by X is not a GST-free supply of medical services under section 38-7 of the GST Act, are those screening services supplied by X which are conducted by or under the supervision of nursing staff GST-free supplies of other health services under subsection 38-10(1), Item 10 of the GST Act?

Answer:

No, the screening services supplied by X which are conducted by or under the supervision of nursing staff are not GST-free supplies of other health services under subsection 38-10(1), Item 10 of the GST Act.

Relevant facts and circumstances:

The parties:

The ruling request was lodged on behalf of Y and advised that Y 'is establishing medical screening operations in Australia'.

The ATO subsequently found a website which indicated that an entity named X was already supplying screening services in Australia. The ABN Register indicates that X acquired an Australia Business Number ('ABN') and is not currently GST registered.

After the ATO provided this information to X's adviser, X's adviser confirmed that X was the entity seeking the ruling, provided X's Tax File Number and ABN, and confirmed that X is currently supplying screening services in Australia and is not GST registered.

X is a wholly-owned subsidiary of Z.

Z was established in another country in the some years ago.

Supply of screening services by Z:

The ruling request described how Z supplies screening services:

Z conducts preventative medical screenings to detect specific diseases in the asymptomatic population, i.e. people either not displaying any symptoms or only displaying subtle symptoms for the specific diseases screened by Z (which include heart disease, stroke, carotid artery disease, diabetes, and osteoporosis). Z targets clients (referred to as 'participants') over 50 years old as this group has the highest incidence of those diseases.

Z supplies screening services direct to participants on a fee-for-service basis. Generally participants are not referred to Z by their medical practitioners. Where a screening detects a disease Z instructs the participant to take the results directly to the participant's medical practitioner and the medical practitioner determines the appropriate treatment. Z usually conducts screenings in community locations such as community centres or town halls. Screenings may include:

· Ultrasound screenings for carotid stenosis, abdominal aortic aneurysm and peripheral arterial disease;

· Finger-stick blood screening for cholesterol, diabetes, and pre-diabetes;

· A limited electrocardiograph test ('ECG') for artrial fibrillation;

· Bone mineral density testing; and

· Health risk assessment questionnaires.

A base vascular screening comprises the ultrasound screenings plus the ECG, although a participant may elect to add the blood tests, bone mineral density and health assessment questionnaire. These screenings are conducted either by medical professionals (including sonographers and nurses) or by medical assistants and personal care attendants under the supervision of those medical professionals.

Supply of screening services in Australia by X:

X sends mobile teams and specialist medical equipment to temporary screening centres across Australia. A mobile team typically comprises:

· 2 or 3 Ultrasound sonographers;

· 1 or 2 nurses; and

· 1 or 2 medical assistants or personal care attendants.

Details of the screenings supplied by X are as follows:

If a screening indicates that the participant is at clear risk of an adverse health event, the following procedure is followed:

· X provides the participant with a set of images which the participant can then provide to the participant's doctor;

· X provides a 'Dear Doctor' letter to the participant; and

· X advises the participant to visit his or her doctor as soon as possible (if the screening indicates that the participant is at clear risk of a serious and imminent health event the X will advise the participant to attend an emergency room within 24 hours).

If no findings of significant risk are made at the time of the screening the test results are reviewed by an Australian doctor engaged by X and summarised in a narrative form and X posts a results letter to the participant within 3 weeks. The results letter advises the participant to share the results with his or her doctor for appropriate follow-up.

A participant is required to pay for the base screening services (which includes the three Ultrasounds) on a fee-for-service basis and to pay an additional fee for additional screenings. A participant is not entitled to claim Medicare benefits for services supplied by X because:

· The base where X ordinarily keeps the mobile diagnostic imaging equipment is not registered by the Federal Health Minister as required by the Health Insurance Act 1973 (Cth) ('HIA'); and

· The specimen collection centres at which blood tests will be conducted are not approved collection centres under section 23DNBA of the HIA.

· X informs participants that screenings provided by X are not covered by Medicare benefits.

As indicated in the table above, two of the three available Ultrasound screenings will be conducted by sonographers engaged by X who are members of the Australian Institute of Radiography ('AIR'). Blood test, ECG and bone densitometer screenings are conducted by medical assistants or personal care assistants supervised by qualified and registered nurses. Currently there are no credentialing requirements for individuals performing ECGs in Australia. All nurses engaged by X are registered by the Nursing and Midwifery Board of Australia under the National registration and Accreditation Scheme. Most nursing assistants are Assistant in Nursing ('AIN') Certificate Level 3.

Submissions:

In the ruling request it was submitted that the supply of a screening by X is a GST-free supply of a medical service within the meaning of subsection 38-7(1) of the GST Act because that supply satisfies the second limb of the 'medical service' definition in section 195-1 of the GST Act, i.e.

(b) 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.

In relation to the requirement that a service is 'supplied by or on behalf of a medical practitioner or approved pathology practitioner' it was acknowledged that a screening is undertaken by or under the supervision of appropriately qualified medical and health care professionals and that a medical practitioner is not directly involved in the first instance. However it was submitted that X's service model is designed so that:

· where a screening result indicates a clear risk of an adverse health event, the result is provided (by the participant) to the participant's medical practitioner to assist with follow-up and diagnosis; or

· where a screening result does not indicate a clear risk, the result is provided to the participant to take to a medical practitioner for appropriate follow-up and incorporation into the participant's overall health management.

It was also submitted that a screening is 'generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient'. Referring to the discussion of 'medical services' in the ATO's Health Industry Partnership Issues Register ('HIPIR'), which accepts that preventative medicine, including routine check-ups such as pap smears and breast cancer screening is 'necessary for the appropriate treatment of the recipient', it was submitted that the purpose of a screening supplied by X is similar to the purpose of pap smears and breast cancer screening, i.e. to provide results so that evidence of a disease or condition can be diagnosed.

In the alternative it was submitted that five of the seven screening services supplied by X are conducted by, or under the supervision of, nurses and are supplies of 'other health services' which are GST-free under section 38-10 of the GST Act and Item 10 ('nursing') in the Table in subsection 38-10(1).

In relation to the requirement in paragraph 38-10(1)(b) of the GST Act that the supplier is a 'recognised professional' (as defines in section 195-1 of the GST Act) in relation to the supply of services of that kind, it was noted that all nurses conducting or supervising a screening are appropriately qualified and registered by the Nursing and Midwifery Board of Australia under the National Registration and Accreditation Scheme.

In relation to the requirement in paragraph 38-10(1)(c) of the GST Act that the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply it was submitted that the ATO has accepted that preventative health services such as screening services are 'necessary for the appropriate treatment' of the participant.

It was also submitted that treating X's supplies of screening services as GST-free supplies is consistent with the policy intention of the GST exemption for health services. Reference was made to the 1998 Report of the Tax Consultative Committee (Vos Committee) which stated that medical services should be GST-free if, inter alia, they are commonly used, including diagnostic and pathology services. It was submitted that the screening services provided by X are diagnostic in nature. Reference was also made to the portion of the Senate Select Committee Report, A New Tax System dealing with the application of GST to complementary health services which noted that preventative health services minimised the burden on taxpayers, that imposing GST on complementary health services would discriminate against consumers who chose that form of medicine and penalise taxpayers for taking responsibility for their own health, and that complementary health services were so commonly used and accepted as mainstream that they satisfied the criteria in subsection 38-10(1) . It was submitted that the same arguments applied to the screening services supplied by X.

It was submitted that not treating supplies of screening services made by X as GST-free would create a competitive disadvantage. Reference was made to the portion of the Report of the Tax Consultative Committee which stated that the Government's rationale for making most medical services GST-free was that it would disadvantage the private health care sector as compared to the public health sector because the former relied more heavily on direct fees.

Further information:

We requested further information in relation to the submission that X is supplying services 'on behalf of a medical practitioner' for the purposes of paragraph (b) of the 'medical services' definition in section 195-1 of the GST Act.

In reply X's advisor stated that where a screening uncovers evidence that a participant is at clear risk of an adverse health event, X's services are provided on behalf of the participant's medical practitioner or the emergency room practitioner, as the case may be, because the screening results are reviewed by that medical practitioner to ensure that the participant receives appropriate treatment. X's advisor also stated that where a screening uncovers no evidence that a participant is at clear risk of an adverse health event, X's services are provided on behalf of the medical practitioner engaged by X to review the screenings.

Request for further submissions:

We noted that for the purposes of section 38-7 of the GST Act the 'medical service' definition includes a requirement that the service 'is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply and that the HIPIR (which has the status of a public ruling) states:

'Appropriate treatment' will be established where the 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 will include subsequent supplies for the assessed process. 'Appropriate treatment' includes the principles of preventative medicine.

We pointed out that the ruling request did not indicate that the relevant sonographer, nurse, medical assistant or personal care attendant would assess a participant's state of health or determine a process prior to undertaking any screenings, that most participants would be asymptomatic and not referred by a medical practitioner, and that the ruling request stated that a participant would be offered a 'base vascular screening product' (i.e. Ultrasound and ECG) and that other tests 'can be elected by the participant as an addition to the vascular screening product'. We also noted that the website for Z's operations overseas states that 'our screenings also required very little or no preparation' and 'if you select a package of screenings, it usually takes several minutes to complete some paper work and about 90 minutes to conduct the screenings' and a FAQ indicates that a participant can book a 'package' of screenings online before attending a screening.

We asked for further submissions as to whether the relevant sonographer, nurse, medical assistant or personal care attendant engaged by X does assess a participant's state of health or determine a process to preserve a participant's wellbeing.

We also noted that the 'medical services' definition requires that a service is 'generally accepted in the medical profession as being necessary for the appropriate treatment' of a participant and that the HIPIR states that the words 'generally accepted in the medical profession' indicate that ultimately it will be the medical profession that determines what services are generally accepted as being necessary for appropriate treatment. We asked for further submissions as to whether this requirement could be satisfied given that X will target asymptomatic participants who are not referred to X by a medical practitioner.

We further noted that in the ruling request it was submitted in the alternative that the supply was GST-free pursuant to subsection 38-10(1) and Item 10 'nursing' and that paragraph 38-10(1)(c) also required that such a supply would generally be accepted as being necessary for the appropriate treatment of the recipient of the supply. We therefore considered that the issues of whether the relevant sonographer, nurse, medical assistant or personal care attendant would assess a participant's state of health or determine a process to preserve a participant's wellbeing and whether X's services are generally accepted as being necessary for appropriate treatment also arose in relation to subsection 38-10(1).

Further submissions:

X's advisor submitted, in relation to the requirement to assess the participant's state of health, that a preliminary diagnostic function will be performed by X's nursing staff as a participant will be required to complete a Participant Information Form which will require the participant to answer questions related to the medical history of both the participant and the participant's family, the Participant Information Form will be reviewed by X's staff and, depending on the information provided, X's staff may recommend screenings which are additional or alternative to those requested by the participant.

In relation to the requirement to determine a process to pursue it was pointed out that, once the results of a screening are known, the X's clinical team will be required to follow specific protocols prescribed by Australian law in order to discharge the duty of care owed to a participant where a screening results in a critical or significant finding, including:

Providing the participant with a set of screening images and a 'Dear Doctor' letter asking the participant to take the information to a medical practitioner or emergency room within 24 hours;

A follow-up call from a Clinical Manager (a health professional accredited by AIR and registered with ASAR) or team member within a few days of the screening; and

A requirement that X's staff make three attempts to telephone the participant following the screening. The first call is to confirm whether the screening results have been shared with the participant's medical practitioner. If they have not a follow up call is made.

It was submitted that these actions demonstrated the extent of the services supplied by X's staff in relation to the appropriate treatment of a participant, i.e.

…more than conducting and supervising screening tests but also encompass a preliminary diagnostic function to ensure participants undergo all appropriate testing and post-screening follow-up with participants. Furthermore, the medical screening services provided by X enable participants to proactively manage their health, as they will assist with the preliminary diagnosis of any serious conditions that the participants may have without necessarily experiencing any symptoms. In our view, the services provided by X are necessary for the appropriate treatment of the participants given that the concept of treatment in the context of today's public health initiatives encompasses not only a reactive process but a more proactive and preventative process.

X's advisor also submitted that GST-free treatment of X's medical screening services is consistent with the policy intent of the GST exemption for health services because the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 contains the following example of a GST-free health service (p. 10):

diagnostic, surgical and therapeutic procedures (for example, ophthalmology, neurology, optometry, radiation oncology, anaesthetics, radiology, ultrasound etc) and pathology.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, section 38-7 and subsection 38-10(1).

Reasons for decisions:

Question 1 - section 38-7 - supply of a medical service

Summary of decision:

The screening services supplied by X are not a GST-free pursuant to section 38-7 of the GST Act as they do not satisfy the requirements in paragraph (b) of the 'medical service' definition in section 195-1 that a medical service is supplied by or on behalf of a medical practitioner or approved pathology practitioner and is generally accepted in the medical profession as being necessary for the appropriate treatment of the participant.

Detailed reasoning:

Subsection 38-7(1) of the GST Act states that a supply of a 'medical service' is GST-free. 'Medical service' is defined in section 195-1 of the GST Act:

Medical service means:

(a) a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or

(b) 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.

'Medical practitioner' is defined in section 195-1 to mean a person who is a medical practitioner for the purposes of the HIA.

The ruling request relied on paragraph (b) of the 'medical service' definition, i.e. any other service supplied by or on behalf of a medical practitioner (p.13):

We submit that the medical screening service satisfies all the elements required under the second limb.

Parts of the HIPIR have been consolidated and published as Goods and Services Tax Industry Issues ('GSTII') which are public rulings for the purposes of the Taxation Administration Act 1953. The GSTII for 'medical service' explains the second limb of the 'medical service' definition as follows (Paras 6-8):

6. 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.

7. The first element is that the service must be supplied by or on behalf of a medical practitioner (defined in section 195-1 of the GST Act as a person who is a medical practitioner for the purposes of the Health Insurance Act 1973 ) or an approved pathology practitioner (defined in section 195-1 of the GST Act as a person who is a approved pathology practitioner for the purposes of the Health Insurance Act 1973 ).

8. 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.

Any other service supplied by or on behalf of a medical practitioner:

In relation to the words 'any other service supplied by or on behalf of a medical practitioner' in paragraph (b) of the 'medical service' definition the 1998 Report of the Tax Consultative Committee ('Vos Report') states (p. 38):

Medical (Health) Services

The Committee recommends that the following services be GST-free:

Clinically relevant health services provided by a registered medical practitioner (as defined in section 3 of the Health Insurance Act 1973).

Including those services provided on behalf of a medical practitioner such as nurses, audiologists, radiographers - as outlined in paragraph 12.2 of the Medicare Benefits Schedule and section 3AA of the Health Insurance Act 1973).

Excluding certain medical procedures (primarily cosmetic surgery such as tattoo removal) specified in paragraphs 13.2.4.and 13.1.2. of the Medicare Benefits Schedule.

Paragraph 12.2 of the Medicare Benefits Schedule states:

G12.2 SERVICES RENDERED ON BEHALF OF MEDICAL PRACTITIONERS:

Medical services in Categories 2 and 3 not included in the list above and Category 5 (Diagnostic Imaging) services continue to attract Medicare benefits if the service is rendered by:

(a) the medical practitioner in whose name the service is being claimed;

(b) the person, other than a medical practitioner, who is employed by a medical practitioner or, in accordance with accepted medical practice, acts under the supervision of a medical practitioner.

So that a service rendered by an employee or under the supervision of a medical practitioner may attract a Medicare rebate, the service must be billed in the name of the medical practitioner who must accept full responsibility for the service. Medicare Australia must be satisfied with the employment and supervision arrangements. While the supervising medical practitioner need not be present for the entire service, they must have a direct involvement in at least part of the service. Although the supervision requirements will vary according to the service in question, they will, as a general rule, be satisfied where the medical practitioner has:

(a) established consistent quality assurance procedures for the data acquisition; and

(b) personally analysed the data and written report.

Section 3AA of the HIA states that a pathology service is rendered on behalf of an approved pathology practitioner where the pathology practitioner ensures that the service is performed under the supervision of a qualified person and the pathology practitioner accepts full responsibility for that service.

The Fact Sheet GST and Medical Services (NAT4649) adopted the Vos Report recommendations and set out three requirements in order for a service to be performed on behalf of a medical practitioner:

When is a service performed on my behalf?

A service is performed on your behalf if:

The service is billed in your name and you accept full responsibility for the service

It is part of the health service you provide, and

You are involved in at least part of that particular health service.

Example:

Dr Jones, a medical practitioner, employs Angela, a nurse.

Angela bandages Dr Jones' patient as part of the overall GST-free service Dr Jones gives the patient.

Because Angela performs the bandaging on behalf of Dr Jones, the bandaging is also GST-free.

Referrals:

When you refer a patient to another person, such as a specialist, that person's service is not:

Performed on your behalf, or

Part of your supply.

The service provided by the second person must be considered separately to work out if it is GST-free.

Example:

Dr Jones refers a patient to a physiotherapist. The GST status of Dr Jones' service and the physiotherapist's service must be considered independently.

The GSTII states that a service which is a component of the service provided by a medical practitioner is performed on behalf of that medical practitioner, but a service performed on referral by a medical practitioner is not (Paras 9 and 10):

9. The phrase 'on behalf of' for the purposes of the definition of 'medical service' means the performance of a component of the service provided by a practitioner that is not necessarily supervised by that practitioner. An example is where a laboratory technician assists in undertaking pathology testing of specimens.

10. However, 'on behalf of' does not include a service performed on referral by another person. A service performed on referral by another person, is not a component of the supply being provided by the first practitioner. The service being provided by the second person will be a separate supply, the GST-free status of which must be examined by reference to the supply by that second person.

Issue 1.a.9 in the HIPIR confirms that diagnostic imaging or pathology services supplied to private patients on referral by a medical practitioner are not supplied on behalf of that medical practitioner:

1.a.9 Who is the recipient of a supply of diagnostic imaging(including x-rays) and pathology services?

For source of ATO view, refer to the example in paragraph 118 and general principles in Part 3 of GSTR 2006/9 - Goods and services tax: supplies

The provision of diagnostic imaging (including x-rays) and pathology examinations and consequent results will be GST-free where the elements of section 38-7 are satisfied. Where a Medicare benefit is payable, the supply will be GST-free. If a Medicare benefit is not payable the supply must be addressed under the second limb of the definition of 'medical service' in section 195-1 of the GST Act. The second limb of the definition of 'medical service' requires the recipient to be identified. This question focuses on identifying the recipient of the supply in the question.

In relation to private patients and diagnostic imaging or pathology services, it is understood that referral requests are generally made by a medical practitioner and the results are provided to that practitioner for interpretation, or to the patient for interpretation by that practitioner. The x-ray or pathology is a separate supply provided to the patient (as the recipient of the supply) and is not provided on behalf of the referring practitioner. The patient can choose whether or not to attend for the x-ray or pathology service and, especially in relation to pathology, the patient can request that the results be provided to other medical practitioners for that patient's treatment.

Issue 1.a.9. refers to the example in paragraph 118 in Goods and Services Tax Ruling GSTR 2006/9, which is as follows:

Grandma's flowers

118. The scenario of Grandma's flowers illustrates some of the tripartite propositions.

A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother:

A ¬ contract → B ------- Flowers provided ---- → C

GSTR 2006/9 (Para 121) applies a 'contractual approach' to this example and concludes that the only contractual relationship in the example is between A and B and that, for GST purposes, B makes a supply of flowers to A, although B provides the flowers to C. Part 3 of GSTR 2006/9 sets out a number of Propositions in relation to whether there is a supply for GST purposes in the context of a tripartite arrangement, including Proposition 11: the agreement is the logical starting point in working out the entity making the supply and the recipient of that supply.

In the ruling request it was not submitted that the screening services supplied by X are supplied 'by' a medical practitioner and it was acknowledged that X supplies screening services to a participant on a fee-for-service basis and that 'a medical practitioner is not directly involved in the screenings in the first instance'. It was submitted, however, that X supplies the screening services 'on behalf of' a medical practitioner. X's adviser acknowledged that X's services are supplied directly to the participant and that X owes a duty of care to the participant but submitted that:

· where a screening uncovers a clear risk of an adverse health event X supplies the service on behalf of the participant's medical practitioner or emergency room medical practitioner; and

· where the screening does not uncover such a risk, X supplies the service on behalf of the medical practitioner engaged by X to review screening results.

In our view X does not supply screening services on behalf of either the participant's medical practitioner or emergency room medical practitioner or the medical practitioner engaged by X.

The first reason for our view is that it does not appear that the screening service is billed in the name of either medical practitioner, as required by Fact Sheet NAT 4649. The 'What to Expect' portion of X's website states:

· Upon arriving at the welcome desk, you will be asked to complete your check-in form and provide payment for your screenings, if necessary.

which indicates that X is supplying the screening services to the participant and we would expect X to issue the relevant invoice or receipt to the participant in X's name upon receipt of payment. In GST private ruling Authorisation Number 13845 the ATO ruled that the supply of a test kit and a test device used for the early detection of colorectal cancer was not supplied 'by or on behalf of a medical practitioner' for the purposes of the 'medical service' definition because it was supplied by the applicant by way of sale direct to the public. Similarly X supplies screening services by way of direct sale to a participant.

Nor do we consider that a participant's medical practitioner or emergency room medical practitioner would accept full responsibility for a screening supplied by X, as required by Fact Sheet NAT 4649, as that medical practitioner would not have referred the participant to X and would become aware of the screening only after the event and where the screening uncovers a clear risk of an adverse health event and the participant delivers the 'Dear Doctor' letter to the medical practitioner. We also doubt that the medical practitioner engaged by X to review screenings would accept full responsibility for a package of screenings selected by the participant and which that medical practitioner reviews only after the event.

Nor do we consider that a screening supplied by X would be part of a service provided by a participant's medical practitioner or emergency room medical practitioner, as required by NAT 4649. X's website states:

Our screening package begins at around $$$ and can be purchased by phone.

which indicates that the participant's medical practitioner or emergency room medical practitioner neither refers the participant to X, nor chooses the screenings to be undertaken and is made aware of the screening results only if the participant carries out the instructions in the 'Dear Doctor' letter issued by X. Similarly, as the medical practitioner engaged by X to review screenings merely reviews the package of screenings selected by the participant, we do not consider the screenings to be part of a service supplied by that medical practitioner.

In our view the GSTII and Fact Sheet NAT 4649 make a clear distinction: On the one hand a service supplied by a third party that is a 'component' of the service provided by a medical practitioner is supplied by the third party 'on behalf of' that medical practitioner (GSTII Para 9 and the example in the Fact Sheet of nurse Angela bandaging Dr Jones' patient). On the other hand, if a medical practitioner refers a patient to a third party, any service supplied by that third party is a separate supply and is not supplied on behalf of the medical practitioner (GSTII Para 10 and the example in the Fact Sheet of Dr Jones referring a patient to a physiotherapist). A referral of the type described in Para 10 of the GSTII is also discussed in Issue 1.a.9 in the HIPIR, i.e. the referral of a patient by a medical practitioner to a supplier of diagnostic imaging or pathology services:

The x-ray or pathology is a separate supply provided to the patient (as the recipient of the supply) and is not provided on behalf of the referring practitioner.

Even where a screening detects a risk of an adverse health event and the results are provided to the participant's medical practitioner or emergency room medical practitioner, we do not consider that the screening is a 'component' of any service supplied to the participant by the participant's medical practitioner or emergency room medical practitioner (per Issue 1.a.9) because the participant's medical practitioner or emergency room medical practitioner neither refers the participant to X, nor chooses the screenings to be undertaken and is made aware of the screening results only if the participant carries out the instructions in the 'Dear Doctor' letter issued by X.

Issue 1.a.9 in the HIPIR states that the source of the ATO view on this issue is the example in Para 118 of GSTR 2006/9 and Proposition 11 in Part 3 of GSTR 2006/9. As noted above, GSTR 2006/9 applies a 'contractual approach' to that example and Proposition 11 states that the relevant agreement is the starting point for determining who is the recipient of a supply. Applying the 'contractual approach' and Proposition 11 in GSTR 2006/9 to the supply of screening services by X to a participant, the relevant agreement is between X and the participant and the only contractual relationship is between X (as supplier) and the participant (as recipient). For GST purposes X makes a supply of those screening services to the participant and the participant is the recipient of that supply. The arrangement between X and the participant is similar to a referral as discussed in the GSTII (Para 10) and the Fact Sheet NAT 4649, i.e. a separate supply made by X to the participant. Both Issue 1.a.9 and Fact Sheet clearly state that a supply made to a referred patient is not made on behalf of the patient's medical practitioner, and Issue 1.a.9. confirms that that is the case where a patient is referred for diagnostic imaging or pathology tests despite the fact that the results are provided either to the referred patient's medical practitioner for interpretation, or to the patient for interpretation by that medical practitioner.

For the same reasons we consider that X does not supply a screening service 'on behalf of' the medical practitioner engaged by X to review screening results where a screening does not detect an adverse health event. That medical practitioner neither refers the participant to X nor chooses the screenings to be undertaken.

X's adviser referred to the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 ('EM') which refers to 'diagnostic, surgical and therapeutic procedures' as examples of a 'medical service' and submitted that as the screening services supplied by X are diagnostic (albeit preliminary) in nature they fall within the intended scope of GST-free health services. We note, however, that that example appears in a general statement in the Executive Summary to the EM and that the Executive Summary states that such a service is a medical service only if provided by a medical practitioner or approved pathology practitioner.

Generally accepted in the medical profession as being necessary for the appropriate treatment:

In the ruling request it was submitted that the screenings supplied by X are 'appropriate treatment' because the ATO accepts that pap smears and breast cancer screening are 'appropriate treatment' and that the screenings supplied by X are similar in that they provide results so that evidence of a disease or condition can be diagnosed.

Issue 1.a.16 in the HIPIR states:

1.a.16. What is the GST position in relation to checkups, immunisations, pap smears and breast-cancer screening?

Non-interpretative - straight application of the law.

Checkups, immunisations, pap smears and breast-cancer screening will be GST-free under section 38-7.

If a Medicare benefit is payable, the service is GST-free under the first limb of the definition of a *medical service.

If a Medicare benefit is not payable, these services fall within the second limb of the definition and are GST-free where all the elements of section 38-7 are satisfied.

We note that Issue 1.a.16 does not specifically address whether the requirements for 'appropriate treatment' are satisfied. By way of comparison, Issue 1.a.10 in the HIPIR states that pathology tests and x-rays for which a Medicare benefit is not payable are GST-free but then adds:

The service must be performed by a 'medical practitioner or approved pathology practitioner' and be 'generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply'.

We therefore consider that, notwithstanding Issue 1.a.16, two requirements must be satisfied in order for the screenings supplied by X to be generally accepted as being necessary for the appropriate treatment of the participant. Those requirements are discussed in the GSTII and Fact Sheet NAT 4649.

The GSTII states (Paras 12-13):

12. 'Appropriate treatment' will be established where the 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 will include subsequent supplies for the assessed process. 'Appropriate treatment' includes the principles of preventative medicine.

13. 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 medical practitioner or approved pathology 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.

Fact Sheet NAT 4649 states:

What is appropriate treatment?

For GST purposes, you are supplying appropriate treatment when you use your professional skills to:

Assess a patient's health

Work out a course of action to preserve, restore or improve that patient's physical or psychological wellbeing, and

Supply a treatment that is generally accepted by the medical profession as being appropriate for the patient.

Appropriate treatment includes preventative medicine. For example, childhood immunisations are considered to be appropriate treatment for children.

The first requirement is that the supply made by X includes an assessment of a participant's health and determination of a course of action to preserve, restore or improve the participant's wellbeing. We asked whether a sonographer etc. engaged by Z does assess a participant's state of health given that that the participant is asymptomatic and not referred to Z by a medical practitioner. We also asked whether Z's sonographer etc. determines a process to pursue, given that Z's website indicates that a participant overseas can 'select a package of screenings' online before attending one of Z's temporary screening centres for screening and receive a discount if the participant selects a 'special ' package of screenings.

X's advisor submitted that Z performs a 'preliminary diagnostic function' because each participant is required to complete a Participant Information Form requiring responses to questions about the medical history of the participant and the participant's family which will be reviewed by Z's staff and may prompt Z's staff to suggest additional or alternative screenings to those ordered by the participant.

After receiving that submission we found X's website which states:

Our screening package starts at $$$ and can be purchased by phone.

and that a participant is required to complete a 'Check In Form' upon arrival and then 'complete and turn in paperwork', and:

Q. How long do the screenings take?

A. It usually takes several minutes to complete some paperwork and about one hour to conduct the screenings, depending on the number of tests.

We have not seen the Participant Information Form referred to in the ruling request or the 'Check In Form' or 'paperwork' mentioned on X's website. We note, however, that X's website indicates that the 'paperwork' is undertaken after the participant has selected and paid for a package of screenings and 'takes several minutes to complete'. In our view this indicates that it is unlikely that X undertakes an assessment of a participant's health as required by NAT 4649.

We do not consider that X works out a course of action to preserve, restore or improve the participant's wellbeing because X supplies only seven screening services and, as acknowledged in the ruling request, the outcome of any review of the 'paperwork' completed and turned in by a participant is limited to suggesting screenings which are alternative or additional to the package of screenings selected by the participant. In addition, X and Z's websites indicate that where a screening reveals a clear health risk, it is the participant's medical practitioner or emergency room medical practitioner, not X or Z, who works out a course of action to restore the participant's wellbeing. X's website states:

We encourage you to review the test results with your doctor who can help you determine the best next steps for you.

and contains the following Frequently Asked Question:

Q. I have a GP.  Why do I need [X]?

A. Your GP is our partner, and they often recommend screenings because they recognise the important role we can play in augmenting their role. We help provide the information you and your GP need to work towards improving your health.

Similarly, Z's website states:

Q. Why don't your results give more detailed information?

A. Our screenings are designed to screen for problems, not to measure the severity of a condition. If our screenings alert you of a problem, you will need to consult with your doctor about having more comprehensive testing.

The third requirement of 'appropriate treatment' is that the supply of a screening service is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply. The GSTII states:

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

The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 contains the following example (Para 5.9):

The medical service will be GST-free if it is a service that is generally accepted in the medical profession as being necessary for the treatment of the patient. For example, if a doctor conducted an iridology service, or some other form of complementary therapy, that service would not be GST-free according to the definition of medical service.

Issue 1.a.5 in the HIPIR states:

1.a.5. At what point does a new procedure become 'generally accepted' in the definition of 'medical service' in section 195-1? Is it at the time of publication in a reputed medical journal, when recommended by the relevant Australasian medical college or when adopted by MSAC for incorporation in the Medicare Benefit Schedule?

This issue is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

Each of the three propositions will be relevant evidence that a procedure is 'generally accepted'. The test for the GST Act is what is generally accepted in the medical profession and the recipient's medical situation is of most relevance. If a practitioner is uncertain as to the acceptability of a procedure, then it is suggested that they seek clarification from their relevant professional association or college.

The test is whether the supply is generally accepted in the medical profession as being appropriate treatment for the recipient of the supply (defined in section 195-1 of the GST Act as the entity to which the supply was made) and the GSTII states (Para 13) that both the particular service and the circumstances in which the service is provided must be generally accepted by the medical profession. In the present case the recipient of the supply is the participant and, while the supply of screening services may be generally accepted by the medical profession, in our view the circumstances in which those screening services are provided are not generally accepted by the medical profession as being necessary for the appropriate treatment of the participant because the participant is asymptomatic and is not referred to X by a medical practitioner.

Although the ruling request referred to two studies which confirmed the quality and value of Z's services, we note that, in the United States (where Z has been supplying screening services) a government agency has recommended against screening asymptomatic populations.

For example, in relation to the ECG screening offered by X to detect atrial fibrillation (irregular heartbeat which can cause stroke), a United States Department of Health and Human Services agency, the United States Preventative Services Taskforce, has issued a Recommendation Statement entitled 'Screening for Coronary Heart Disease ('CHD')' (www.uspreventativeservicestaskforce.org/upstf/uspsacad.htm) which states:

Overall, the benefits of screening with resting ECG…have not been clearly demonstrated to outweigh harms

and sets out why ECG screening for the presence of severe coronary artery stenosis or the prediction of CHD events in adults at low risk of coronary heart disease does not satisfy the three relevant criteria:

A screening test is routinely recommended only if:

Early treatment of the disease is more effective than later treatment:

No studies have established whether asymptomatic patients with CHD detected by screening have improved health outcomes;

Diagnostic workup and/or early treatment of the disease doesn't have serious risk of harms that outweigh the benefits of screening:

The diagnostic evaluation for CHD and medical and/or surgical treatment of CHD is often invasive and may result in significant harms which, in patients at low risk of CHD, outweigh any potential benefit of early treatment.

The screening test is accurate, available, and acceptable to patients:

ECG [has] poor accuracy for predicting CHD events among asymptomatic adults. Low sensitivity means that those with CHD may not be detected with these tests. Low specificity means that a significant number of patients will be 'labelled' as having CHD when they don't actually have it, may receive unnecessary diagnostic evaluations, and may be subjected to overtreatment with medical and/or invasive surgical therapies that may cause significant harms.

The United States Preventative Services Taskforce has also considered whether the first three of the seven screenings supplied by X (as set out in the table above) are worthwhile for the general public and, in summary, stated (http://www.ahrq.gov/about/annualconf09/lefevre.htm):

Carotid artery screening is not recommended because patients who have no symptoms may not need treatment and even if the artery is blocked, surgery only minimally reduces the risk of stroke and the surgical risks may outweigh the benefits.

Abdominal aortic aneurysm screening is recommended only once for men (but not women) between the ages of 65 and 75 who have ever smoked.

Screening for Peripheral Arterial Disease ('PAD') is not recommended (because if PAD is detected the recommendations are the same as are made for everyone- cease smoking and exercise).

In addition, the United States Preventative Services Taskforce recommends screening for osteoporosis only for women over the age of 65 (or 60 if they have risk factors) because any positive result must be confirmed by a DEXA test so it makes sense to use DEXA in the first place.

In the ruling request it was submitted (p.14) that the ATO has accepted that pap smears and breast cancer screening were generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient. As noted above, Issue 1.a.16 does not specifically address whether the requirements for 'appropriate treatment' are satisfied and, by way of comparison, Issue 1.a.10 in the HIPIR states that pathology tests and x-rays for which a Medicare benefit is not payable are GST-free but then adds:

The service must be performed by a 'medical practitioner or approved pathology practitioner' and be 'generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply'.

Given that generally a participant is asymptomatic and not referred by a medical practitioner and the reservations expressed in the United States (where screening services have been supplied since 1993) about screening asymptomatic populations, we do not consider that that the circumstances in which the screening services are supplied are generally accepted in the medical profession as being necessary for the appropriate treatment of a participant.

For the reasons set out above we consider that supplies of screening services made by X are not GST-free supplies of medical services within the meaning of subsection 38-7(1) of the GST Act.

Question 2 - section 38-10 - other health services

Summary of decision:

Although five of the seven screening services supplied by X fall within Item 10 - 'nursing' in the table in subsection 38-10(1), the supply of those screening services is not GST-free under subsection 38-10(1) because paragraph 38-10(1)(c) is not satisfied.

Detailed reasoning:

In the ruling request it was submitted in the alternative that, as five of the seven screenings supplied by X are carried out either by a nurse or by a medical assistant or personal care attendant under the supervision of a nurse, the supply of those five screenings is GST-free as being a services of a kind specified in Item 10 ('nursing') in the table in subsection 38-10(1) of the GST Act.

Paragraph 38-10(1)(a):

In relation to the requirement in paragraph 38-10(1)(a) that the supply is of a kind specified in the table in subsection 38-10(1), the GSTII for Other Health Services states (Para 4):

4. To qualify the service must be the provision of one of those actual services listed and not just something similar to one of the services. Support for this argument is found in the Table where it lists both 'Audiology' and 'Audiometry' at Item 3. If it were intended that it was sufficient that the supply of a service be similar to one mentioned in the table, one of the terms 'Audiology' or 'Audiometry' would be superfluous. Similarly, further down the table there is the inclusion of 'traditional Chinese herbal medicine' under 'Herbal medicine' in Item 8 of the table. One of these terms would be superfluous if the list was not strictly interpreted as the actual service listed in the table.

Although the table in subsection 38-10(1) does not refer to services such as Ultrasound or ECG screening etc, the ATO accepts that a service is of a kind specified in that table where the supplier of the service supplies a service which is listed in that table and the service supplied is a standard technique or component of that listed service. For example, a supply of a colonic irrigation service by a registered nurse would be GST free under subsection 38-10(1) and Item 10 because a registered nurse can perform that service without a written referral from or authorisation from a medical practitioner and without breaching any legislative requirements or the code of professional conduct applicable to the relevant State or Territory nursing profession.

Accordingly, where the five screenings supplied by X are undertaken or supervised by a registered nurse (which will be undertaken without a referral from a medical practitioner) and can be performed or supervised by a nurse without breaching any legislative requirements or the code of professional conduct applicable to the relevant State or Territory nursing profession, those screenings will satisfy the requirements of paragraph 38-10(1)(a) and Item 10.

Paragraph 38-10(1)(b):

Paragraph 38-10(1)(b) of the GST Act requires the supplier to be a 'recognised professional' in relation to the supply of services of that kind. 'Recognised professional' is defined in section 195-1 of the GST Act:

Recognised professional: a person is a recognised professional, in relation to the supply of a service of a kind specified in the table in sub-section 38-10(1), if:

(a) the service is supplied in a State or Territory in which the person has a permission or approval, or is registered, under a State law or a Territory law prohibiting the supply of services of that kind without such permission, approval or registration, or

(b) the service is supplied in a State or Territory in which there is no State law or Territory law requiring such permission, approval or registration, and the person is a member of a professional association that has uniform national registration requirements relating to the supply of services of that kind, or

(c) in the case of services covered by Item 3 in the table - the service is supplied by an accredited service provider within the meaning of section 4 of the Hearing Services Administration Act 1997

It was stated in the ruling request that all nurses conducting or supervising the five screenings are appropriately qualified and registered by the Nursing and Midwifery Board of Australia under the National Registration and Accreditation Scheme. We therefore agree that a nurse engaged by X is a 'recognised professional'.

Where a nurse supervises one of the five screenings, the GSTII for Other Health Services imposes further requirements in order to satisfy the requirement in paragraph 38-10(1)(b) that the supplier of the service is a recognised health professional (Para 7):

7. Where a person other than the recognised professional provides a component of the supply, for section 38-10 that component will not be GST-free unless that person is also a recognised professional, or the component of the supply is directly supervised by the recognised professional or is GST-free under another provision. It is considered that a person will be directly supervised where the recognised professional:

attends the patient at the commencement of the treatment and at the subsequent commencement of each new treatment, and

is readily available for the whole of the time that the assistant is working with the patient, and

that the recognised professional be available to take appropriate action in the case of an emergency, and

determines all of the appropriate treatment to be provided by the assisting person, and

can satisfactorily prove that they monitor the services of the unqualified staff.

Assuming that a nurse engaged by X satisfies these requirements in relation to the five relevant screenings, we consider that that nurse is a 'recognised professional' in relation to those five screenings.

Paragraph 38-10(1)(c):

In relation to the requirement in paragraph 38-10(1)(c) that a supply of other health services would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply, the GSTII for Other Health Services states:

10. It is considered that 'appropriate treatment' will be established where the recognised professional 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 that recipient insofar as that recognised professional's particular area of training allows and will include subsequent supplies for the determined process.

11. 'Appropriate treatment' includes the principles of preventative medicine. Such treatment must be generally accepted in the profession associated with supplying services of that kind, as being necessary. 'Appropriate treatment' will not include supplies undertaken for a third party, which does not encompass treatment.

12. An insurance company is a third party who may be the actual 'recipient of the supply', where an assessment of a person is made for insurance purposes and there is no appropriate treatment involved so that such a supply will be taxable.

13. As can be seen from the above, the words 'appropriate treatment' are interpreted the same way for section 38-10(1)(c) as the term appears in the definition of 'medical service' for section 38-7.

In Question 1 we set out the reasons why we considered that the supply of screening services by X does not involve an assessment of the participant's health, the determination of a process to pursue to preserve, restore or improve the participant's wellbeing and, in relation to most of the screening services supplied, is not generally accepted 'in the medical profession' as being necessary for the appropriate treatment of the participant.

Despite the slightly different 'generally accepted' test in paragraph 38-10(1)(c) (i.e. 'would generally be accepted, in the profession associated with supplying services of that kind'), we consider that, for the reasons provided in Question 1, the requirements of paragraph 38-10(1)(c) of the GST Act are not satisfied. As each of paragraphs (a), (b), and (c) in subsection 38-10(1) must be satisfied in order a supply of other health services to be GST-free, the five screening services supplied by X which are carried out either by a nurse or by a medical assistant or personal care attendant under the supervision of a nurse are not GST-free pursuant to subsection 38-10(1) of the GST Act.

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