TECHNICAL ASSISTANCE ADVISORY 96-004 SUBJECT: Health Care Provider Taxes -- Taxable Gross Receipts -- No Pyramiding of Tax -- When a health care item or service is provided in whole or in part by one health care provider ("prime health care provider") through independent, subcontract health care providers, the prime health care provider bills the entire charge for the procedure to the patient or the patient's third party payor, and the subcontractor looks solely to the prime health care provider for payment; applicable health care provider taxes are to be paid by the prime contractor, no deduction from gross receipts is allowed for amounts paid or payable to subcontractors, and subcontractors do not include in their taxable gross receipts amounts received or receivable from the prime health care provider. This is in reply to your letter of May 29, 1996, which requests, on behalf of XYZ Limited Liability Company (hereinafter the "Company"), issuance of a technical assistance advisory under W. Va. Code § 11-10-5r, regarding application of section 11-27-20 of the West Virginia Health Care Provider Tax Act of 1993 (hereinafter the "Health Care Provider Tax Act"), W. Va. Code § 11-27-1 through 11-27-35, to the factual situation described in your letter.FACTS Company is a limited liability company organized under the laws of the State of West Virginia. It owns and operates an ambulatory surgery center in West Virginia. The Company was required to and did obtain a certificate of need from the West Virginia Health Care Cost Review Authority. Company offers a full range of ambulatory surgical facilities for use by surgeons and other medical practitioners. Traditionally, Company bills and charges for its services and for use of the facility. Each surgeon who performs a procedure at the ambulatory surgery center separately bills the patient and/or the patient's insurance carrier or other payor. In order to more efficiently and economically provide health care, Company desires to enter into subcontract agreements with surgeons, anesthesiologists, and possibly other medical providers. Under these agreements, Company will quote a single fee to patients, health maintenance organizations, health insurance companies, and self-insured medical plans for a particular procedure. The quoted fee will include the traditional costs of the surgical facility and also the cost of services provided by the applicable surgeon, anesthesiologist and other required health care providers. Because the surgeon and other similar health care providers operate their own medical practices, it is not feasible to hire such providers as "employees". Instead, the surgeons and other medical providers will provide these services on behalf of Company as independent contractors. Company will bill and collect the entire fee for the procedure, pay a portion to the surgeon and other medical providers for their respective services and remunerate itself out of the remaining balance. Company will also file health care provider tax returns and pay the health care provider taxes on the entire amount received by the Company without deduction for any portion paid to the surgeon or other independent contractor. Company believes that the independent contractors should not include the gross receipts they receive from the Company as taxable gross receipts on their separate health care provider tax returns.DISCUSSION The Health Care Provider Tax Act contains sixteen taxes administered by the Tax Commissioner under uniform rules and procedures set forth in that Act and in the West Virginia Tax Procedure and Administration Act, W. Va. Code § 11-10-1 through 11-10-21. These taxes are broad-based health care related taxes as defined in Section 1903(w) of the Social Security Act, 42 U.S.C. §1396b(w), enacted in Public Law 102-234. The Health Care Provider Tax Act is intended to conform with the requirements of Public Law 102-234. Gross receipts derived by a person engaging in this State "in the business of providing ambulatory surgical center services" are taxable under W. Va. Code § 11-27-4. As used in section 11-27-4, "ambulatory surgical center services" mean "those services of an ambulatory surgical center as defined in Section 1832(a)(2)(F)(1) [sic] of the Social Security Act." W. Va. Code § 11-27-4(c)(3). "Ambulatory surgical center services" is defined in Section 1832(a)(2)(F)(i) of the Social Security Act, 42 U.S.C. § 1395k(a)(2)(F)(i), as follows: (F) facility services furnished in connection with surgical procedures specified by the Secretary-- (i) pursuant to section 1833(i)(1)(A) [42 U.S.C. § 1395l(i)(1)(A)] and performed in an ambulatory surgical center (which meets health, safety, and other standards specified by the Secretary [of Human Services] in regulations) if the center has an agreement in effect with the Secretary by which the center agrees to accept the standard overhead amount determined under section 1822(i)(2)(A) [42 U.S.C. § 1395(i)(2)(A)] as full payment for such services (including intraocular lens in the case described in section 1833(i)(2)(A)(iii) [42 U.S.C. § 1395u(b)(3)(B)(ii)] with respect to such payment for all such services (including intraocular lens in cases described in section 1833(i)(2)(A)(iii) [42 U.S.C. § 1395l(i)(2)(A)(iii)] furnished by the center to individuals enrolled under this part [42 U.S.C. §§ 1395; et seq.], or 42 U.S.C. § 1395l(i)(1) provides that [t]he Secretary shall-- (A) specify those surgical procedures which are appropriately... performed on an inpatient basis in a hospital but which can be performed safely in an ambulatory surgical center (meeting the standards specified under section 1832(a)(2)(F)(i) [42 U.S.C. § 1395k(a)(2)(F)(i)], rural primary care hospital, or hospital outpatient department[.] Pursuant to this statutory authority, the Secretary of Health and Human Services promulgated regulations defining both "ambulatory surgical center" and "ambulatory surgical center services." "Ambulatory surgical center" is defined in 42 C.F.R. § 416.2 as follows: Ambulatory surgical center or ASC means any distinct entity that operates exclusively for the purpose of providing surgical facilities to patients not requiring hospitalization, has an agreement with HCFA [Health Care Finance Administration] to participate in Medicare as an ASC, and meets the conditions set forth in subparts B [general conditions and requirements] and C [specific conditions for coverage] of this part. "Ambulatory surgical center services" is defined in 42 C.F.R. § 416.2 as follows: ASC services mean facility services that are furnished in an ASC. Facility services mean services that are furnished in connection with covered surgical procedures performed in an ASC, or in a hospital on an outpatient basis. Covered surgical procedures means those surgical and other medical procedures that meet the criteria specified in § 416.65 and are published by HCFA in the Federal Register. By regulation, 42 C.F.R. § 416.61(a), ambulatory surgical center services include, but are not limited to: (1) Nursing, technician, and related services; (2) Use of the facilities where the surgical procedures are performed; (3) Drugs, biologicals, surgical dressings, supplies, splints, casts, and appliances and equipment directly related to the provision of surgical procedures; (4) Diagnostic or therapeutic services or items directly related to the provision of a surgical procedure; (5) Administrative, recordkeeping and housekeeping items and services; and (6) Materials for anesthesia; (7) Intra-ocular lenses (IOLs); (8) Supervision of the services of an anesthetist by the operating surgeon. Ambulatory surgical center services do not include: (1) Physicians' services; (2) Laboratory or X-ray services; (3) Diagnostic procedures (other than those directly related to performance of the surgical procedure); (4) Prosthetic devices (except IOLs); (5) Ambulance services; (6) Leg, arm, back and neck braces; (7) Artificial limbs; (7) Durable medical equipment for use in the patient's home; and (8) Anesthetist services.See 42 C.F.R. § 416.61(b)(excluded services). Company currently reports the gross receipts it derives from furnishing ambulatory surgery center services under section 11-27-4 of the Health Care Provider Tax Act. If Company furnishes physicians services or one of the other health care items or services subject to one of the other health care provider taxes imposed by the Health Care Provider Tax Act, see sections 11-27-5 through 11-27-19, Company must report gross receipts derived under the appropriate tax and remit the amount of tax due. To avoid multiple taxation of gross receipts derived from furnishing a health care item or service with respect to which a health care provider tax is imposed, the Health Care Provider Tax Act provides two rules. First, no health care provider is required to report the same gross receipts under more than one health care provider tax. Receipts are to be reported under the tax that best describes the service being furnished, e.g. ASC services must be reported under section 11-27-4 even though components of ASC services, such as nursing services, etc., may fall under another tax. Second, when two or more health care providers deliver the health care items or services, the gross receipts are taxed only once. The purpose of this second rule is to avoid the pyramiding or tiering of the tax which would occur if each person involved in delivery of the health care item or service paid a health care provider tax on the gross receipts they derive. To illustrate, a patient visits his physician's office. While there, blood samples are taken which the physician sends to an independent lab for testing and analysis. The lab bills the physician for its services and the physician bills the patient and/or the patient's third-party payor for the physicians services including the lab work. The physician reports and pays tax on the entire gross receipts under section 11-27-16 (physicians' service) of the Health Care Provider Tax Act. Under section 11-27-20(b), the lab does not pay health care provider tax on the amount the physician pays to the lab for its services.RULINGS 1. Under the facts presented for purposes of this advisory, the Company will subcontract with physicians and other health care providers for services necessary to provide the medical procedure to the patient. The Company will bill the patient and/or the patient's third-party payor for the medical procedure and collect the amount owed. The Company will pay the subcontractors who will not bill the patient or the patient's third-party payor for the subcontract services. This situation the prime contractor, the Company, will pay health care provider taxes on one hundred percent of the gross receipts it derives from furnishing the bundled medical procedure, the subcontractors will not pay health care provider taxes on their subcontract gross receipts. 2. If a lump sum is charged, Company must keep accurate records allocating the amount received or receivable under each health care provider tax that may be appropriate. Only the portion attributable to ambulatory surgical center services is to be reported under section 11-27-4. The portion attributable to physicians' services is to be reported under section 11-27-16. Portions of the charge attributable to other health care items or services with respect to which a tax is imposed are to be reported and taxed under the appropriate tax. 3. Subcontractors should not include subcontract gross receipts derived from the Contractor in the measure of their taxable gross receipts when determining their health care provider tax liabilities. These amounts should be reported, however, as tax exempt gross receipts. The conclusions reached in this technical assistance advisory are based upon the facts submitted and application of current law. In the event there is a material change in the facts, or if it is determined that material facts were omitted or are materially different from those furnished to us for purposes of this ruling, or there is a material change in the applicable law, the conclusions reached in this advisory may no longer apply. Declaration of Precedential Value. -- Under W. Va. Code §11-10-5r(b), a technical assistance advisory has no precedential value, except to the person who requests the advisory, unless the Tax Commissioner specifically states that it has precedential value. This technical assistance advisory is declared to have precedential value, and may be relied upon by other health care providers. Publication. -- Under W. Va. Code §11-10-5r(e), the Tax Commissioner is required to release technical assistance advisories to the public after they are modified to delete identifying characteristics unless the person requesting the advisory waives its right to confidentiality. This advisory is released as Technical Assistance Advisory 96-004. If you have any questions about this advisory, please contact this office at your convenience. ________________________Issued: July 25, 1996 James H. Paige III Secretary/Tax Commissioner