Confusion over GST and healthcare
by dr milton lumThe Doctor Says
The Star: Sunday December 7, 2014 MYT 12:00:00 AM
Our columnist wades into the murky waters of what is exempted from GST and what is not in the private healthcare sector.
THE private healthcare sector is amorphous with various modes of organisation, ownership and payment by patients. Most interactions between the public and this sector are with clinics and/or hospitals, which is what this article is about.
Some clinics are stand-alone , while clinics in hospitals may or may not be physically and/or administratively linked to the hospitals themselves.
Meanwhile, hospitals can be single entities or part of a group, and are owned by limited or public companies.
Healthcare services are provided in clinics and hospitals, while some general practitioners provide such services at the premises of large organisations.
Clinics are operated by solo doctors who are general practitioners or specialists, or groups of doctors.
There are also groups of clinics, the owners of which are solo doctors, partners, limited or public companies.
Specialists practising in hospitals may be self-employed or employed by the hospital. They may be full-time or part-time, i.e. visiting during certain hours to provide services in accordance with a contract.
Payments made by patients comprise consultation fees; procedure fees, if any; investigations e.g. laboratory and radiology; medicines; and hospital accommodation and services.
Many general practitioners charge a composite fee for the services provided.
Specialists, general practitioners and hospitals have separate charges for the various services provided.
Doctors’ professional fees in clinics and hospitals are regulated by the Private Health Care Facilities and Services Regulations, but private hospitals’ charges are not regulated at all.
Prime Minister Datuk Seri Najib Tun Razak, in his 2014 Budget speech on Oct 25, 2013, stated that education and health services were to be exempted from the GST (goods and services tax).
In his budget speech on Oct 10 this year, he stated that: “Transportation services, such as bus, train, LRT, taxi, ferry, boat, highway toll, as well as education and health services are exempted from GST.”
The Customs department has taken steps to implement the GST. During the past few months, its Guide on Healthcare Services (gst.customs.gov.my/en/rg/Pages/rg_ig.aspx) has been issued (and reissued) on Oct 29 and Nov 16 and 19.
The proposed implementation of the policy has been somewhat different from that announced by the
Prime Minister though.
Essential medicines
The Health Ministry (MOH) has an essential medicine list, NEML (www.pharmacy.gov.my/v2/en/documents/national-essential-medicine-list-neml.html), which is based on the essential medicine lists for adults and children from the World Health Organisation (WHO).
The WHO’s combined list, after allowing for replications, contains 359 medicines by generic names.
All medicines registered by the Drug Control Authority are currently exempted from sales tax.
However, GST will have to be paid for medicines that are not on the Customs essential medicine list when it is implemented on April 1, 2015.
The Customs department’s gazetted list (gst.customs.gov.my/en/rg/Pages/re_odr.aspx) contains about 2,900 items with 208 medicines.
This came about because the same medicine is listed under its various doses and manufacturers. For example, paracetamol, a common pain killer, is listed 107 times in the Customs’ list, compared with three times in the MOH’s NEML.
Other commonly used medicines like metformin, for diabetes; atenolol, for high blood pressure; and doxycycline, an antibiotic, are listed once in the MOH’s NEML, but 22, 19 and 19 times respectively in the Customs’ list.
This means that the Customs gazette list is markedly shorter compared to the MOH and WHO essential medicine lists.
Patients will be additionally burdened as they have to pay more for many essential medicines for common conditions like infections, high blood pressure, diabetes and pain.
The extra price will be due to the GST itself, as well as the cost of administering the GST.
This will lead to dissatisfied patients; decreased productivity; increased morbidity and mortality arising from the use of, and change to, different medicines, or patients foregoing some medicines due to increased prices; and increased workload at public clinics and hospitals.
Hospital services
The Customs guideline states that GST is exempted only for services provided by doctors employed by private hospitals.
It also states that the professional fees, clinic rentals, etc, of part-time specialists in private hospitals are subject to GST.
The vast majority of doctors in hospitals, especially the specialists, are not employed by the hospitals and provide healthcare on contract. Therefore, their consultation and procedural – including surgical – fees would be subject to GST.
The Customs guideline states that the following are also subject to GST:
“Acquisition of goods by private healthcare facility in terms of machinery, equipment and medicines (which are not zero-rated) will be subject to GST” with exceptions for certain medical equipment approved by the Customs director-general. The Customs guideline does not state the process.
Hospital bills are paid either out-of-pocket or by employers or third parties, i.e. insurance and managed care companies.
Payments by third parties involve deductions for processing and management fees, before payment is made to the hospital, and subsequently, the doctors. The processing and management fees could be subject to GST.
Add the various exempt, zero-rated or standard GST rates to the amorphous private healthcare sector, and the inevitable result will be various permutations of complex scenarios.
The view that those who access private healthcare can afford it, and hence, should pay GST is at best, an inaccurate perception.
Many seek private healthcare because the public sector is unable to cope with the demand, and this is reflected in its long queues and waiting lists for procedures, as well as short consultation times.
Delays in treatment and non-treatment of illness results in, among other consequences, decreased productivity.
In its present form, GST will impose additional financial and administrative burdens on healthcare providers, patients and payers.
The above complex scenarios can only lead to multiplier effects with patients having to pay more for the same service when GST is implemented.
Health, like education, is a public good. No one chooses to be sick.
This alone makes a strong case for all healthcare goods and services to be GST-exempted or zero-rated.
■ Dr Milton Lum is a board member of Medical Defence Malaysia. This article is not intended to replace, dictate or define evaluation by a qualified doctor. The views expressed do not represent that of any organization the writer is associated with.
THE private healthcare sector is amorphous with various modes of organisation, ownership and payment by patients. Most interactions between the public and this sector are with clinics and/or hospitals, which is what this article is about.
Some clinics are stand-alone , while clinics in hospitals may or may not be physically and/or administratively linked to the hospitals themselves.
Meanwhile, hospitals can be single entities or part of a group, and are owned by limited or public companies.
Healthcare services are provided in clinics and hospitals, while some general practitioners provide such services at the premises of large organisations.
Clinics are operated by solo doctors who are general practitioners or specialists, or groups of doctors.
There are also groups of clinics, the owners of which are solo doctors, partners, limited or public companies.
Specialists practising in hospitals may be self-employed or employed by the hospital. They may be full-time or part-time, i.e. visiting during certain hours to provide services in accordance with a contract.
Payments made by patients comprise consultation fees; procedure fees, if any; investigations e.g. laboratory and radiology; medicines; and hospital accommodation and services.
Many general practitioners charge a composite fee for the services provided.
Specialists, general practitioners and hospitals have separate charges for the various services provided.
Doctors’ professional fees in clinics and hospitals are regulated by the Private Health Care Facilities and Services Regulations, but private hospitals’ charges are not regulated at all.
Prime Minister Datuk Seri Najib Tun Razak, in his 2014 Budget speech on Oct 25, 2013, stated that education and health services were to be exempted from the GST (goods and services tax).
In his budget speech on Oct 10 this year, he stated that: “Transportation services, such as bus, train, LRT, taxi, ferry, boat, highway toll, as well as education and health services are exempted from GST.”
The Customs department has taken steps to implement the GST. During the past few months, its Guide on Healthcare Services (gst.customs.gov.my/en/rg/Pages/rg_ig.aspx) has been issued (and reissued) on Oct 29 and Nov 16 and 19.
The proposed implementation of the policy has been somewhat different from that announced by the
Prime Minister though.
Essential medicines
The Health Ministry (MOH) has an essential medicine list, NEML (www.pharmacy.gov.my/v2/en/documents/national-essential-medicine-list-neml.html), which is based on the essential medicine lists for adults and children from the World Health Organisation (WHO).
The WHO’s combined list, after allowing for replications, contains 359 medicines by generic names.
All medicines registered by the Drug Control Authority are currently exempted from sales tax.
However, GST will have to be paid for medicines that are not on the Customs essential medicine list when it is implemented on April 1, 2015.
The Customs department’s gazetted list (gst.customs.gov.my/en/rg/Pages/re_odr.aspx) contains about 2,900 items with 208 medicines.
This came about because the same medicine is listed under its various doses and manufacturers. For example, paracetamol, a common pain killer, is listed 107 times in the Customs’ list, compared with three times in the MOH’s NEML.
Other commonly used medicines like metformin, for diabetes; atenolol, for high blood pressure; and doxycycline, an antibiotic, are listed once in the MOH’s NEML, but 22, 19 and 19 times respectively in the Customs’ list.
This means that the Customs gazette list is markedly shorter compared to the MOH and WHO essential medicine lists.
Patients will be additionally burdened as they have to pay more for many essential medicines for common conditions like infections, high blood pressure, diabetes and pain.
The extra price will be due to the GST itself, as well as the cost of administering the GST.
This will lead to dissatisfied patients; decreased productivity; increased morbidity and mortality arising from the use of, and change to, different medicines, or patients foregoing some medicines due to increased prices; and increased workload at public clinics and hospitals.
Hospital services
The Customs guideline states that GST is exempted only for services provided by doctors employed by private hospitals.
It also states that the professional fees, clinic rentals, etc, of part-time specialists in private hospitals are subject to GST.
The vast majority of doctors in hospitals, especially the specialists, are not employed by the hospitals and provide healthcare on contract. Therefore, their consultation and procedural – including surgical – fees would be subject to GST.
The Customs guideline states that the following are also subject to GST:
- Rental of operation theatre and medical equipment
- Sale of medical aids like crutches, wheelchairs, artificial limbs, hearing aids, etc
- Consumable medical products
- Ambulance services
- Management services
- Medical opinions sought from foreign specialists
- Traditional and complementary medicine services
“Acquisition of goods by private healthcare facility in terms of machinery, equipment and medicines (which are not zero-rated) will be subject to GST” with exceptions for certain medical equipment approved by the Customs director-general. The Customs guideline does not state the process.
Hospital bills are paid either out-of-pocket or by employers or third parties, i.e. insurance and managed care companies.
Payments by third parties involve deductions for processing and management fees, before payment is made to the hospital, and subsequently, the doctors. The processing and management fees could be subject to GST.
Add the various exempt, zero-rated or standard GST rates to the amorphous private healthcare sector, and the inevitable result will be various permutations of complex scenarios.
The view that those who access private healthcare can afford it, and hence, should pay GST is at best, an inaccurate perception.
Many seek private healthcare because the public sector is unable to cope with the demand, and this is reflected in its long queues and waiting lists for procedures, as well as short consultation times.
Delays in treatment and non-treatment of illness results in, among other consequences, decreased productivity.
In its present form, GST will impose additional financial and administrative burdens on healthcare providers, patients and payers.
The above complex scenarios can only lead to multiplier effects with patients having to pay more for the same service when GST is implemented.
Health, like education, is a public good. No one chooses to be sick.
This alone makes a strong case for all healthcare goods and services to be GST-exempted or zero-rated.
■ Dr Milton Lum is a board member of Medical Defence Malaysia. This article is not intended to replace, dictate or define evaluation by a qualified doctor. The views expressed do not represent that of any organization the writer is associated with.
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