Court Rules "Medical Fee Collection by Non-Physician Hospital Management Support Company Illegal"

A court ruling has determined that it is illegal for a hospital management support company (MSO), which is not a medical doctor, to charge patients for medical fees and issue tax invoices.

Seoul Administrative Court.

According to the legal community on the 28th, the Seoul Administrative Court Administrative Division 8 (Presiding Judge Lee Jeong-hee) ruled against doctor A in a lawsuit filed against the Gangnam Tax Office chief seeking cancellation of comprehensive income tax and other imposed assessments.

Doctor A had signed contracts with two MSOs for hospital management services and payment agency services. MSOs are companies that provide necessary operational services such as personnel management, business consulting, and marketing to hospitals. According to the contracts, the MSOs directly collected medical service fees from patients and issued sales tax invoices or cash receipts to the patients. After deducting hospital management service and payment agency fees, the MSOs paid the remaining amount to doctor A, who then issued sales tax invoices for that amount.

However, following a tax investigation of doctor A from May to September 2019, the tax authorities determined that the MSOs were acting as disguised credit card merchants. The tax authorities issued revised assessments totaling approximately 720 million KRW for value-added tax and comprehensive income tax for the years 2016 to 2018. Doctor A filed a petition with the Tax Tribunal and received a reduction to about 500 million KRW, but still claimed the reduced tax was unjust and filed an administrative lawsuit.

The court sided with the tax authorities. The bench stated, “The medical service fees received by the MSOs from patients are payments for medical services provided by doctor A to the patients, and the Medical Service Act strictly prohibits non-medical personnel from performing medical acts and prescribes penalties for violations.”

Furthermore, the court ruled, “Doctor A should have directly received medical service fees from patients and issued tax invoices to the patients, then accounted for these as doctor A’s sales for tax and accounting purposes. The MSOs should have received hospital management and payment agency service fees from doctor A and issued tax invoices to doctor A accordingly.”