Telemedicine has become an increasingly popular form of treatment and diagnosis for patients due to advancements in technology. Due to the ease and accessibility for patients, healthcare providers have invested resources in telemedicine. Telemedicine has helped with reducing both wait and travel times for patients and has allowed patients to see specialists at a local facility that they may not otherwise have had access to. The World Health Organization defines telemedicine as “The delivery of healthcare services, where distance is a critical factor, by all healthcare professionals using information for diagnosis, treatment and prevention of disease and injuries, research and evaluation, and for the continuing education of healthcare providers, all in the interests of advancing the health of individuals and their communities.”
Unfortunately, this type of patient care raises uncertainties as a result of how the IRS currently defines the term ‘patient’, particularly as it relates to unrelated business income (“UBI”). A ‘patient’ is defined under current federal tax law as an individual who visits the hospital’s facilities, or is touched by a hospital employee or agent. Income received for their services provided by the tax-exempt hospital is not subject to tax on UBI. Telemedicine services do not fit the traditional tax definition of patient, due to individuals not being seen in an office or hospital and receiving a physical evaluation/assessment from a hospital provider. The current definition of patient does not provide tax-exempt hospitals with clear guidance on whether telemedicine services may be subject to UBI.
According to IRS Revenue Ruling 68-376, a patient is defined as a person:
In the AICPA comment letter to the IRS, the AICPA urged the IRS to modernize the definition of ‘Patient’ to include individuals directly or indirectly receiving medical diagnosis and treatment through telemedicine services. The AICPA states that the definition of ‘Patient’ is outdated and does not include the technological advancements made in the healthcare industry. The AICPA proposes adding the following four examples in order to update the definition of ‘Patient’:
The AICPA demonstrates that tax-exempt healthcare organizations provide healthcare services in a broader way today than when Revenue Ruling 68-376 was released. The AICPA comment letter also asks the IRS for additional guidance as to whether telemedicine services are considered UBI.
Tax-exempt hospitals continue to invest in new technology to improve healthcare services provided to patients by offering telemedicine services. Tax-exempt hospitals should cautiously consider the federal and state tax implications from participating in telemedicine activities. Please note that the IRS 2017-2018 Priority Guidance Plan, released on October 20, 2017, does not address the concerns raised by the AICPA in its comment letter. The AICPA hopes the IRS will provide more concrete guidance with respect to tax-exempt organizations providing telemedicine services in the near future.
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|John A. Smith, Jr.