Another Tax on Docs

A dark cloud overtakes Chicago
By Elizabeth Sidney

The Chicago Medical Society continues to work with aldermen and the mayor’s office to amend the city’s new “cloud” tax. CMS, joining with the Metropolitan Chicago Healthcare Council, has set a goal to introduce legislation that exempts physician practices.

Passed in October as part of the 2016 budget, the 9% cloud tax applies to electronic property databases through which data is procured, compiled, entered and stored online via the service provider’s computer, platform, software and infrastructure as a service. In simple terms, this means a tax on physician practices for the important work they do to research the best treatment options for patients, access medical journals, and exchange patient medical records, CMS President Kathy Tynus, MD, testified.

Exchanging electronic medical records and accessing medical journals are essential to providing the world class care Chicagoans have come to expect from their health care providers. “We feel that this tax places another financial burden on physicians who are struggling to remain in private practice and who will not be reimbursed for this new fee,” Dr. Tynus stated. The cloud tax goes into effect Jan. 1.

In November, the city law department clarified that certain cloud products will be taxed at the lower tax rate of 5.25%. The lower rate applies to “non-possessory leases” primarily used by customers to access a service provider’s computer and software to input, modify, or retrieve data that is supplied by the customer. But the lower rate does not apply to “database” products, where the non-possessory lease is primarily used by customers to input, modify or retrieve data or information that is supplied by the service provider.

Exemptions apply only when the use is for the passive receipt of information. A subscription to an interactive web site will be subject to the lease tax, and will not be exempt, even if most or all of the information available on the web site is fleeting or transitory. While non-profits are exempt from paying the tax on electronic health records, for-profit hospitals and independent physician groups will not be exempt, Dr. Tynus noted.

Contact CMS to Fight Tax!

Dr. Tynus has an urgent message for members: “Please contact CMS for language to use in your communications with aldermen and the mayor, asking them to reconsider the health care tax on physician practices,” Dr. Tynus said. “We must fight this latest attempt to close the city’s funding gap at our expense.”

Tax Evolution

The Lease Tax, which first went into effect in 1974, applies to “leased time for the use of computers.” When it was retitled the Chicago Personal Property Lease Transaction Tax in 1992, a definition was added for the term “nonpossessory computer lease.”

This term is broadly defined to cover any payments for which “the customer obtains access to the service provider’s computer and uses the computer and its software to input, modify or retrieve data or information. The definition includes time sharing or time or other use of a computer with other users.

The Lease Tax Ordinance is triggered when a customer in Chicago makes remote use of a service provider’s computer or software, even if the provider’s computer or software is located outside the city. The provider of nonpossessory computer usage may have an obligation to collect and remit the tax depending on the service provider’s location and operations.

The Lease Tax applies to any usage of remote computing or software, including (a) automated deployment of servers, processing power and networking; (b) software applications accessed remotely such as office suite software, project management software and customer relationship management software; (c) web hosting; and (d) database search products.

Cloud Forecast

The shift to cloud services is expected to grow in the future. Most health care organizations use a SaaS model to support their cloud services. Applications are hosted by a vendor or service provider through a single, integrated database that is delivered to multiple customers simultaneously over the Internet. Many organizations rely on some type of private cloud environment or a hybrid combination of a public and private cloud.

In 2014, a HIMSS Analytics survey found that 82% of hospitals were using cloud-based tools for health information exchange, data storage, and disaster recovery. Black Book’s 2015 survey of 5,700 small and solo medicine practices found that 83% cite cloud-based EHRs as a top trend in physician technology, with practices of all sizes moving to cut costs.

Among small practices, 79% said adopting a cloud-based EHR would reduce their costs, while 90% said it would protect against data breaches. More than 50% of solo practitioners said they were able to regain lost time after moving to a cloud-based EHR.