G.R. No.

167330 September 18, 2009

PHILIPPINE HEALTH CARE PROI!ERS, INC. vs.
CO""ISSIONER O# INTERNAL REEN$E
CORONA, %.
#ACTS& Petitioner is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and operate a
prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick
and disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial
responsibilities of the organization." Individuals enrolled in
its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical
staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited
by it.
n !anuary "#, "$$$, respondent %ommissioner of Internal
&evenue [%I&] sent petitioner a formal demand letter and
the corresponding assessment notices demanding the
payment of deficiency ta'es, including surcharges and
interest, for the ta'able years ())* and ())# in the total
amount of P""+,#$",*+(.(,.
Petitioner protested the assessment in a letter dated
-ebruary "., "$$$. /s respondent did not act on the
protest, petitioner filed a petition for review in the %ourt of
0a' /ppeals 1%0/2 seeking the cancellation of the
deficiency 3/0 and 450 assessments.
%0/ rendered a decision ordering the petitioner to pay the
deficiency 3/0 amounting to P"",$6+,,.(.#6 for the ())*
3/0 deficiency and P.(,$)+,(*..,# for the ())# 3/0
deficiency and canceling the ())* and ())# deficiency
450 assessment against petitioner.
&espondent appealed the %0/ decision to %/ insofar as it
cancelled the 450 assessment. 7e claimed that
petitioner8s health care agreement was a contract of
insurance sub9ect to 450 under 5ection (,6 of the ())#
0a' %ode.
%/ reversed the decision of %0/ and upheld that the
petitioner8s health care agreement was in the nature of
non:life insurance contract sub9ect to 450.
ISS$E 1& ;< the respondent is a 7ealth =aintenance
rganization 17=2
HEL!& -rom the language of 5ection (,6, it is evident that
t'o re()*+*te+ must concur before the 450 can apply,
namely> 1(2 the document must be a po,*-. o/ *0+)r10-e
or 10 ob,*21t*o0 *0 t3e 01t)re o/ *04em0*t. 104 1"2 t3e
m15er +3o),4 be tr10+1-t*02 t3e b)+*0e++ o/ accident,
fidelity, employer8s liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of
*0+)r10-e 1e'cept life, marine, inland, and fire insurance2.
Petitioner is admittedly an 7=. ?nder &/ #,#6 1or "0he
<ational 7ealth Insurance /ct of ())6"2, an 7= is "an
entity that provides, offers or arranges for coverage of
designated health services needed by plan members for a
fi'ed prepaid premium."
ISS$E 2& ;< petitioner, as an 7=, engaged in the
business of insurance during the pertinent ta'able years
HEL!& <o. ?nder 5ection " 1"2 P4 (+*$ 1Insurance %ode2,
the following constitutes @doing insurance businessA or
@transacting an insurance businessA>
a2 making or proposing to make, as insurer, any insurance
contractB
b2 making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the suretyB
c2 doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing
of an insurance business within the meaning of this %odeB
d2 doing or proposing to do any business in substance
eCuivalent to any of the foregoing in a manner designed to
evade the provisions of this %ode.
0he %ourt adopted the @principal ob9ect and purpose testA
of ?nited 5tate 9urisprudence, to wit> whether the
assumption of risk and indemnification of loss 1which are
elements of an insurance business2 are the principal ob9ect
and purpose of the organization or whether they are merely
incidental to its business. If these are the principal
ob9ectives, the business is that of insurance. Dut if they are
merely incidental and service is the principal purpose, then
the business is not insurance.
0he primary purpose of a medical service corporation,
however, is an undertaking to provide physicians who will
render services to subscribers on a prepaid basis. He0-e,
*/ t3ere 1re 0o p3.+*-*10+ p1rt*-*p1t*02 *0 t3e me4*-1,
+er6*-e -orpor1t*o07+ p,10, 0ot o0,. '*,, t3e
+)b+-r*ber+ be 4epr*6e4 o/ t3e prote-t*o0 '3*-3 t3e.
m*23t re1+o01b,. 316e e8pe-te4 'o),4 be pro6*4e4,
b)t t3e -orpor1t*o0 '*,,, *0 e//e-t, be 4o*02 b)+*0e++
+o,e,. 1+ 1 3e1,t3 104 1--*4e0t *04em0*t. *0+)rer
without having Cualified as such and rendering itself
sub9ect to the more stringent financial reCuirements of the
Eeneral Insurance Faws.
/ participating provider of health care services is one who
agrees in writing to render health care services to or for
persons covered by a contract issued by health service
corporation in return /or '3*-3 t3e 3e1,t3 +er6*-e
-orpor1t*o0 12ree+ to m15e p1.me0t 4*re-t,. to t3e
p1rt*-*p1t*02 pro6*4er.
Gven if petitioner assumes the risk of paying the cost of
these services even if significantly more than what the
member has prepaid, it nevertheless cannot be considered
as being engaged in the insurance business.
In fact, a substantial portion of petitioner8s services covers
preventive and diagnostic medical services intended to
keep members from developing medical conditions or
diseases. /s an 7=, it is its obligation to maintain the
good health of its members. A--or4*02,., *t+ 3e1,t3 -1re
pro2r1m+ 1re 4e+*20e4 to pre6e0t or to m*0*m*9e t3e
po++*b*,*t. o/ 10. 1++)mpt*o0 o/ r*+5 o0 *t+ p1rt. 0hus,
its undertaking under its agreements is not to indemnify its
members against any loss or damage arising from a
medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or
damage.
Petitioner, as an 7=, is not part of the insurance industry.
0his is evident from the fact that it is not supervised by the
Insurance %ommission but by the 4epartment of 7ealth. In
fact, in a letter dated 5eptember ., "$$$, the Insurance
%ommissioner confirmed that petitioner is not engaged in
the insurance business. 0his determination of the
commissioner must be accorded great weight. It is well:
settled that the interpretation of an administrative agency
which is tasked to implement a statute is accorded great
respect and ordinarily controls the interpretation of laws by
the courts.
ISS$E 3& ;hether or not a health care agreement is an
insurance contract
HEL!& <o. 5ection (,6. Stamp tax on fidelity bonds and
other insurance policies. H O0 1,, po,*-*e+ o/ *0+)r10-e or
bonds or ob,*21t*o0+ o/ t3e 01t)re o/ *04em0*t. /or
,o++, 41m12e, or ,*1b*,*t. made or renewed by any
person, association or company or corporation transacting
the business of accident, fidelity, employer8s liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance 1e'cept life, marine, inland, and
fire insurance2. 0a' statutes are strictly construed against
the ta'ing authority because ta'ation is a destructive power
which interferes with the personal property rights of the
people and takes from them a portion of their property for
the support of the government.
5ection " 1(2 of the Insurance %ode defines a contract of
insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. /n
insurance contract e'ists where the following elements
concur>
(. 0he insured has an insurable interestB
". 0he insured is sub9ect to a risk of loss by the happening
of the designed perilB
.. 0he insurer assumes the riskB
+. 5uch assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk and
6. In consideration of the insurer8s promise, the insured
pays a premium.
0he agreements between the petitioner and its members
do not possess all these elements because>
(. Gven if a contract contains all the elements of an
insurance contract, if its primary purpose is the rendering of
service, it is not a contract of insurance.
". 0here is no loss, damage or liability on the part of the
member that should be indemnified by pettier as an 7=.
0here is nothing in petitionerIs agreements that gives rise
to a monetary liability on the part of the member to any
third party:provider of medical services which might in turn
necessitate indemnification from petitioner. 0he terms
"indemnify" or "indemnity" presuppose that a liability or
claim has already been incurred. 0here is no indemnity
precisely because the member merely avails of medical
services to be paid or already paid in advance at a pre:
agreed price under the agreements.
.. / member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, ':ray, routine annual
physical e'amination and consultations, vaccine
administration as well as family planning counseling, even
in the absence of any peril, loss or damage on his or her
part.
+. In case of emergency, petitioner is obliged to reimburse
the member who receives care from a non:participating
physician or hospital. 7owever, this is only a very minor
part of the list of services available. 0he assumption of the
e'pense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of
illness or in9ury.
6. /lthough risk is a primary element of an insurance
contract, it is not necessarily true that risk alone is sufficient
to establish it. /lmost anyone who undertakes a contractual
obligation always bears a certain degree of financial risk.
%onseCuently, there is a need to distinguish prepaid
service contracts 1like those of petitioner2 from the usual
insurance contracts.
0he business risk that 7= undertakes when it offers to
provide health services is the risk that it might fail to earn a
reasonable return on its investment. Dut it is not the risk of
the type peculiar only to insurance companies. Insurance
risk, also known as actuarial risk, is the risk that the cost of
insurance claims might be higher than the premiums paid.
0he amount of premium is calculated on the basis of
assumptions made relative to the insured.
T3ere '1+ 0o ,e2*+,1t*6e *0te0t to *mpo+e !ST o0
3e1,t3 -1re 12reeme0t+ o/ H"O+
;hen the law imposing the 450 was first passed, 7=s
were yet unknown in the Philippines. 7owever, when the
various amendments to the 450 law were enacted, they
were already in e'istence in the Philippines and the term
had in fact already been defined by &/ #,#6. If it had been
the intent of the legislature to impose 450 on health care
agreements, it could have done so in clear and categorical
terms. It had many opportunities to do so. Dut it did not.
0he fact that the <I&% contained no specific provision on
the 450 liability of health care agreements of 7=s at a
time they were already known as such, belies any
legislative intent to impose it on them. A+ 1 m1tter o/ /1-t,
pet*t*o0er '1+ 1++e++e4 *t+ !ST ,*1b*,*t. o0,. o0
%10)1r. 27, 2000, 1/ter more t310 1 4e-14e *0 t3e
b)+*0e++ 1+ 10 H"O.
T3e po'er to t18 *+ 0ot t3e po'er to 4e+tro.
Petitioner claims that the assessed 450 to date which
amounts to P.#* million is way beyond its net worth of
P"6) million. &espondent never disputed these assertions.
Eiven the realities on the ground, imposing the 450 on
petitioner would be highly oppressive. It is not the purpose
of the government to throttle private business. n the
contrary, the government ought to encourage private
enterprise. Petitioner, 9ust like any concern organized for a
lawful economic activity, has a right to maintain a legitimate
business.
Pet*t*o0er7+ T18 L*1b*,*t. :1+ E8t*02)*+3e4 $04er T3e
Pro6*+*o0+ O/ RA 98;0
Petitioner asserts that, regardless of the arguments, the
450 assessment for ta'able years ())* and ())# became
moot and academic
*$
when it availed of the ta' amnesty
under &/ )+,$ on 4ecember ($, "$$#. It paid
P6,("#,(+).$, representing 6J of its net worth as of the
year ended 4ecember .(, "$$6 and complied with all
reCuirements of the ta' amnesty. ?nder 5ection *1a2 of &/
)+,$, it is entitled to immunity from payment of ta'es as
well as additions thereto, and the appurtenant civil, criminal
or administrative penalties under the ())# <I&%, as
amended, arising from the failure to pay any and all internal
revenue ta'es for ta'able year "$$6 and prior years.