New Pathology Pain: Warning for GP Practices: There is a price for certainty!
Practices are on notice. In December 2015, the Senate proposed dramatic changes to reduce patient pathology and radiology rebates. These were announced by the Government late last year. We advise our pathology and radiology related clients that these changes in government policy may result in early pathology lease termination clauses based on “uneconomic” or “unviable” arrangements.
An uneconomic or commerciality viability clause really means that a private pathology collection centre can terminate with 90 days or less notice if the lease is found to be not commercially viable. Many practices have one of these arrangements and clauses in place.
Such a lease condition can put severe pressure on patient gaps. Private pathology providers are also being forced to reassess the viability of their pathology rentals for Approved Collection Centres that may be situated in your practice. Allegations of collusion by private pathology providers to counteract the fee drop are being suggested, and may be reported to the ACCC. Such allegations have been denied by the sector as patients face pressure to pay a gap for any previously bulk billed services by private operators. See: 2015 December Changes to Bulk Billing Incentives.
So are the good old days of market value rents for pathology over? Yes and no.
Unless they have some special buying power, many practices will face decreased rents. Smaller practices may find their leases become prematurely cancelled as the industry rationalises the number of collection centres. It is interesting to note that the Federal Government recently refused to entertain pathology lobby groups that targeted re-defining a lower market rental for collection centres. So the free market argument prevails. In fact, we have seen higher pathology rent offers in recent months.
For those of you that follow David Dahm and Health & Life, you would know we have had a colourful and successful history in the national media in relation to what a fair market rent is and when a kick back is a kick back (see: History of Pathology market rules in the national media).
We assure you that nothing we suggest is unethical or against the law. It is simply normal commercial practice.
If the changes are approved in June by the Senate, then you may find at short notice (less than 90 days) that your collection laboratory could terminate their lease with you because they deem the arrangement is no longer viable. Check your lease to be sure.
We have always questioned the wisdom and legality of such clauses, as it may directly or indirectly force practice provider referrals to the pathology provider. This is not legal or in spirit of the law and means you could risk being the subject of an investigation that may involve losing your Medicare provider number or receiving a severe fine.
For this reason, we have never agreed to such terms – no matter how well intended the largest listed company is. Just because the Government has approved the lease, does not mean it has passed statutory law. Much like lodging a tax return, it is only correct if you pass a random audit and it is hard to deny something if your signature is on it.
Practices need to be wary of advisers who overlook the Heath Insurance Act and do not specialise in the correct field because unfortunately ignorance of the law is not an excuse. Be careful and seek independent advice. Advice from people such as a pathology laboratory’s lawyer is not independent.
23DZZIF “Meaning of permitted benefit
(7) However, the benefit (in relation to rent) is not a permitted benefit if:
(a) the benefit is related to the number, kind or value of requests for pathology services or diagnostic imaging services made by the requester; or ..”
“(8) To avoid doubt, a benefit is related to the number of requests for pathology services or diagnostic imaging services made by a requester if the provision of the benefit is dependent on the requester requesting all, or a proportion of, the requests for one or more kinds of services that the requester makes from a particular provider.”
Source: Health Insurance Act 1973
HEALTH INSURANCE AMENDMENT (INAPPROPRIATE AND PROHIBITED PRACTICES AND OTHER MEASURES) ACT 2007 (NO. 88, 2007) – SCHEDULE 1
If you are not a Health & Life client and we did not negotiate your lease with our pathology leasing templates, we understand many providers claim this is the “industry norm” and the HIC have “approved” such early termination clauses! The reality is there is little truth in both statements.
Our real concern is it only takes one complaint for a nationwide investigation to occur in any practice, especially if there has been industry collusion. This is something your medical defence does not cover a practice for. So it can be an expensive and time consuming experience.
If you are experiencing this sort of pressure, we specifically quote the legislation within this article so you can consult your advisers and choose the right course of action. Make sure you receive any opinions in writing as often we find clients . Verbal promises that do not count.
The good news is this is not an issue for our clients as we have spent time negotiating long term leases to avoid this problem. As a side note, you should always seek professional advice when negotiating or renewing leases especially when they pressure you to sign.
It is only fair to assume that if you are going to borrow big money to expand your clinic, it may take up to 25 years to pay it off. So you would not invest unless you knew you would receive a good rental return on your investment. The pathology laboratories collect a good return as you expand. It is a win-win.
For those of you who have not removed the early termination clause, this sort of notice may come as a surprise and it should. After all, you cannot rent a home and give less than 90 days notice to leave without penalty. The same should apply to any commercial lease arrangement. We would question whether it was a fair contract from the outset.
It is difficult to do anything this late in the game other than give us a confidential call. We are happy to review whether you have a problem without obligation and give advice as to what you should do next. This would also include making sure you are obtaining a fair market rent with fair terms and conditions on your lease. We can offer you peace of mind.
The good news is we have national buying power and may be able to help you.
Regardless of whether the Senate passes the new pathology reimbursement changes, you should ensure as a minimum these uneconomic early termination clauses are removed from your signed leases. This will keep the bank and your practice happy. There is a possibility that the ACCC may prohibit such a clause as being an unfair term commencing from the 12th November 2016 (see article 6 below: Do you use standard contracts/agreements in your practice?: Are they legally binding? New ACCC Law 2016)
For Practices new to Health & Life, contact David Dahm at email@example.com for a no obligation and confidential chat about your lease should you have any concerns.