New Excessive Pathology Rent Red Book Alert!

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RED Book

We have been receiving reports from some practices that GP’s in private medical practices have been targeted by a recent mass Pathology Rent Red Book mail out from the Department of Health. The Department is informing referring GPs of the current prohibited kickback rules e.g. excessive rents being offered to practices and to be wary of such arrangements. Specifically, if you own a practice or use a practice manager that has a pathology collection centre or other diagnostic services, make sure you can answer any questions accurately and truthfully in order to avoid unnecessary suspicion and unwanted inquiries.

(Indeed, this may have been the intended effect of the mass mail out. We are not sure why landlords were not contacted as well.)

The mail out clearly is implying there should be a concern regarding some practices but this should not be a concern for those who complying to the letter, which most practices are. You may need to reassess your situation however.

It is commendable that the Federal Government is attempting to provide some clarity on this issue, which was so heavily politicised in the last election. We are familiar with this issue, having been involved with an amendment to the 2009 law that continues to remain upheld – see article Pathology Deal May Backfire.  The bottom line is the Government cannot price-fix pathology rents. Practices must ensure they use the ‘market value’ approach to ensure their position is legally sound.

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For those practice owners who have leases; if you offer exclusive dealing arrangements referred to in the Red Book, which historically most pathology laboratories have requested, then this may reduce the rental value of your lease if this clause is removed. This needs to be budgeted for and/or seek appropriate advice on how to address this issue. This may be a key issue in your rental negotiations.

Note that you are not required to seek a formal valuation; however you must ensure ‘market value’ is paid. Market value means an open market with a willing buyer and seller involved in the transaction.

One difficulty is that your local valuer may be unaware of what a multibillion dollar national pathology lab will pay for your consulting room. The valuer should also include signage rights, car parks and common areas like the waiting room which are often overlooked.

The ideal situation is an open tender based on the same set of terms and conditions. In our experience, this will get the right outcomes for all parties. However, the correct documentation and processes must be in place. Contact David Dahm at pa@healthandlife.com.au for further information.

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Please note we are not lawyers, we are accountants and practice advisers. Please seek specific legal advice in relation to your own circumstances. We cannot be held responsible for any errors or omissions in this article. This article is for discussion purposes only.

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