Welcome to our first newsletter for 2018

Member Communication and Practice Support

As we mentioned in our December newsletter we have been working to try to improve communication and support our members who are spread across the country.

In February we trialled an online interactive seminar (read Webinar you can hold a discussion in) for the Queensland members and some other Queensland practice owners. The topic was Changes to the Cybersecurity Legislation and the Requirements for Reporting Security Breaches. We had a very good presentation from Redfish and a great discussion.

Part of the reason for the limited distribution of such an important topic was a request from Redfish that we keep it small and Queensland based. We are now working out how to repeat it for a national member audience.

The outcome of our trial is that we are going to buy a Zoom licence and use it to hold a series of seminars which we will open to all members. We also intend that this will be the platform for holding our AGM and any other national meetings that we need to hold.

We have a few ideas about possible topics, but we would like to hear from you if there are any topics / discussions that you think we should be covering.

Pathology Rents Revisited

This issue seems to be quietly bubbling away in the background still, and remains a significant economic issue for many practices.

Despite some rumours and speculation we are not aware of any changes to the requirements for establishing agreements with pathology services providers. The key compliance issues that must be satisfied are that rents are negotiated willingly, be within market value and payment must not be dependent on the volume of business. So apparently no change to the present position.

However, there has been some recent activity and commentary. These have been separately posted. A summary of each and links to the full articles appear below.

Meanwhile, here is a summary of recent events.

On 2 March 2016 the Sydney Morning Herald reported: “Sonic and Primary have increased their combined market share by 12 per cent since the collection centre restrictions were lifted. These two companies now control 77 per cent of the pathology market, and that number is still rising”.

If Sonic and Primary play nice, they should be able to prevent further rent escalation now that the land grab is cooling down. Better still, they may be able to push for lower rents with their increased negotiating power”.

In October 2016 the Australian GP Alliance was founded in the face of threats that appeared to intend to regulate the rents paid by pathology companies.

Subsequent to that Primary withdrew from Pathology Australia, while Sonic remained a member. The reason for this withdrawal is not known but might have simply been a cost cutting measure due to a $1.1bn net debt.

In May 2017 Primary Health Care appointed Dr Malcolm Parmenter as their CEO – he was previously the head of clinical services with Sonic Health Care. We understand that Primary has since re-joined Pathology Australia.

In January 2018 the Department of Health updated their website on the subject of Pathology rents as follows:

“In the 2017 – 18 Budget, the Government announced its commitment to strengthening compliance for Pathology Approved Collection Centre (ACC) rents under the prohibited practices provisions of the Health Insurance Act 1973.”

This was accompanied by the release of a new version of the “Red Book” which discusses the role of Pathology rents as inducements (and therefore illegal) under the act.

The Prohibited Practices Provisions

2.1 Our role and prohibited practices

The Prohibited Practices Provisions were inserted at Part IIBA of the Health Insurance Act 1973 (Cth) (the Act) in 2007, following concerns about the potential for inducements for referrals between requesters and providers of pathology (and also diagnostic imaging) services……

Rent for premises leased or sub-leased by a provider from a requester and used for an ACC (for example, premises co-located with a healthcare facility) may, in some circumstances, be a “prohibited benefit” under the Act. Under the Health Insurance Regulations 1975 (Cth), rent may be a prohibited benefit where it is “substantially different” from market value. That is, where the difference between the market value and the Rent is more than 20 per cent of the market value.(our emphasis). Page 18 ‘The Red Book”.

’Market value’ does not have a special meaning under these laws, but instead has its ordinary common law meaning:

• The definition of Market Value is set out in Regulation 20CB of the Health Insurance Regulations and relates to all property, goods or services.

• In a leasing context, this means the rent that a willing tenant would (at the relevant time) have had to have paid a willing, but not anxious, landlord to secure the lease (or sub-lease) over the premises.

• The market value of property, goods or services correspondingly means the price that a willing buyer would (at the relevant time) have had to have paid a willing, but not anxious, seller to acquire the property, goods or services.

• In determining market value, it may be that some value could be attributed to the convenience of the location.

• In essence, market value assumes an arms-length transaction with each party acting knowledgably, prudently and without compulsion.

“Not substantially different” from the market value means not more than 20 per cent variance from the market value. As well as being within 20 per cent of the market value, the rent or other benefit must not be related to the number, kind or value of pathology or diagnostic imaging requests made by the relevant requester (Regulation 20CA of the Health Insurance Regulations).

If you have concerns about whether rent is within 20 per cent of market value, you may find it helpful to get an independent assessment of this. While the Act and the Regulations do not require requesters or providers to obtain a valuation to establish the market value of the rent for premises, or the market value of property, goods or services, obtaining an independent valuation from a qualified valuer can be helpful in ensuring that both parties understand whether a proposed arrangement complies with the prohibited practices provisions.

“The Red Book” Page 5


None of this is substantially different from previous versions of the Red Book, and the concepts that must be satisfied for compliance are:

• rents are negotiated willingly,
• be within market value, and,
• payment must not be dependent on the volume of business.

February 2018 Sonic Health Care announces a 5% increase in 6 monthly revenue from its Australian laboratory business and CEO Dr Colin Goldschmidt said the issue of pathology collection centre rents, which had dogged the industry, appeared to have stabilised.

“We are experiencing a plateauing of that particular expense,” he said. “It’s not just rents, it’s the labour to service those collection centres as well.” The Financial Review

February 2018 Health department announces they are reviewing pathology rents – Australian article
AGPA Secretariat
February 2018

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