Pathology Leases - What practice owners need to know before signing a lease

As an accountant, financial planner or lawyer, you are often one of the first professionals a medical practice owner gets in touch with when they are looking to set up a practice. It is often the case that a practice owner finds themselves caught up in the busyness of setting up a practice and while they are focused on getting the facilities and staffing organised, they might be in a situation where they give little thought to signing a lease or sublease with a pathology company.

In my time as a specialist lawyer for medical professionals, I have seen that pathology collection centres within medical practices are becoming increasingly common. This is because they provide patients with convenient access to pathology testing, with faster results and treatment often able to be achieved.

For that reason, it should not come as too much of a surprise that many medical practices sublease part of their premises in order to have an on-site collection centre. This article will draw your attention to some important information to keep in mind before any medical practice owner clients you have, take this step. We explore what needs to be considered when leasing space to a pathology centre, what the risks are and what should be considered before signing a lease.

Considering leasing space to a Pathology Collection Centre

If your client is considering leasing space to a pathology centre, they are often aware of the benefits of such an arrangement, however, they will need to closely consider the risks.

Under the Health Insurance Act 1973, a medical practice is prohibited to ask for, accept, offer and provide various forms of ‘benefit’ with regards to the provision of pathology services. As an experienced lawyer for medical professionals, I have seen this being overlooked in pathology leases. Often, lease agreements are provided by the pathology businesses themselves, which is one reason why it is so important for someone with a thorough/in-depth knowledge and understanding of the legislation to be involved.

Why does a ‘limiting of benefits’ exist for medical practices?

As you would expect, the health of patients must be the utmost priority for any medical practice. The laws around this attempt to ensure that this is not compromised by the payment of ‘benefits’. However, it does not prohibit legitimate commercial transactions. What that means, is that you can lease to a pathology collection centre provided that the rent aligns with the market rate and that it is not linked to the volume, type or value of the services requested.

When your client is first considering signing a pathology lease they need to be aware that they are entering into a highly regulated territory. This should not discourage your clinic owner clients from pursuing this path, instead, it should encourage them to ensure that they are well-equipped to protect themselves, and are familiar with ‘The Red Book’ - the important guide to the prohibited practices.

Risks of leasing to consider

Before a medical practice owner looks to enter into such an agreement, they need to ensure they understand what they can and cannot do. The terminology in the Act is quite extensive and covers a range of definitions to help determine what constitutes a benefit, and what is permitted and prohibited. We cover some of them here in this article, however, as it is an area that can expose practice owners to the risk of hefty fines, it is worthwhile seeking expert advice.

We need to first look at how the Act defines a benefit, as well as how they define market value.

Within the Act, a benefit is defined as:

money, property or services or any other benefit asked for, accepted, offered or provided in any form; and
an actual or a potential benefit.

Market value, which is referring to the value of rent, does not have a special meaning within the Act; however, it can be as simple as the price that pathology providers are willing to pay. Practice owners might even consider obtaining offers from multiple providers and take the best offer. However, medical practice owners should always seek legal advice to be confident that they are not breaching this law.

Another prohibited benefit is any benefit that ‘would be reasonably likely to induce a requester (Doctor) to request any of those kinds of services from a provider’ or ‘is related to the business of rendering pathology services or diagnostic imaging services, as the case requires’.

While this can start to get into complicated territory, if there is one thing we want you to take from this article, it is that medical leases are a highly regulated and enforced area. The Department of Health is committed to strengthening compliance for Pathology Approved Collection Centre (ACC) rents, so there are both civil penalties and criminal offences for breaches of the prohibited benefit provisions.

There is also the risk of a referral to the medicare Participation Review Committee (meaning your client may face exclusion from receiving Medicare benefits). Given the severity of these consequences, it is not an area you want your client entering into without the right advice.

What should your client do before signing a lease?

Our first piece of advice is that your client should not accept a sublease that has been prepared by the pathology provider. This is because they are often heavily skewed in favour of the provider. As a medical centre owner, your client needs a lease that is favourable to them and balanced to be acceptable to the pathology provider. This is something that we can help your clients with, as we have years of experience looking at these types of leases.

If your client is considering a pathology lease, leveraging an expert is vital. Additionally, if your client already has a pathology lease in place and they are concerned, corrective action is possible. We can help review, and negotiate amendments to existing leases if required.

Seeking legal and financial advice can assist your client in clarifying their concerns as well as assist in navigating through the government’s requirements and ensuring continued compliance with legislation. This is of paramount importance to the successful continuation of your clients’ practice beyond the Covid-19 pandemic.

If you would like to enquire how we might work together to assist your clients, connect with us. We look forward to being able to support your clients, to minimise their risk and mutually assist them through their practice ownership journey.