Want a higher “Red Book friendly” pathology rent?: How you go about it matters!

Want a higher “Red Book friendly” pathology rent?: How you go about it matters!

This article was first published by the Medical Republic on 20th April 2021.

Editor update: 27th June 2021

In the original article below we highlighted the need for an independent valuation by an industry expert with experience in valuing pathology collection centre rents.

“Given these proceedings, the value of an expert valuation cannot be underestimated.”

The recent Federal Court high pathology rent case

It will be interesting to observe whether the actual dermatology practice will be asked to give evidence.On the 20th June 2021 SDS(pathology collection centre) are in Federal Court as respondents to a claim brought on by the Commonwealth (Medicare). This is an interesting development. It appears the Federal Court has requested an “expert valuation” in relation to an excessive pathology rent paid to a medical practice.

Original article on 20th April 2021

Albert Einstein once quipped

“You don’t have to know everything. You just have to know where to find it.”

Not a day goes by when a general practice owner contacts me about how much they should charge for a pathology rent. For a number of practices, pathology rent represents a significant part of a practices’ sustainability. The real problem is there are no readily available and comparable national pathology rent benchmarks you can easily point to.

Since the 2020 Department of Health announcement of 700 investigations with the threat of criminal prosecutions Damocles sword continues to hang over every owner that has a pathology collection centre lease. With over 13,000 practices in Australia your chances of getting caught may appear to be low, employee, doctor, competitor (including a rival pathology lab) by contacting the Department of Health. (Here is the latest case.)

In order to win new business, we have seen an ex-employee of a winning pathology dibber dob in a big practice for the losing pathology laboratory they now work for. Cartel behaviour is not allowed under the Australian Consumer Competition (ACCC) rules. Serious penalties apply. Everyone needs to be careful.

Examples include bid-rigging for example withdrawing from bidding when either a practice or a pathology laboratory usually would. This could be seen as a form of market sharing. Starting with an open tender process with the same clear terms and conditions offered to all is a useful starting point e.g. no options to renew.

One can only speculate is the Department of Health is looking for a couple of national public hangings.

If you do things properly by the Red Book you should have little to be concerned about.

Many practices know since 2006 I have nationally been negotiating and benchmarking pathology rents for practices. I have had some role in securing legislative awareness for a free market for pathology rents since 2008. These range from a small solo general practice to the really big ones you read about on the Australian Stock Exchange.

Facing million-dollar fines and possible criminal prosecution, I have been approached by numerous practices to provide independent pathology rent valuation. Prior to hiring a uniquely experienced lawyer, it is most likely the smartest move if you are concerned about the valuation.

Depending on your practice there are legitimately safe legal and ethical ways  to justify your rental market value. The rent amount can be higher than the traditional rents charged to the local butcher, baker and candlestick maker. If your local pathology laboratory suggests that you are doing something wrong, it is for a good reason I am sure.

This is about what is the correct commercial market value pathology rent for your practice

There are three key steps to take:

Step 1 Start with qualified and experienced advisers

Starting with useful independent advice is always a good idea. There are very few people who have national expertise in this area. Your local everyday real estate agent, accountant or lawyer is not going to know the latest players in the national pathology rental market that comply with the latest pathology Red Book rules

Step 2 Be clear how you independently verified the new rent or any renewal

Often we see these deals done over dinner. After a few drinks, it accidentally spills out to a competing lab who you are talking to and how much they are paying. This is an absolute no-no. Expect the investigators to ask how you arrived at these numbers. Do not leave yourself in an awkward situation. Most importantly pay for dinner!

Critical to any defence is how did you establish the rent value and the leasing terms and conditions. I would avoid restaurants and pubs altogether. Keep it professional. Do not fall for the nudge wink response from them that “you don’t need an adviser talk”. A rumour I have heard is that if there is a problem the medical practice owners and directors are exposed to a full prosecution, however, the problem is quarantined for the ultimate owners/directors of the laboratory. If it is true it does sound a tad unfair the pathology labs have been able to strike a better deal with the Government. I am happy to stand corrected on this point.

Step 3 Document your lease so it is “Red Book” Compliant

Over the years I have seen many pathology lease agreements over a bottle of wine, look like they have been written on the back of a napkin to save on legal costs. You have to wonder if any lawyers were involved.

We have seen high profile law firms who have missed out on addressing the Red Book concerns in the lease. A good example is allowing the uneconomic clause to remain within the agreement, which permits the early termination of a lease by the pathology labs. Such arrangements explicitly put pressure on in-house referrals. The fear of missing out by the practice seems to be the primary driver of agreeing to the tenant’s terms. Potential problems seem to go beyond just the legal agreement.

How did you document your agreement is critical. You do need an independent and experienced lawyer and accountant to look over it. The business rationale is critical. This is not a good time to cut corners. The process more than pays for itself.

Ignorance of the law is no excuse.

What are pathology rent investigators asking practices?

We have seen the large gamut of questions by the Department of Health investigator put to practices. It starts with a few. Depending on how you answer you get a lot more.

Many questions may unwittingly entrap a practice. It is not uncommon for practice owners and their practice managers not to clearly know and understand their business model and commercial arrangements. The pressure to be perceived as cooperative to the Department’s demands may cause the practice to sometimes hastily respond. This can be used as evidence against the practice. Now is the time to be more careful and considered your responses.

It is hard to unsay an email or a phone call. This system appears to operate similar to a Medicare investigation except this is a more serious criminal matter. Some lawyers are too quick to volunteer their clients’ responses. This can only breed more avoidable litigation.

Responding to all of the questions (many of which appear to go beyond the scope of enquiry) may accidentally trigger further statutory Fair Work, ATO, Superannuation Guarantee, payroll tax and WorkCover audits with corresponding penalties.

From our experience relating to clients being investigated to date, common areas of evidence (documents) include but are not limited to:

  1. Any past, current or future arrangements, negotiations or leases in writing e.g. email correspondence
  2. Any initial external written bids or rent review rival bids
  3. Any written and verbal communication on how the value was established independent of the landlord and tenant, e.g. using Health and Life bidding, valuation or other independent valuation services
  4. Valuations of the premises
  5. Current arrangements with doctors e.g. employment contracts and contracts for services
  6. Administration and banking arrangements e.g. contractors
  7. Sub leasing arrangements with other parties e.g. co-located leasing arrangements e.g. allied health, specialists and pharmacy or a pizza bar
  8. Details of rental increases
  9. Floor area, parking and signage rights and practice infrastructure and staff support etc
  10. Signed service agreements and provider contracts
  11. Financial statements and tax returns that support the landlord v tenant arrangement or the business structure used to engage the diagnostic service
  12. An explanation of the nature of any contracts with doctors e.g. discounting of service fees
  13. Director and staff statutory compliance declarations
Circuit breaker: Do you have to provide all the information?

We have found an independent valuation may be a useful circuit breaker. This would avoid sending too much information. It may help the practice avoid any further unfair scrutiny or misunderstanding. The Red Book does provide the option of preparing a valuation report to justify the rent charged to the pathology labs. The valuation report would prove essential upon a practice being investigated by the Department. The hard part is finding somebody prepared to put their name to the valuation with the appropriate legal oversight.

For a general practice, specifically, we had recently received this Barristers legal opinion. He states:

‘The valuation should be obtained before the sublease is offered to the sublessee at the higher rent amount in anticipation of a Departmental investigation.

For the avoidance of any doubt, I am of the opinion that it would be extremely difficult (if not impossible) to justify charging the anticipated rent amount without a supporting independent valuation.

In the absence of such a valuation, there would be an irresistible inference that the amount being charged results from an agreement between the parties for the sublessor to request pathology services from the sublessee.’

Find out if you have an excessive pathology rent problem?

Before hiring legal advisers, a useful starting point is to enquire what the average commercial rents are in your local region, which is a relatively straightforward exercise.

For an approximate guess, locate your property on a commercial real estate platform. Compare the total rent per sqm with other commercial businesses located next to your practice with your pathology rent per square metre.

For example, if the local butcher is paying rent totalling $120,000 p.a. exclusive of outgoings plus GST for a 600 sqm premises the rent is $200 (i.e. Rent $120,000/600 sqm) sqm p.a.

You need to do the same calculation for the area you are designating in your practice for a pathology collection centre.

If the pathology rent exceeds the commercial rent you are seeking or your existing lease; then it is time to engage some professional help to tidy things up.

To be clear a verbal telephone call or an email will not cut it.

A written valuation is required.

The valuation report is not the same as the traditional property valuation process, as it should place into context your total business model, structures, agreements and systems amongst other considerations.

Update your current Pathology Lease to be Red Book Compliant

We can also refer you to experienced lawyers. For an obligation-free confidential chat, Health and Life can provide more accurate independent national pathology rental market valuations.

We have been approached by solicitors to provide independent pathology valuations due to our unique 15-year dataset of pathology bids and comparable market rates in Australia. Health and Life has been independently tendering pathology, medical, pharmacy and other allied health services since 2006. Traditional property valuers do not have access to this unique database, and it is not publicly available.

For over a decade, we have successfully argued for our clients’ legally and ethically higher market rates, in excess of traditional local property valuations.

For more information

Source: Red Book available from the Department of Health.

Australian GP Alliance’s comments on this investigation and its implications: New Excessive Pathology Rent Red Book Alert!

For more insights visit our blog.

About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.

Chartered Accountant, Chartered Tax Adviser, Registered Tax Agent, Former AGPAL Surveyor 10 years of service

David Dahm is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life and global Founder and CEO of the not for profit project the International Healthcare Standards and Ethics Board (www.ihseb.org)

After a serious work related car accident in 1989, and nine operations later I continue to be a patient and provider advocate. I enter my third decade as a national Chartered Accountant for Medical and Healthcare practices in Australia. I am a former 10-year Australian General Practice Accreditation surveyor. I come from a medico family. I have served on the AAPM national Board and was the inaugural national Chair of the Certified Practice Manager CPM post nominal. I continue to provide accounting tax and practice management advice to many practices all over Australia.

You know who you are and I thank you for this real honour and privilege to serve you and your community through you. Note, I am not a lawyer please seek appropriate legal and accounting advice. This information is for general information and discussion only.

A patient’s view: only five minutes to decide if I get COVID vaccinated?

The government is coercing patients and GPs into an unhealthy relationship by forcing GPs to reduce the time of a consult and gagging medical professionals from discussing their genuine concerns.

By David Dahm

This article was first published by the Medical Republic on 1st April 2021 this was before the ABC news report below on 3rd April 2021.

Like most people, I am careful when it comes to putting recently tested foreign things into my body.

I want to be free to ask questions.

But, as things stand, we patients only have an average of five minutes with our GP discussing the situation before we get the jab.

This is not enough time for me and I’m pretty well educated on the topic.

Does the government really believe it is enough time for most patients, especially given the rising hesitancy around COVID vaccination?

Unfortunately, the federal government is not keen on any of us asking too many questions, experts included.

Given that Germany has just suspended under-60s from receiving the AZ vaccine due to blood clotting and this week Canada has suspended the use of the vaccine for patients under 55 can anyone really be surprised that some patients are nervous about the information they are getting from the government?

Many other governments have been in the headlines for questioning or suspending the vaccine in the past few months.

Quite conceivably everything is OK. But that isn’t the point here. The point is the situation is confusing for patients and when you have a government that is quite clearly economically coercing GPs to go fast, and coercing medical professionals who want to question anything about the AZ vaccine to keep quiet or risk being de-registered as a doctor.

I am concerned as a patient. Why the rush given we have time to assess the situation and allow GPs the space to do the job properly?

The patient anxiety issues, the safety issues and the GP stress issues are taking a clear second place to political expediency.

Unlike traditionally multi-decade tested flu vaccines, the AZ vaccine is months old. GPs who might want to offer longer consultations are prevented from doing so as a result of the poor remuneration being offered per vaccination, and an inability to add any co-payment to make a longer consult where they think it might be in the better interests of their patient.

Freedom to choose

You would think the government would want to avoid unnecessary medical errors and allow patients time to consult their doctor for suitability.

Given how the situation is evolving I would be happy to pay for a longer consultation and even pay for the more expensive Pfizer alternative.

Of course, this is not a luxury that most patients will have. I am in a very privileged position to be able to question what is going on, understand some of the important parameters, and of course, afford to be able to ask for extra time and a different vaccine. That’s if the choice were allowed, which it isn’t.

Most patients will be put in a position between fear of missing out and fear of having it while the media are reporting on an almost daily basis that foreign governments are questioning the vaccine.

It’s not a question of whether these reports or these foreign governments are right. It’s a question of integrity in the patient/doctor relationship during this process and perhaps more importantly, in the longer term.

One way to get around the issue if you are a patient is to ask your GP for a long annual healthcare assessment. Just do not mention it relates to the vaccination to protect your doctor. You can raise it at the time of the consultation.

Every day we are learning something new about these new vaccines. All the more reason to tread carefully, especially if there is no urgency to vaccinate.

Patients should be enabled to ask the right questions

This article is about the patient more than the GP. But both are hugely important in this process.

Patients should not be assuming anything. We have all had it drummed into our heads that we live in unprecedented times.

All I ask as a patient is for an opportunity to freely discuss my specific circumstances with my doctor and have the time to do that without my doctor being put under significant commercial pressure to “get me done” within a certain time frame.

Personally, I feel that I might be at high risk.

I am under 55 (barely) but due to too much flying in my younger days, I did have a deep vein thrombosis.

Thankfully I have had no problems since that time. I also have allergies that trigger asthma. These are the two major adverse reaction issues being discussed by researchers. It has led to the suspension and banning of the AZ vaccine in some countries. But I’m meant to get through this complexity and worry all with my GP in about five minutes on average?

These kinds of reputable news headlines provide me with no comfort.

Patient peace of mind

To give me peace of mind, I am not afraid to ask my trusted GP for the time to explain everything properly and get to all of my worries and questions. Nor should all patients.

This seems entirely logical in the Australian context given we do not have the issues of the UK, Europe and the US. We have time. Why aren’t we taking it? If we were in the situation of the UK, then fine, the risk equation changes for the country and for all patients. That would demand the speed and thrift that is being demanded overseas. But we aren’t in that situation.

Patients should naturally be wary now that the federal government has prohibited doctors, nurses and allied health through AHPRA from saying anything negative about the vaccine process or individual vaccines. They risk being deregistered. Individual reputable experts at very reputable institutions have been sent warnings to cease and desist or face deregistration.

But most patients aren’t aware of this behind the scenes pressure on the profession.

It is a concern when medical experts and governments around the world cannot agree. Then we are asked to follow the government and its highly paid medical officers without the real opportunity to question the process within the context of our own individual concerns.

“It is important that practitioners inform their patient or client of their conscientious objection where relevant to the patient or client’s treatment or care. In informing their patient or client of a conscientious objection to COVID-19 vaccination, practitioners must be careful not to discourage their patient or client from seeking vaccination. Practitioners authorised to prescribe and/or administer the vaccine but who have a conscientious objection must ensure appropriate referral options are provided for vaccination” ​

The Therapeutic Goods Act also restricts what doctors can tell the public about the vaccinations and the Therapeutic Goods Administration has restricted how they advertise

Is a five-minute consultation enough time to find out if I will be safe?

For a job that can take up to 30 minutes per patient, GPs are only being paid for five minutes to do a suitability consult, regardless of a patient’s health conditions.

For most healthy people five minutes may be sufficient time. It is not however a one size fits all process. I am receiving many concerning reports GP practices all around Australia are stating it can take up to 20 to 30 minutes to get an accurate patient history especially if the patient does not have a regular doctor. Filling out online forms may be not thorough enough. People and systems make mistakes, especially where the elderly are concerned.

I am concerned that GP practices will be forced to cut corners or simply withdraw services.

To add further pressure doctors and practices are being threatened with Medicare rorting audits if they encourage or charge for pre vaccinations so they can provide you with appropriate care.

As the GP led phase 1b of the vaccination rolls out, 500 GPs will be receiving a warning letter about their telehealth billing earlier in the pandemic. Is that just bad timing, or is the PSR timing it perfectly?

GPs, practices and doctors are being set up to fail when it comes to providing patients with proper care, including giving them the right time to make them feel comfortable about the process, and potentially, in terms of safety.

The Sydney Morning Herald reports that GPs should not be charging for a vaccine-related consult. 

The Australian Doctor reports on the 26th of March 2021

If you want more time to discuss your concerns, the Government is effectively through financial means prohibiting patients from paying their GP for a pre-vaccination consultation whether it is free i.e. bulk billed by Medicare or not. As a patient, you really do not have a choice.

This interferes with the doctor/patient relationship.

A key underlying issue for the government was exposed as far back as 1980 in a High Court ruling in the General Practitioners Society v Commonwealth (1980) which found that “there is no explicit head of power under which the Federal Parliament can regulate private medical practice, in the sense of the physician-patient relationship … Medicare does not have a constitutional right to deliberate in that area as a government agency”.

If a doctor does charge, they will be threatened with an investigation, and TMR readers know doctors cannot expect a fair process from the government.

From an ideological point of view, it is understandable why a COVID vaccine consult needs to be free. Fees may prevent patients from rolling up.

From a practical point of view, you want to remove as much vaccination hesitancy as you can. Therefore it is important to encourage doctors and patients to seek each other out and have an uninhibited discussion where necessary.

To prohibit or discourage any pre-vaccination COVID related pre-appointment takes this ideological measure a step too far. It is counterproductive and unsafe.

Out of fear a GP may not say anything. As history has shown the risks of being unfairly accused of rorting the Medicare system and facing deregistration is on the table.

GPs feeling pressured to cut corners or withdrawing their services because it is not safe to practice is the last thing we need.

Queue pressure

Understandably, as a patient, you may feel pressured because while you hold up a line of people ready to get vaccinated you know your doctor and or vaccinator may be restricted in giving you clear answers.

Other patients might be certain, and you will be annoying them.

Your GP and their practice will be under financial pressure to get your processed quickly, but any long hold up for someone who wants to understand their situation thoroughly will put pressure all around in a vaccination clinic situation.

It’s not fair on anyone.

The vax-election rush

The October deadline to have all Australians vaccinated for COVID is a political deadline not a patient safety and sanity deadline.

The urgency to get vaccinated does not yet exist. Our emergency departments are not overcrowded with cases. We should use this time wisely.

Medicare is often used by the government as a financial weapon to silence and curb clinical behaviour. To this end, I do not appreciate the Prime Minister running a “vax-election” campaign so we can meet his October 2021 deadline.

I am concerned that the government has, via regulation and economics, coerced our doctors not to openly and meaningfully discuss the vaccination issues with patients who need a longer consultation than just five minutes.

Losing your freedom of choice is unfair.

We are in the midst of setting another dangerous precedent that governments can do what they like and not be accountable for their actions. This makes for an unhealthier healthcare system moving forward.

Ultimately a face to face consult where a doctor can eyeball their patient is the most effective way to calm one’s fears.

A possible solution as a patient

If patients understood their rights they could drive a solution here.

They have the right to schedule a long general healthcare consultation with their GP.

In such a consultation they can raise all their fears and needs regarding vaccination without the pressure that is being put upon them and their GP by the mandated vaccination process.

I no more like going to the doctor than visiting my dentist. It is not something I am proud of but like many, I will always have a fear of coming out with a bigger problem than what I first went in. That’s me though. A patient.

For more insights visit our blog.

About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.

Chartered Accountant, Chartered Tax Adviser, Registered Tax Agent, Former AGPAL Surveyor 10 years of service

David Dahm is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life and global Founder and CEO of the not for profit project the International Healthcare Standards and Ethics Board (www.ihseb.org)

After a serious work related car accident in 1989, and nine operations later I continue to be a patient and provider advocate. I enter my third decade as a national Chartered Accountant for Medical and Healthcare practices in Australia. I am a former 10-year Australian General Practice Accreditation surveyor. I come from a medico family. I have served on the AAPM national Board and was the inaugural national Chair of the Certified Practice Manager CPM post nominal. I continue to provide accounting tax and practice management advice to many practices all over Australia.

You know who you are and I thank you for this real honour and privilege to serve you and your community through you. Note, I am not a lawyer please seek appropriate legal and accounting advice. This information is for general information and discussion only.