Leases & Market Rent for Pathology and Diagnostic Imaging Services

Rent for pathology collection centres can often attract rent significantly above the market rate compared with other commercial uses. In the circumstances, care must be taken in any market review or in establishing the commencing rent to market to ensure that there is no breach of the Health Insurance Act 1973 (Cth) (“the Act”) and the Health Insurance Regulations 2018 (“the Regulations”) with respect to Prohibited Practices.

Let’s look at pathology collection centre leasing and, more particularly, compliance with the Act and the Regulations.

Part IIBA of the Act contains several provisions regarding prohibited practices in relation to pathology services and diagnostic services that, in general terms, prohibit inducements to request, accept, offer and provide various forms of benefits in connection with diagnostic imaging (and pathology) services.  This is particularly relevant for the purpose of determining market rent for a lease (or sub-lease) to a pathology provider.

A provider of pathology services includes (a) a person who renders that kind of service, (b) a person who carries on a business of rendering that kind of service or (c) a person who employs, or engages under a contract for services those persons specified in (a) or (b), an approved pathology practitioner or an approved pathology authority [s23DZZIE].

A requester of pathology services is a person entitled to request pathology services, such as a practitioner, midwife or nurse practitioner, a person who employs, engages under a contract for services a practitioner, midwife or nurse practitioner or a person who exercises control or direction over such a person [s23DZZIE].

A tenant or sub-tenant may be a provider within the meaning of the Act.

A benefit is defined to include money, property or services or any other benefit asked for, accepted, offered or provided in any form and an actual or a potential benefit [s23DZZID].

In the context of pathology leases (including sub-leases or licences), a benefit within the meaning of the Act may advertently or inadvertently arise. Put simply, the rationale for the regulatory approach is that benefits can lead to an increased cost of services for consumers and the Government and, there can also be perceived or actual conflicts of interest for example, where a medical or healthcare practitioner should recommend a pathology service to a patient based on the patient’s clinical need and not the commercial arrangement between the practitioner and the service provider.

Part 6 of the Regulations also deals with prohibited practices and, insofar as it relates to pathology leasing, the following is relevant:

  • A payment or consideration given for property, goods or services will be deemed ‘substantially different’ from the market value if the difference is more than 20% of the market value (Reg 76);
  • The ‘market value’ of property, goods or services is the amount that a willing purchaser would have had to pay to a vendor who was willing, but not anxious, to sell (Reg 77).

In simple terms, the prohibitive practices in the Act and the Regulations must be considered in determining market rent for a lease in circumstances where the tenant is a provider within the meaning of the Act.

More generally, market value in the context of a lease, is an arms-length transaction with each party acting knowledgeably and prudently and, market rent assumes payment of rent by a willing tenant to secure a lease from a willing, but not anxious, landlord. Permitted benefits under the Act and Regulations are defined in a way intended to allow reasonable commercial leasing and business practices i.e. the provision of property, goods or services is permissible if provided for consideration that is not substantially different from the market value of the property, goods or services and a payment for the use of occupation of premises for a pathology service can be permissible benefit if it is not substantially different from the market value of the property, goods or services , or it is proportionate (if the premises are shared with others). Whereas a benefit that is likely to induce a requester to request any of those kinds of services from a provider, will be a prohibited benefit.

All new leases, sub-leases and licences for diagnostic imaging (and pathology collection) services (including any renewals) are required to be submitted through the Health Professional Online Services (“HPOS”).  A breach of the Act and/or Regulations can result in a civil penalty or a referral to the Medicare Participation Review Committee which may result in being excluded from receiving Medicare benefits, amongst other things.

Burke Lawyers’ legal team have a depth of expertise and experience with property lawyers (including a Property Law Specialist, Kristy Muhlhan) who can advise on leases and rent for the medical and healthcare sector as well as medical and health lawyers (including Director Meghan Warren) whose clients included doctors, pathologists and practice managers.

If you think you need advice or should seek advice on your current or potential leasing arrangement, market review or compliance with the Act and Regulations, contact us today on +61 3 9822 8588.

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