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Govt’s dodgy deal with big pathology ‘not the answer’: Gannon

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AMA President Dr Michael Gannon has told pathologists that capping pathology collection centre rents is “simply not the answer” to the challenge the sector faces from almost 20 years of frozen Medicare rebates.

In a message to AMA pathologist members, Dr Gannon said the surprise deal struck between the Federal Government and Pathology Australia during the Federal election to impose a rent ceiling was a “poorly targeted” policy that would deliver a massive windfall for the big pathology companies at the expense of medical practices, and did nothing for individual pathologists.

“The Government’s proposal goes too far, interfering with legitimate commercial arrangements that have been entered into by willing parties,” he said. “It will unfairly damage medical practices that have made business decisions based on projected rental streams, including investment in infrastructure and staffing.”

The AMA President said there was no guarantee from Pathology Australia, whose biggest member is Sonic Healthcare (which holds 43 per cent of the market), that any money pathology companies saved by cutting their collection centre rents would be re-invested in pathology services or the pathology workforce.

Instead, the rents deal controversy was overshadowing important issues such as the impact of the near 20-year rebate freeze for pathology services and the need for a much more sustainable funding base, he said.

In striking his deal with Pathology Australia, Prime Minister Malcolm Turnbull blindsided groups including the AMA and the Royal College of Pathologists of Australasia, who had been involved in discussions with the Government earlier this year on ways to improve transparency and strengthen compliance within the existing regulatory framework governing pathology collection centre (ACC) rents.

ACC rents have risen strongly since their deregulation in 2010, and there have been fears of a nexus between leases and the number of pathology tests a practice orders.

But the Health Department has reported in several different forums that it has not detected any such link, and told a roundtable meeting of stakeholders attended by the AMA on 27 April that it had found no evidence that rents were substantially above market value.

Instead, rents are being driven higher by intense competition for market share. Consolidation in the industry has intensified since deregulation, and the two big pathology companies, Sonic and Primary Health Care, between them now hold about 77 per cent of the market – a 12 per cent increase in five years.

Instead of addressing issues around the structure of the industry and how that was affecting competition and rents, Dr Gannon said the Government’s unilateral move to cap rents was simply a “knee jerk reaction” to head-off a politically damaging campaign.

The Government struck the deal in the early days of the Federal election in order to get Pathology Australia to drop its threat to axe the bulk billing of pathology services following the abolition of the pathology bulk billing incentive.

The terms of the agreement were laid out in a Senate Estimates hearing last month by Health Department Deputy Secretary Andrew Stuart, who said the “nature of the deal between the Government and Pathology Australia is to work to bring rents down to a more reasonable level and, at the same time or in some relationship to that, to continue with the Government’s proposal to remove the bulk billing incentive”.

Government Minister Senator Fiona Nash told the Estimates hearing the Coalition had received assurances from the pathology industry that “it is going to keep the bulk billing levels at its rates [and] we are taking it in good faith that that is exactly what they meant, and we expect they will do that”.

Dr Gannon said that in rushing to strike its deal with Pathology Australia, the Government had failed to take into account the consequences for GPs.

The Government’s plan went well beyond the intent of existing laws and gave pathology providers an unfair advantage in commercial negotiations with medical practices, he warned.

His concerns were borne out by the testimony of Mr Stuart, who admitted that the Department had not modelled the likely effect of the pathology rents cap on general practices, particularly when combined with the Medicare rebate freeze.

The senior health official, who made pointed reference to the fact the deal was “a Government negotiation, not a departmental negotiation”, said details of the arrangement, especially regarding its implementation, were still being finalised.

Significantly, the deal leaves the contentious issue of what should be defined as ‘market value’ unresolved – something admitted by Health Department First Assistant Secretary Maria Jolly in her testimony to the Senate committee.

She said how the new arrangement would be introduced was also yet to be determined, including how existing leases would be treated, and how the new deal would relate to the current regime governing prohibited practices.

Adrian Rollins