Have you reviewed your practice and agreements with pathology and radiology services? This article provides an update on prohibited pathology and diagnostic imaging arrangements under the Health Insurance Act.

Major amendments to clarify, streamline and strengthen provisions prohibiting inducements to request pathology and diagnostic imaging services have now been in force for just over four months.

Due to the breadth of the amending legislation, all doctors and health services (both private and public) need to review their current arrangements to ensure that their practices and contractual arrangements comply with the new law.

As liability for an offence extends beyond requestors and providers of pathology and diagnostic imaging services to not only persons 'connected' to them, but also to directors and officers of corporations and persons who 'aid, abet, counsel or procure' a contravention, all health services should ensure that as part of their corporate governance they have:

  • Reviewed their current arrangements.
  • Ensured that key managers are aware of the new framework and penalties.
  • Revised any arrangements or practices that do not comply.
  • Implemented an ongoing monitoring system to prevent breaches.

It is likely that many service contracts, leases and other agreements or 'understandings' will need review and legal advice on compliance with the new regulatory framework.

The New Legislation And Regulator Frame Work

The Health Insurance Act 1973 (Act) was amended in June 2007 by the Health Insurance Amendment (Inappropriate and Prohibited Practices and Other Measures) Act 2007 (Commonwealth). The main amendments of the amending Act commenced on 1 March 2008.

Accompanying the commencement of the amendments, the Minister for Health and Ageing, the Hon Nicola Roxon MP, made two Determinations in February 2008 (Permitted Benefits Determinations) - one for pathology and one for diagnostic imaging. The Department of Health and Ageing also published a useful Explanatory Guide to the Health Insurance Amendment (Inappropriate and Prohibited Practices and Other Measures) Act 2007 in August 2007 and Medicare Australia has distributed information sheets to practitioners.

A regulation is yet to be made setting out methods for determining market value for rent and other payments made under agreements with pathology and diagnostic service providers.

As the legislation applies to arrangements for requesting or providing pathology and diagnostic radiology services eligible for a Medicare benefit under the Health Insurance Act, the new framework is applicable to both the private and public sectors.

What Is Prohibited?

In a nutshell, any benefit other than a permitted benefit as set out in the Act or a Permitted Benefits Determination is now prohibited. A prohibited benefit can take any form, including money, property, goods or services. In addition, even if a benefit would otherwise fall within the definition of permitted benefit, it will not be permitted if the benefit is related to the number, kind or value of requests for pathology or diagnostic imaging services made by the requester.

The Act also contains a general prohibition on the stationing of staff and equipment at a requester's premises for the purpose of providing pathology or diagnostic imaging services, except under a commercial lease of separate space.

Key Concepts - 'Requestor ', 'Provider ' And 'Persons Conected '

A key concept to understand is the very broad defining of 'requester' and 'provider'. A requester must not ask for or accept a benefit (other than a permitted benefit) and a provider must not offer or provide such a benefit.

It will be a criminal offence to ask for, accept, offer, or provide a benefit, or make a threat that is intended to induce requests to a particular provider.

Requesters

A 'requester' of a pathology service means:

  • A practitioner.
  • A person who employs or engages under a contract for services, a practitioner.
  • A person who exercises control or direction over a practitioner (in his or her capacity as a practitioner).

A 'requester', in relation to diagnostic imaging services means:

  • A medical practitioner.
  • A dental practitioner, chiropractor, physiotherapist, podiatrist or osteopath - where that person referred patients to diagnostic imaging services for which Medicare benefits are payable.
  • A person who employs or engages under a contract for services a person specified above.
  • A person who exercises control or direction over a person specified above in his/her professional capacity.

Therefore, if you employ or engage under a contract for services or exercise control or direction over a medical practitioner, you will be a requester under the Act.

Whether or not you exercise control or direction over a person will be a question of fact. Providers

A 'provider' of a pathology or diagnostic imaging services means:

  • A person who renders that kind of service.
  • A person who carries on a business of rendering that kind of service.
  • A person who employs or engages under a contract for services, a person specified above.
  • A person who exercises control or direction over a person specified above in the second person's capacity as specified.
  • A person who is a provider of any kind of pathology service or diagnostic imaging service.
  • An approved pathology practitioner (APP).
  • An approved pathology authority (APA).

Persons Conected

The obligations extend not only to the provider and requester but also to persons who are 'connected' to a provider or requester.

Section 23DZZIJ states that a person is connected to another person if (amongst other matters):

  • The first person is a relative of the other person.
  • Both of the following apply:
  • The first person is a body corporate.
  • The other person is a director, secretary, chief executive officer or any other executive officer of that body corporate.
  • Both of the following apply:
  • The other person is a body corporate.
  • The first person is a director, secretary, chief executive office or any other executive officer of that body corporate.
  • Both of the following apply:
  • The first person is a body corporate.
  • The other person is a body corporate that is related to that body corporate.

There are similar arrangements in relation to trusts/ beneficiaries and partnerships or employment/ engagement.

Whether or not a body corporate is related to another body corporate is to be determined in the same manner as under the Corporations Act 2001.

Permitted Benefits

Section 23DZZIF defines 'permitted benefits'. These include:

  • Sharing profits of a pathology or diagnostic imaging business if the dividend is proportionate to the beneficiary's interest in the business.
  • Remuneration (whether salary, wages, commission, allowance or bonuses) provided that the amount of remuneration is not substantially different from the usual remuneration paid to persons engaged in similar employment or under similar contract.
  • A payment for property, goods or services that are shared, where the amount of the benefit is proportionate to the person's share of the cost of the property, goods or services.
  • Making or accepting payment for property, goods or services that are not shared between the requester and the provider at market value.
  • The provision of pathology or diagnostic imaging consumables approved by Ministerial Determination.

Even if a benefit is included in the list of permitted benefits, it will not be permitted if the benefit is related to the number, kind or value of the requests for pathology services or diagnostic imaging services made by the requester.

The Amendment Act also prohibits the provision of staff and equipment at the requester's premises for the purposes of providing pathology or diagnostic imaging services, except under a commercial lease of separate space.

The Pathology Determination includes the following permitted benefits:

  • For premises that are a hospital - the provision of equipment stationed at the hospital for use in relation to the rendering of services relating to pathology to a person who is in attendance at the hospital for the purpose of receiving hospital treatment.
  • Educational material about pathology, including material that may be given to patients. The Diagnostic Imaging Determination includes the following permitted benefits:
  • The provision of staff or diagnostic imaging equipment at premises of the beneficiary if the premises are a hospital or the staff or equipment are stationed at premises for the sole purpose of enabling services relating to diagnostic imaging to be rendered during a surgical procedure performed at the premises (including a procedure performed by fine needle aspiration).
  • Educational material about diagnostic imaging, including material that may be given to patients.
  • Education sessions on diagnostic imaging that meets specified requirements.

Lease Arrangements

Health care practices, hospitals and other facilities who have leases with pathology or diagnostic imaging providers will need to review the terms of the leases to ensure that the rental is market rental.

It is anticipated that a further Ministerial Determination will be made on circumstances in which lease payments would be permitted benefits. The Act provides for regulations to be made prescribing a method of working out what the market value is, and whether the amount of a payment is substantially different from the market value. No regulation has yet been made.

It has been suggested that there will be a requirement that the parties obtain at least two sworn valuations of the market value of lease arrangements and that payments under the lease must not be substantially different from the market value (that is, are within 10% above or below the average of all valuations which are obtained).

Commercial arrangements such as a lease or contract entered into before 1 March 2008 may still be in breach of the legislation if they do not meet the new requirements. For leases entered into before 1 March 2008, the Department of Health and Ageing has indicated that there will be a period for the parties to obtain valuations as to market value.

Civil Penalties

The civil penalties are 600 penalty units (currently $66,000) for an individual and 6,000 penalty units (currently $660,000) for a corporation.

Further, a breach of this legislation can result in referral of the provider to a Medicare Participation Review Committee and possible loss of access to Medicare.

Criminal Prosecution

It will be a criminal offence to ask for, accept, offer, or to provide a benefit, or make a threat that is intended to induce requests to a particular provider.

The penalty for a criminal offence can be imprisonment of up to five years.

Personal Liability And Responsibilities Of Executive Officers

An executive officer of a body corporate might contravene a civil penalty provision under the legislation if the body corporate contravenes a civil penalty provision.

An executive officer of a corporation contravenes the legislation if:

  • The body corporate contravenes the legislation.
  • The executive officer knew that the contravention would occur.
  • The executive officer was in a position to influence the conduct of the body in relation to the contravention.
  • The executive officer failed to take all reasonable steps to prevent the contravention.

Executive officers of a body corporate should take reasonable steps to prevent the commission of an offence under the Act (this will be taken into consideration in connection with any prosecution of an offence).
Aiding And Abetting

The Amending Act also prohibits persons from aiding, abetting, counselling or procuring the contravention of the Amending Act.

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