$1.65 million penalty for prohibited pathology lease arrangements

Department of Health

A pathology provider in New South Wales was ordered to pay the Commonwealth a pecuniary penalty of $1.65 million, along with legal costs of $200,000, for entering into four leasing arrangements that contravened the Health Insurance Act 1973 (the Act).

The Chief Executive Medicare on behalf of the Commonwealth instituted civil proceedings in the Federal Court of Australia (the Court) against Healius Pathology Pty Ltd (Healius), trading at the time as Specialist Diagnostic Services Pty Ltd.

The department welcomes the judgment handed down on 18 August 2023, which related to lease arrangements entered into by Healius over a six-year period for pathology collection centres co‑located at two dermatology practices in Castle Hill and Kingswood in NSW. The Court noted expert valuation reports relied on by the Commonwealth that the agreed lease amounts were “between 100% and 470% greater than the market values”.

The Court held the lease arrangements were substantially different from market value. They were “serious contraventions that are deserving of significant penalties” particularly in respect of general deterrence to the pathology industry. The Court was satisfied that a significant penalty was warranted due to Healius’ substantial position in the pathology market, its large size and financial position.

The Court took into account that Healius’ conduct in the litigation was cooperative, including by accepting the contraventions and penalties.

The department will continue to enforce compliance with the prohibited practices provisions in the Act and engage with lessors and lessees where concerns are identified, with the expectation that steps will be taken by the parties to address the concerns.

The department suggests that rent paid per square metre for a medical centre premises may be used as a guide to determine a proportionate rent for space occupied by a pathology collection centre within the medical centre. The department also encourages regular review of lease arrangements and recommends seeking independent valuations of premises to ensure compliance with the Act.

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