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Practices and Pathology Providers – Prohibited Practices and the ‘Red Book’: know your obligations

Justin Fung, Avant Law - Partner, Head of Commercial & Corporate | General Manager

Lindsay McGregor, Avant Law - Partner, Head of Property

Sunday, 5 November 2023

Practices and Pathology Providers – Prohibited Practices and the ‘Red Book’: know your obligations

Medicare provides benefits to members of the public and laws are in place to prevent the exploitation of these benefits by medical practitioners and other service providers. One way of doing so is through the ‘prohibited practices provisions’ (Provisions) implemented by the Health Insurance Act 1973 (Cth) (Act). These Provisions are sometimes overlooked by pathology, diagnostic imaging and general practices, yet practitioners in breach of the Provisions face severe civil and criminal penalties. If your practice provides or requests pathology or diagnostic imaging services, it is crucial that you are fully aware of all prohibited practices to ensure you are not infringing the Act. The Commonwealth Department of Health and Aged Care provides guidance in relation to these Provisions in what is commonly referred to as the ‘Red Book’.

A recent example of this was the case of Commonwealth of Australia v Healius Pathology Pty Ltd (2023) FC981 (Medicare v Healius). In that case, Healius had agreed to pay a high rent under several leases which were held to be in excess of market value. The outcome of the case was that Healius was ordered to pay a penalty of $1,650,000 as well as the Commonwealths legal fees in the amount of $200,000.

What are the Prohibited Practices Provisions?

The Provisions, outlined in Part IIBA of the Act prohibit receiving, providing or asking for various ‘benefits’ in connection with the provision of diagnostic imaging or pathology services, with the aim of reducing the misuse of public funds through Medicare.

The Provisions apply to any provider of diagnostic imaging or pathology services (Provider), to any practitioner, chiropractor, osteopath, podiatrist, nurse, midwife or physiotherapist who refers their patients to pathology or imaging providers (Requester), and to any person connected to a Provider or a Requester.

A connected person is defined in section 23DZZIJ to include people who are relatives, employers and employees of, or members of the same partnership or body corporate as, Providers or Requesters.

What is a Prohibited Benefit?

A Benefit is defined as any money, property or other services which is asked for, offered or provided, and includes actual or potential benefits.

A Benefit is permitted if section 23DZZIF of the Act applies. This section outlines a number of situations in which a Benefit may be permitted, including payments for property, goods or services at a price within 20% of market value, so long as the Benefit is not contingent on or related to the number of requests for Services made by the Requester.

A Benefit is prohibited if it is reasonably likely to induce a requester to request any kind of pathology or diagnostic imaging services (Services) or is otherwise related to the business of rendering Services and the Benefit is not permitted.

A Provider cannot give or offer to give any prohibited benefit to a Requester, and a Requester cannot accept or ask for any prohibited benefit from a Provider.

How does this become an issue for you?

Generally, arm’s length dealings with Requesters will not be considered a Prohibited Benefit. But if there is any doubt that the amounts being paid are inflated, or the services are not actually being provided, issues will arise. For example, Medicare require the location of all pathology collection centres to be approved by them. Medicare have the ability to monitor transactions being undertaken from that location. If Medicare suspect transaction numbers are too low or too high, they may start to question that approval. As part of this, they may then ask what the rental is or otherwise investigate the agreement reached.

What are the penalties for breaching the Provisions?

Divisions 3 and 2 of the Act outline significant civil and criminal penalty provisions for breaches of the Act. These penalties apply to both Requesters and Providers.

Civil Penalties

Under section 23DZZIK, a Requester can face penalties of up to 6,000 penalty units ($1,878,000) for asking for or accepting a prohibited benefit, or for knowing that a person connected to them asked for or accepted a prohibited benefit.

Similarly, under section 23DZZIL a Provider can face penalties of up to 6,000 penalty units $1,878,000 for providing or offering to provide a prohibited benefit, or for knowing that a person connected to them offers or provides a prohibited benefit.

Criminal Penalties

Criminal penalties of up to 5 years’ imprisonment may apply in addition to the above civil penalties in situations where a prohibited benefit is provided with the intention of inducing requests for Services including, but not limited to, where:‍

  • A Provider offers or provides a prohibited benefit to a Provider with the intention of inducing a Requester to request Services (s 23DZZIR(1);
  • A Provider has knowledge that another party has offered or provided a prohibited benefit to a Provider with the intention of inducing a Requester to request Services from the Provider (s 23DZZIR(3);
  • A Requester accepts or asks for a prohibited benefit from a Provider and has knowledge that the benefit is provided to them with the intention of inducing requests for Services (s 23DZZIQ(1); or
  • A Requester accepts or asks for a prohibited benefit from a Provider, with the intention of requesting Services as a result of receiving the benefit (s 23DZZIQ(2).

For a criminal penalty to apply to the executive of a body corporate, the executive must have known that the offence would occur and have been in a position to influence the conduct of the company but had failed to take all reasonable steps to prevent the offence.

Conclusion

If your practice provides or requests pathology or diagnostic imaging services, it is crucial that you ensure that any product, payment or services provided by your practice would not be deemed a prohibited practice under the Act. In light of Medicare v Healius, it is likely that leases for pathology and diagnostic imaging premises will be under increased levels of scrutiny. To have your lease or other practice engagements reviewed by an expert solicitor, contact Avant Law today.

We can help you

If you have any questions, or would like more information about how we can assist you or your practice, please call 1800 867 113, or to organise a confidential discussion at a time that suits you, please click here 

About the authors

Justin Fung

Justin Fung is a lawyer and the Head of Commercial and Corporate in our Avant Law team. Justin has over 15 years’ experience advising in commercial, corporate, risk, compliance, governance, regulatory enforcement and dispute resolution and advises clients in the private and public sectors. He was previously General Counsel of a national allied health group of companies and held Group and Divisional Head of Legal roles in a major ASX-listed health company, whose operations covered medical and dental centres, allied health, pathology, diagnostic imaging, assisted reproductive technologies, day surgeries and hospitals. Prior to these in-house legal roles, Justin was an Executive Counsel with the global law firm Herbert Smith Freehills where he practiced for over 10 years.


Lindsay McGregor

Lindsay McGregor is a lawyer and the Head of Property in our Avant Law team. He has been working in property related matters for over 20 years. He was previously a partner at a highly regarded national firm and has considerable experience in property transactions across Australia. He has previously acted for some of the country’s biggest property investors and developers and can use this experience to your advantage.

Disclaimers

The information in this article does not constitute legal advice or other professional advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of its content. The information in this article is current to 8 November 2023”.

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