Expense of Phlebotomy Leases Raise Cost of Care in Australia

Some medical lab firms report that lease fees paid to physicians now make up 20% of total costs

CEO SUMMARY: In the United States, medical labs have long recognized that paying over-market rates to lease phlebotomy space in physicians’ officers is an inducement and a violation of federal anti-kickback laws. In Australia, a law in 2010 that removed the cap on what labs could pay to lease phlebotomy space in physicians’ offices caused huge increases in these lease payments. It is a real-world demonstration of how physicians will play labs against each other to maximize their lease fees.

IN AUSTRALIA, PATHOLOGISTS are giving a real-world demonstration of what happens when clinical laboratories have no restrictions on how much they can pay physicians for renting office space from doctors for phlebotomy draws.

In 2010, the Australian government lifted the restrictions on how much labs could pay to physicians for leasing office space in doctors’ offices. Since then, the Australian government has seen healthcare costs rise sharply as labs seek to gain lab test referrals from physicians. Labs stand to gain referrals from physicians when they pay to lease space in doctors’ offices to draw blood and take other patient specimens.

Naturally, with no cap on the market rate for these leases, and with no anti-kickback law comparable to that of the Medicare program here in the United States, physicians will play one medical lab against another to get the highest lease rate in exchange for referring lab tests. The problem for Australian labs in this situation is that they end up paying more to do clinical lab testing than they paid before the government lifted the restrictions.

Now, clinical laboratory directors and pathologists in Australia are complaining to the federal government that doctors are seeking such deals as a way to generate additional income after the government reduced what it pays physicians in a move to control national healthcare spending.

Labs pay 20% of revenue

Medical lab directors and pathologists say that they are now forced to pay as much as 20% of their labs’ income to physicians to rent office space for phlebotomy and specimen collection.

Last month, newspapers reported that Australia’s Prime Minister Malcolm Turnbull promised to help pathologists get lower-cost rents for blood-drawing centers in the clinics of general practitioners. In exchange, Pathology Australia, an medical lab trade group, agreed to stop campaigning against the government’s plan to remove certain financial incentives for bulk billing.

The Australian newspaper reported that Turnbull’s offer angered the Royal Australian College of GPs and the Australian Medical Association (AMA). Michael Gannon, the president of the AMA, complained that two major publicly-traded companies dominate the pathology industry, whom he identified as Sonic Healthcare and Primary Health Care.

Docs: Limit Inducements

In a letter on the issue, Gannon wrote, “The proposed changes fundamentally alter the intent of the existing law, which is designed to prevent inducements to refer, so that it would instead regulate (collection center) rents by imposing a blunt cap on the commercial rents that GPs and other specialists can receive for co-located (collection centers).”

The number of blood drawing and specimen collection centers in physician offices had risen in recent years, reported The Australian, because the two pathology companies were competing for market share. In addition, physicians were struggling financially because the government had imposed a freeze on what the federal Medicare program pays to doctors. Therefore, doctors were interested in leasing office space to pathologists willing to rent blood-drawing specimen collection centers, according to Gannon.

In December, the Turnbull government had not yet unveiled a solution to the problem. In the meantime, pathologists were struggling financially, noted the Brisbane Times. “Pathologists claim they are being used as a piggy bank to fill the gap between rising doctor costs and the Medicare freeze,” wrote reporter Amy Remeikis.

Meanwhile, the Turnbull government has promised to alter the definition of ‘market value’ for space pathologists rent in the GP clinics, the newspaper added. By altering the definition, the Turnbull government would effectively be mandating rent control to protect pathologists, the newspaper added.

The change in the definition was intended to be implemented in January. However, in December, the Turnbull government said it would delay implementation to allow continued discussions of the issue with pathologists and those physicians who rent space to pathologists. Meanwhile, many pathology groups com-plain that they are struggling financially and that—if many of them go out of business—only the two largest clinical laboratory companies would remain, the Brisbane newspaper reported.

Wayne Smit, MD, the managing partner and general pathologist of Perth Pathology, told the Brisbane Times that he had no choice but to sell his 10-year-old pathology business to a larger lab company. He also said that the reason he was selling the practice was because the cost to rent space in a physicians’ offices had risen from 5% of the cost of running the lab to 20%.

“I would have preferred to remain independent and viable but this was simply not possible,” Smit told the newspaper. “The collection center rents were deregulated in 2010 without consideration as to the longer-term implications for pathology provision.”

Labs Forced to Close or Sell

Smit’s West Australian practice is one of six private pathology companies that has sold to a larger entity or closed in the past two years, the newspaper reported. If a solution to the problem is not found quickly, Liesel Wett, CEO of Pathology Australia, predicted that patients would bear most of the share of any increased costs, the newspaper said.

“If this continues, we will end up with a duopoly, which would lead to increased prices and lower service standards,” Wett commented. “If GPs are relying on rent from pathologists to be profitable, and this is sending pathology practices to the wall and out of business, then this is not sustainable.”

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