Rent reduction push putting practices under major financial strain

Doug Hendrie

17/04/2020 4:50:19 PM

Two of Australia’s largest pathology companies are pushing GPs to halve their rent for co-located collection centres.

Empty consultation room
Pathology company efforts to cut rent may mean some practices will struggle, expert says.

Letters from Healius and Australian Clinical Labs seen by newsGP ask for a 50% reduction in rents for three months.
Under the Department of Health’s (DoH) The Red Book: Guidance on Laws Relating to Pathology and Diagnostic Imaging – Prohibited Practices, rent cannot be related to the number or value of requests for pathology or diagnostic imaging.
Dr John Deery, Chair of the Australian General Practice Alliance (AGPA), claims pathology companies are breaking the Government rulebook by making the request to slash rents by half.
‘There’s no proof that their revenues have dropped by that amount,’ Dr Deery said.
‘They’re not even negotiating. It’s big business acting as big business does.’
Letters from Healius brand Laverty Pathology seen by newsGP ask for a 50% reduction in rent for the next three months, stating that declines in test volumes have forced the closure of a number of collection centres.
‘We believe that the rent relief proposed above is the most viable way for us to keep our ACCs [authorised collection centres] operating effectively without having to potentially close them,’ the letter states.
A Healius spokeswoman said the rent request was voluntary.

‘We believe that the rent relief proposed is the most viable way for us to keep our collection centres operating effectively … this is a discussion, it’s not a demand,’ she said.  

‘It doesn’t happen unilaterally and we hope to have this discussion with as many of our landlords as we can. We’re all in this together. It’s not about tests or volumes, it’s about what you can afford to pay.’
Compounding the problem is the fact the DoH has put a ban on new pathology centres until 30 September, making it hard to find replacement tenants and further reducing practice owners’ bargaining power.

Some of the requests for rent relief have come with the suggestion the pathology centres would have to be closed if the request is not met, according to The Guardian.

Requests for 50% rent relief have also come from IPN Medical Centres, owned by the primary care division of Sonic Healthcare.
Many general practices rely on rent from co-located pathology collection centres, with the income stream taking on new importance as practices struggle to stay afloat due to a drop in consultations amid the coronavirus pandemic, even with the new telehealth provisions.
Practice rental income is also suffering from allied health workers operating from home.
Pathology lab rents can contribute $15,000–$25,000 a year per full-time equivalent (FTE) GP, according to estimates accounting and tax expert David Dahm provided to The Guardian.
Practices have become ever more reliant on alternate income streams such as pathology rent during the five-year Medicare rebate freeze, according to the AGPA, which notes on its website that many practices are now only able to provide bulk billing as a result of being cross-subsidised by rental streams. 
Dr Deery said practice owners should ask their pathology tenants for proof of reduced income.
‘To take the first offer would be unwise. You can certainly negotiate,’ he said. ‘Everyone else is being asked to show cause of their revenues reducing. They’re just saying they will reduce.
‘Most practices are on razor thin margins. For many, this is what keeps it ticking over.
‘If [rents] go away, I foresee a lot of practices having trouble paying staff. Owners will have to take no income in the next few weeks or reduce services and let staff go.’
Dr Deery said the JobKeeper package will help the situation, but it will be difficult for many practices to make it through the remaining weeks until the funding is available.
GP and practice owner Dr Todd Cameron told newsGP the reduction in rents would most likely results in contractor GPs having to accept a reduction in income – and could even trigger the end of a number of practices.  
‘A lot of practices don’t have big margins, and many are already seeing lower revenues from consulting,’ he said. ‘Once you take out subleases and rents … it can bring about the failure of practices quickly.
‘Sustainable general practice comes from a variety of sources. With pathology in some cases exiting and in many cases reducing, and with allied health reducing and leaving, in the absence of those tenants the doctors themselves will have to keep a lower percentage.’ 
Dr Cameron predicts pathology companies will seek to keep any rent reductions even after the crisis was over. 
The RACGP has called on affected practice owners to consider all options and not to rush into a decision.

The college believes practice owners should take the time to understand their rights and obligations as a landlord, their current lease arrangements, expected hours of operation and likely amount of pathology work over the next several months before beginning discussions or negotiations.
Owners should seek advice from their financial advisor or accountant and look into government assistance packages that may be available.
The RACGP will hold a member webinar on this topic next week, with industry experts to provide advice on negotiating contracts.

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Dr Ragupathy Renganathan   18/04/2020 9:09:54 AM

Please note majority of Medical Centers do not own the premise , they too have to pay rental fees to the Landlord.
My point is Medical Centers are also suffering reduced patient turn over which affects their income.This is a ripple effect so there should be bilateral negotiation which must be considered by both parties.

Rural GP   18/04/2020 11:57:25 AM

My pathology company was very quick to pull away their phlebologist/ collector. Suddenly no service. Similarly, small rural centres nearby.
They starting saving money straight away.
I am turning up to collect blood myself and doctors are back to taking their own bloods and of course swabs. There seems too much opportunism from big business. We are busy supporting patients, pathology companies are screwing practice owners. I am pretty sure small practices are more vulnerable than corporations.I think, but don’t know, that they are using the opportunity to shed staff and cut costs because GP practices are vulnerable right now. Are pathology companies about to go under.? Really?
If we all hold the line, what would happen ? Solidarity please.
Who will the AMA represent.?