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Federal Minister for Health, Sussan Ley, has confirmed that she is considering a proposal by Australia’s private pathology industry lobby group to regulate commercial rents charged on pathology collection centres they operate.

While lobbying a Federal Minister to get involved in tenancy arrangements between private companies may appear extraordinary, major companies in Australia’s $2.5 billion a year private pathology industry have emerged as major Liberal Party donors. Since July 2010 Sonic Healthcare, Healthscope and the industry lobby group Pathology Australia have contributed over $633,000 to the Liberal Party and its branches.

Why should a Federal Minister – especially one in a government which has made deregulation one of its central policy tenets – get involved in a commercial dispute over rental costs?

In its February 2015 Budget submission to the Federal Government, Pathology Australia – which has donated at least $77,200 to the Tasmanian branch of the Liberal Party in the past three years and has Sonic Healthcare and Healthscope as members – pleaded for sympathy. “Revenue reductions along with strongly rising costs is a difficult scenario to manage in any business including private pathology,” the lobby group complained.

The lobby group argued that “above market rents” paid for collection centres located with medical practices “has added an additional cost burden on the sector of $200 million per annum.” While Pathology Australia provides no detail on how their tally is arrived at, the lobby group is demanding Ley take action.

In its Budget submission Pathology Australia stated that the private pathology sector has “proposed new regulations which would more effectively remove these above-market-rate rents and regularise the arrangements between providers and requesters.”

Pathology Australia explained that “we are in consultation with the Minister for Health and the Department over this issue” and that “the Government is making good progress and is working closely with the sector.” The lobby group reported that “there has been significant progress on this issue” and stated that it looked forward to working with Ley – who was appointed Minister for Health in December 2014 – “on this issue in the coming months.”

Tasmanian Times asked a spokesperson for Ms Ley whether the Minister had met with Pathology Australia to discuss proposed regulations to limit rental costs and if she supported their proposal. The Minister’s office did not respond directly. However, a spokeswoman for the Department of Health stated in an email that the government “is consulting with the pathology sector in relation to the issues raised by Pathology Australia” and that “no decisions have been made as yet.”

Tasmanian Times also asked the Minister’s media adviser whether the Minister was aware that Pathology Australia, Sonic Healthcare and Healthscope have all been major donors to the Liberal Party. No response was received from the Minister’s office. Tasmanian Times does not suggest the donations directly influenced Ms Ley’s decision-making.

According to Australian Electoral Commission (AEC) data, since August 2010 Sonic Healthcare has donated $457,595 to the Liberal Party – including $400,000 to its federal office. Healthscope – which sold its Australian pathology operations to a private equity firm in July 2015 – contributed $98,750 to the Liberal Party, including $34,500 to the Federal Party since July 2011.

Pathology Australia – the peak lobby group for the private pathology industry sector – has donated a further $77,200 in the past three years to the Liberal Party’s Tasmanian Branch. According to AEC data the two companies have made no donations to any other political parties, though Pathology Australia donated $32,000 to the Federal Labor Party during the Prime Ministership of Julia Gillard. Sonic Healthcare and Healthscope are both members of Pathology Australia.

The private pathology industry’s rental costs are largely a problem of their own making. Until June 30, 2010 Federal Government regulations capped the number of pathology collection centres at about 2500. Deregulation resulted in an explosion of collection centres, with about 4600 by mid-2014, with many located in the growing number of medical centres. As major private pathology companies competed for scarce space, rental costs increased.

As rents rose, sections of the pathology industry argued that they be regulated. In late 2010 the then Minister for Health, Tanya Plibersek, initiated a review of the regulation of collection centres, including the rents. The review was scheduled to be completed by early 2013 but was delayed – and with the change of government in September 2013 – never completed.

Pathology industry splits over rents and regulations

The issue, though, exposed divisions within the private pathology industry. Ed Bateman, the founder and Managing Director of Primary Healthcare, the second largest private pathology operator in Australia, opposed any move to re-regulate collection centres. “The only entity that benefits [from re-regulation],” he told the Australian Financial Review, “is Sonic, which has failed to adapt to the changes. We are strongly in favour of maintaining the status quo.”

Nor did Bateman agree there was a problem with rental costs. “There is no reason to regulate rents, as they have been in line with expert predictions before regulation and, after rising, have fallen to normal commercial rates,” he said.

Bateman retired from Primary Healthcare – which is not a member of Pathology Australia – in January 2015. While AEC data indicates Primary Healthcare has not made donations over the disclosable threshold, Bateman and his wife have previously been major Liberal donors. In the 2010 financial year they contributed $250,000 to the Federal Liberal Party. The next year Ed Bateman contributed $50,000 to the Federal Liberal Party and a further $1000 to the Queensland Liberal National Party.

Behind the split in the pathology industry’s ranks lies divergent commercial interests. Following de-regulation Primary Healthcare expanded rapidly, forcing other companies to frantically compete to sign deals with un-contracted medical centres. Out-manoeuvred by Primary Healthcare, the other players proceeded to decry de-regulation as having failed while its biggest beneficiary defended it.

No sooner than the Abbott Government had been sworn in than the complaints about the need for re-regulation and control of collection centre rental costs re-emerged.

While the parameters of the debate over regulation have changed little, one thing that has changed is that Primary Healthcare’s commercial rivals and their lobby group have emerged as major donors to the Liberal Party.

As the profitability of some of the major private pathology companies has declined, they have called on the Federal Liberal government to play the role of a rentbuster.

Bob Burton is a Hobart-based Contributing Editor of Tasmanian Times and has been a freelance contributor to the British Medical Journal. His earlier articles on Tasmanian Times are here.
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Related articles in this series on Tasmanian Times:

•  October 27: The private pathology industry emerges as major Tasmanian Liberals donor

• October 29: What happens if a major political donor doesn’t disclose?

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