Pathology under pressure: impacts to medical practices

Tensions between the federal government and pathology providers may soon create problems for GP clinics that rely on rental income from on-site pathology collection centres.

Several sources point to a growing gap between stagnant Medicare rebates and rising costs for pathology providers, which is raising questions about how sustainable current leasing arrangements with GP clinics really are.

In response to concerns from pathology providers about rebates not keeping pace with escalating costs, the government recently began indexing fees for certain pathology services. However, the impact has been described as “minor” and providers have warned that tests excluded from indexation could soon carry out-of-pocket costs for patients. 

The government has responded in turn, saying it will take the “strongest possible action” if pathology companies make a move to stop bulk billing patients – leaving pathology companies with some difficult decisions to make.

The impact on medical practices

Strong competition among pathology providers resulted in rental prices within medical clinics reaching far above typical market rates. As this contravened the Health Insurance Act 1973, the government has sought to crack down on extreme arrangements – with one provider fined $1.65 million for paying up to 470% more than market rent.

Regardless, rental income from pathology providers generally accounts for a significant portion of practice income. So any changes to these arrangements could seriously affect a practice’s profitability. 

With the government ramping up scrutiny of pathology providers – examining rents, patient out-of-pocket costs, and even test volumes – the pressure on their business model is mounting. Many will be forced to reconsider how they operate, likely choosing between two options:

1. Setting up outside of medical practices.
2. Pushing for tougher rent negotiations.

So where does this leave medical practices?

Know your practice’s financial health

All of this adds to growing pressure on medical practices nationwide, alongside new payroll tax laws and increasing pressure to bulk bill despite the impracticality of maintaining a 100% bulk bill model.

To mitigate some of the risk, medical practice owners need a clear understanding of their current financial position, including how different scenarios could affect their business. Only with this insight can they develop well-considered strategies to keep the practice financially viable through changing circumstances, such as:

• targeting new efficiencies
• optimising processes
• reducing overheads
• setting commercially sound pricing strategies
• identifying alternative income sources

Our Medical Services team has extensive expertise in financial modelling, pricing strategies, cashflow forecasting, benchmarking, and more. We work closely with medical practice owners to develop tailored strategies that protect their financial health now and into the future. 

From scenario planning and cost management to revenue optimisation and compliance support, you can rely on us for the tools and insights you need to keep your medical practice running smoothly and positioned for long term success.

For more information on how RSM’s specialist Medical Services team can support your medical practice, contact Peter Nicol on 02 6057 3000.