One of Australia’s biggest pathology corporates has been fined $1.65 million over its rental arrangements with two dermatology practices, involving leases up to five times greater than market value.

The Federal Court of Australia found Healius paid annual rents of $150,000 and $200,000 plus GST, respectively for the collection centre rooms, each co-located with dermatologist clinics in western Sydney.

The rooms were 4.8m² and 8.4m² in size.

Civil proceedings against the corporate were filed by the Commonwealth, alleging the deals breached the Health Insurance Act, which prohibits practices charging rents 20% or more above the market rate for any room’s location.

Introduced a decade ago, the rule was intended to ensure referring doctors’ diagnostic testing requests are not “improperly influenced” by financial arrangements with pathology companies, the court heard.

Expert reports tended to the court suggested the actual market value of the rooms at the time of the original leases in 2015 was between $30,000-$35,000 per annum and $75,000-$82,500, respectively.

As a result, the company was paying “between 100% and 470% greater than the market values”, lawyers for the Commonwealth said.

In a decision handed down last month, Justice Angus Stewart said the arrangements amounted to “serious contraventions that are deserving of significant penalties” (link here).

He said there was a “very real public interest” in the case, which he said should act as a general deterrent to the pathology industry.

The Court took into account that Healius, which had initially denied breaching the Act, had admitted the contraventions and agreed to the penalties.

The maximum penalty per breach was $1.26 million, putting Healius at risk of a $5 million fine had it not settled.

As well as the pecuniary penalty, the company was ordered to cover the Commonwealth’s $200,000 legal costs.

In a statement, the Department of Health and Aged Care said: “The department will continue to enforce compliance with the prohibited practices provisions in the Act and engage with lessors and lessees where concerns are identified, with the expectation that steps will be taken by the parties to address the concerns.”

“The department suggests that rent paid per square metre for a medical centre premises may be used as a guide to determine a proportionate rent for space occupied by a pathology collection centre within the medical centre. The department also encourages regular review of lease arrangements and recommends seeking independent valuations of premises to ensure compliance with the Act.”

“More information and guidance about compliance with the prohibited practices provisions can be found on the department’s website at https://www.health.gov.au/topics/pathology/compliance.”