What should medical practitioners be aware of when entering into commercial arrangements with health funds or buying shares in private health facilities?

By Alison Choy Flannigan and Lauren Krejci

Medical practitioners owe a number of duties, as we outline below. In this article, we explain how to deal with conflicts of interest, avoid anti-competitive conduct and fulfil many other required duties when entering into commercial arrangements with health funds or buying shares in private health facilities.

Duties owed by medical practitioners include:

  • a duty of care under the tort of negligence and civil liability legislation to provide treatment in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice, for example, under section 5O of the Civil Liability Act 2002 (NSW);
  • in clinical practice, ensuring that the care of their patient is their primary concern under the Good medical practice: a code of conduct for doctors in Australia (Code of Conduct) section 2.1). Compliance with the Code of Conduct is a condition of registration with AHPRA under the Health Practitioner Regulation National Law as non-compliance may be ‘unsatisfactory professional conduct’.
  • in professional life, doctors must display a standard of behaviour that warrants the trust and respect of the community. This includes observing and practising the principles of ethical conduct (Code of Conduct, section 8.1); and
  • dealing with conflicts appropriately (Code of conduct, section 8.11).

Dealing with Conflicts of interest

Patients rely on the independence and trustworthiness of doctors for any advice or treatment offered. A conflict of interest in medical practice arises when a doctor, entrusted with acting in the interests of a patient, also has financial, professional or personal interests, or relationships with third parties, which may affect their care of the patient. Multiple interests are common. They require identification, careful consideration, appropriate disclosure and accountability. When these interests compromise, or might reasonably be perceived by an independent observer to compromise, the doctor’s primary duty to the patient, doctors must recognise and resolve this conflict in the best interests of the patient.

Doctors must act in their patients’ best interest when making referrals and when providing or arranging treatment or care.  They should also inform patients when they have an interest that could affect, or could be perceived to affect, patient care.

In addition, they should not ask for or accept any inducement from companies that may affect, or be seen to affect, the way they treat or refer patients.

Further, they should not allow any financial or commercial interest in a hospital, other healthcare organisation, or company providing healthcare services or products to adversely affect the way in which they treat patients. When the doctor or their immediate family has such an interest and that interest could be perceived to influence the care they provide, they must inform their patient.

The case of Health Care Complaints Commission v Petros [2019] NSWCATOD 83 concerned a complaint brought by the Health Care Complaints Commission against Peter Petros, a gynaecologist specialising in pelvic floor reconstruction, for, amongst other matters, failing to disclose his financial interest in the TFS device to clients undergoing TFS surgery.

The NSW Civil and Administrative Tribunal held that the failure to disclose financial interests and misleading conduct of Dr Petros satisfied the requirements for “unsatisfactory professional conduct” under section 139B of the National Law.[1]

In the High Court case of Breen v Williams[2], it was held that a fiduciary duty may be owed by medical practitioners when they have an undisclosed financial interest that potentially conflicts with their duty to provide independent treatment.

Bribery, Medicare and the Professional Services Review Scheme

The Health Insurance Act 1973 (‘the Act’) contains provisions that prohibit bribery by private health facilities and inappropriate practice from medical practitioners.

Section 129AA of the Act makes it an offence for a medical practitioner without reasonable excuse to receive any property, benefit or advantage from a proprietor of a private hospital as inducement to refer patients.

Conversely, this section also makes it an offence for a proprietor of a private hospital (or a person acting on behalf of that proprietor) to offer such benefits without reasonable excuse.

Medical practitioners must in entering into arrangements with private health insurers and ownership arrangements in private health care facilities must consider whether or not there is an arrangement which incentivises the referral of patients to a private hospital. Arrangements that have this effect without a reasonable excuse may be considered a ‘bribe’ under this section, which is punishable by imprisonment for a period of up to 5 years.

In a prosecution of a person for an offence against this section, it is a defence if the conduct in question was in accordance with the standards of professional conduct generally accepted by medical practitioners.

Incentivising doctors to direct treatment of patients may also attract ‘inappropriate practice’ provisions if the arrangement encourages over-servicing of patients. This is regulated by the Professional Services Review (‘PSR’) Scheme. Section 82 of the Act defines ‘inappropriate practice’ as conduct that would be unacceptable to the general body of members of the profession in which the practitioner was practising when they rendered or initiated the services. If the PSR Committee finds that a practitioner has engaged in inappropriate practice, the practitioner may be disqualified from the Medicare benefit arrangements for up to 3 years.

The Department of Health has increased its random auditing process and government resources to reduce the risk of inappropriate practices and claiming which can result in personal penalties and in some case referral to the Department of Public Prosecutions for fraud.

Further, there are penalties for knowingly, recklessly or negligently causing or knowingly, recklessly or negligently permitting a practitioner (who is employed or otherwise engaged by the person) to engage in inappropriate practices: section 82(2).

Dealing with private health insurers

In recent times, some private health insurers have been encouraging medical practitioners to enter into commercial arrangements, such as medical purchaser provider agreements, which, despite including wording about independent clinical judgement, could in practice significantly impact upon the decision making of the medical practitioner.  This is of concern.  For example, those arrangements may a) provide payment arrangements to the medical practitioner if the medical practitioner does not charge the patient a gap, b) require the practitioner to refer the patient to a health service or health care facility owned by the private health insurer, c) restrict the medical practitioner’s referral to another private hospital not owned by the private health insurer and/or d)  pay the medical practitioner additional money to perform certain procedures (eg, hip or knee replacements) on a day-only and restrict the medical practitioner’s referral to overnight inpatient rehabilitation programs.

Further, in recent times, there has been a steady increase in the number of private health insurers owning some or all of the shares in health care services and day procedure centres and entering into exclusive arrangements with medical practitioners for the provision of medical care at these facilities.

Medical practitioners must ensure that their conduct under these arrangements is compliant with relevant laws as discussed in this article.

Anti-competitive conduct under the Competition and Consumer Act

Medical practitioners must ensure that they comply with the Competition and Consumer Act 2010 (Cth) and do not breach the anti-competitive provisions, particularly in relation to entering into exclusive arrangements with health funds which restrict the choice of their patients.

Third line forcing occurs when a business will only supply goods or services, or gives a particular price or discount on the condition that the purchaser buys goods or services from a particular third party. If the buyer refuses to comply with this condition, the business will refuse to supply them with goods or services.

Exclusive dealing will only break the law when the conduct has the effect of substantially lessening the competition in the relevant market and some health funds have a substantial share of the market.

[1] Health Practitioner Regulation National Law Act (NSW) 2009 s 139B.
[2] https://jade.io/article/188395


Alison Choy Flannigan

Alison Choy Flannigan

Partner & Co-Lead, Health & Community

Alison specialises in advising clients in the health, aged care, disability, life sciences and community sectors. 

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