Medical co-operative collapses with $2 million in claims against it

A controversial medical co-operative has been placed into administration with creditors to decide next week whether the business continues or is liquidated.

CRS Warner Kugel has been appointed as administrator of The Diagnostic Medical Co-Operative in Sydney and a second meeting of creditors will be held on May 30, when the fate of the business will be determined.

When DMC was first established in 2005, pathologists appealed to then health minister Tony Abbott to prevent its formation on the basis that doctors should not be able to directly profit from the co-operative.

Controversy surrounded the potential for doctors to be financially rewarded every time they ordered blood and other tests run by DMC, because it was owned by the doctors themselves.

David Kindon, then head of the Association of Pathology Practices, opposed the scheme and said it went against the principles of Medicare.

“If a pathologist was to give money back to a doctor for ordering pathology, which is essentially what this is, it’s called a kickback, and that is being stamped out over many years in the pathology profession, and this would sort of bring it back in spades,” Kindon told the ABC in 2005.

A spokesperson for the Association of Pathology Practices said he did not want to comment on DMC’s collapse.

Anthony Warner, of administrator CRS Warner Kugel, told SmartCompany the theory behind DMC’s business model was that referrers would profit from referrals.

“That was in theory, but I don’t think it ever eventuated because it never made any money, you have to make money before there is profit,” says Warner.

“The company has failed and nearly has $2 million in claims against it, the idea of profit was nice in theory but it never eventuated.”

Warner says DMC has less than 10 employees but has a total of 232 shareholders who are mainly pathologists and doctors.

“The problems were inadequate financial management, outsourced contracts and the chief executive has put it down to changes to the Health Insurance Act, with the introduction of uncapped licence approvals,” says Warner.

“There was also the failure of a service provider to renew an option for the services, an alleged breach of contract by another service provider and an alleged inaccurate billing system with a service provider.”