Evidence and findings as to the nature of the business of Idameneo
70 It was not in dispute that Idameneo held out the Centres to the public as places where people could come for medical services. Therefore, when a member of the public walked into the reception area at a Centre, the person did so at the invitation of Idameneo. The medical practitioners did not hold a leasehold interest. They were provided with the use of a room as part of the arrangements, but Idameneo retained control over each Centre. It was not the practitioners who did so.
71 Further, it was Idameneo who required the practitioners to be available to receive a patient without an appointment and specified the manner of billing the patient. It was also Idameneo that specified when the Centre would be open.
72 Therefore, even putting to one side the percentage arrangement by which payment was made for the services provided by Idameneo, it was not the case that Idameneo's conduct was confined to ensuring there were practitioners at its Centres who would pay for the services provided by Idameneo. It had specific and comprehensive requirements about the way the medical practitioners conducted their practices and the manner in which charges would be made for the provision of medical services. The nature and extent of these requirements as recorded in the arrangements made with the practitioners is dealt with in more detail below.
73 In addition, the design of each of the Centres was controlled by Idameneo and it determined the nature of the medical services that would be available at the Centre. The practitioners did not have any right to control the identity or nature of the practice of other practitioners at each Centre.
74 Consequently, as the primary judge found, Idameneo had its own goodwill in the business it was conducting from the Centres, being a 'practice goodwill' that 'related to the attractive force of the medical centre itself as a venue for meeting the public's health needs as distinct from the attractive force of any particular doctor': at [61]. This significant finding is unchallenged by way of contention. It is not confined to goodwill associated with the provision of services to medical practitioners. It recognises that the business of Idameneo included a goodwill associated with the drawing power of the Centre itself rather than any particular practitioner. That goodwill formed part of a business structure that depended upon securing the commitments of medical practitioners to adopt the Idameneo way of practising. It was not a product of the physical attributes of the Centre or the quality of the services provided to medical practitioners. It was goodwill that was generated by the mode of practice adopted at the Centres.
75 Further, the primary judge found that Idameneo's goodwill was protected by the restraint of trade clauses that formed part of the arrangement: at [61]. On that basis, his Honour rejected a claim that had been made by the Commissioner that the Lump Sum amounts were paid to acquire any goodwill from the individual practitioners: at [62]. Rather, the primary judge found that 'the payments were for many things, principally increasing the number of doctors working from Idameneo's medical centres'. However, to confine the payment to one being made principally to source enough doctors to meet patient demand, was to fail to consider the whole nature of the arrangement. In particular, it was to ignore all of the attributes that enabled Idameneo to control the mode of practice adopted by the practitioners at its Centres and to promote the Centres as offering medical services that were delivered in a manner that conformed to Idameneo's requirements. The medical aspects of the services were a matter for the practitioner to be exercised in accordance with the practitioner's professional judgment. But the commercial aspects of the manner in which the medical services were provided were controlled by Idameneo through the arrangements.
76 These aspects are implicitly recognised in the further finding by the primary judge at [19] as follows:
Idameneo's ongoing appetite for doctors was driven, however, not only by the direct revenue it would bring to Idameneo. Where there was a shortage of doctors at a medical centre this increased waiting times which led to patient dissatisfaction, loss of patients and therefore a loss of revenue.
77 As the finding recognises, the business conducted by Idameneo was concerned with what would deliver patient satisfaction. It was not the case that Idameneo was concerned only with sourcing enough doctors who would pay fees for services provided by Idameneo. Rather, as the evidence summarised below shows, it was concerned with ensuring that the way in which medical services were provided at its Centres to patients, including as to availability of practitioners, caused the Centres to attract as many patients as possible thereby increasing revenue to Idameneo.
78 Prior to the relevant period, Primary had listed on the Stock Exchange. At the time of listing, Primary issued a prospectus. It described the founder of the business as being Dr Edmund Bateman. In a letter from the Chairman of Primary to prospective investors that formed part of the prospectus, the business of Primary was then described in the following terms:
Primary … provides a comprehensive range of services and facilities to general practitioners, specialists and other health care providers who conduct their own practices and businesses at its medical centres, licensed day surgeries and specialist clinics.
79 The primary judge adopted that description as an accurate one for the purposes of describing the nature of the business conducted by Idameneo. However, the Commissioner drew attention to other statements in the prospectus which described the 'appeal to patients' and the 'appeal to doctors'. In the section concerned with appeal to patients, the prospectus said:
Primary … aims to facilitate the delivery to patients of healthcare services which are:
Competitively priced:
General practitioners and specialists mostly bulk bill patients through the Medicare system. Where services are not covered by Medicare, reasonable price-for-service is recognised by Primary … as an important service and benefit to patients.
Comprehensive:
General practitioners and specialists practise across the broad spectrum of medicine. Services are also offered by an extensive range of other health care providers including dentists, chemists and physiotherapists.
Convenient:
All health care services are available at the one location.
Customer Oriented:
General practitioners and dentists are available on a 24 hour basis, a courtesy car is available to collect and drop off patients, home visits are offered, patients can choose their own doctor, free parking is available, the centres are generally located in proximity to both residential and shopping areas and their premises and equipment are up-to-date.
80 Under the section concerned with appeal to doctors the prospectus included a statement that: 'Because of the advantage the medical centres offer patients and because the centres are well marketed by Primary …, the medical centres enjoy a strong flow of patients'. It may be noted that this statement focusses upon the Centre and its marketing by Primary as the source of patient flow rather than the reputation of the medical practitioner.
81 Section 3 of the prospectus set out a detailed description of the business of Primary starting with the history of its establishment by Dr Bateman. It described how, through the establishment of medical centres by Dr Bateman, Primary had progressively developed expertise and knowledge in the needs and functions of medical centres. It set out the business philosophy of Primary in the following terms:
Primary Health Care has adopted a market driven, customer oriented approach to the provision of services in the health industry which are provided in the context of a traditional family practice.
The aim of Primary Health Care is to facilitate the provision of competitively priced and comprehensive quality health care services at the one site. The provision of the services is based on the general practitioners who are the core service providers. Specialists and other healthcare providers support the general practitioners. The health care services offered at Primary Health Care's medical centres cover most forms of medical and para-medical care that can be appropriately managed out of high cost hospital situations.
Primary Health Care enables the general practitioners, specialists and others to whom Primary Health Care provides services to make health care available at a cost which is low relative to the cost of providing that care through traditional smaller medical practices.
82 The prospectus then described how Primary 'provides a comprehensive range of services to the health care providers at its facilities. It provides the premises from which the health care providers operate'. Also, how Primary 'markets the centres and provides all administrative services which may be required such as purchasing, accounting' and so on. Then, under the heading 'Existing Facilities' it said:
The location of the medical centres, and the services they provide, together with Primary Health Care's marketing strategies, is such that each centre attracts a strong patient flow. This is attractive for general practitioners who are able to build and establish long term practices in Primary Health Care's centres. In turn, this is the basis of an extensive and ongoing referral base for specialist practitioners.
Primary Health Care believes it has developed expertise and knowledge in the needs and functions of medical centres and specialist clinics. The accumulation of this expertise and knowledge has been a gradual process since the establishment of the Warringah Mall medical centre in 1985 and has led to improved patient flow and profitability.
83 The prospectus also described the predominant practice in the Centres of bulk billing which it described as a type of fee arrangement that 'will achieve an increase in patient loyalty, efficiency of health care delivery and thus enhanced profitability'. It described one of the strategies of Primary in the following terms:
Primary … has the capacity to offer patients who have full private insurance and who source all their health care requirements with health care providers operating from the Company's facilities, fees that are fixed near the rebate levels offered by insurers … predominance of Medicare bulk billing and schedule fees for the services provided at the Company's facilities, patients will have a combination of all predictable health cover for known private and Medicare insurance cost for most medical services provided at the Company's facilities.
84 These descriptions indicate that although Primary did not provide the medical services offered by each practitioner at each Centre, it was essential to its business that a particular mode of practice was adopted by those practitioners. It was a mode of practice that Primary had developed as a matter of its own experience and expertise over many years. It concerned the way in which different services were offered at each Centre and the way the Centre was operated, including the manner in which charges were raised for medical services provided at the Centres. In that regard, the financial statements provided in the prospectus included an amount of over $25 million for goodwill (after allowing for amortisation).
85 The prospectus also described the business philosophy of Primary in the following terms:
The aim of Primary … is to facilitate the provision of competitively priced and comprehensive quality health care services at the one site. The provision of the services is based on the general practitioners who are the core service providers. Specialists and other health care providers support the general practitioners. The health care services offered at Primary Health Care's medical centres cover most form of medical and para-medical care that can be appropriately managed out of high cost hospital situations.
86 It then went on to refer to Primary enabling those practitioners to make health care services available at a cost which is low relative to traditional smaller medical practices.
87 These statements characterise the business of Primary as being concerned with both the nature and price of the medical services offered at the Centres which are in turn described as Primary's medical centres. It is concerned not only with the services provided to practitioners, but also the offering of medical services at the Centres. By its own activities it seeks to attract patients to each of its Centres.
88 Before the primary judge, evidence was given by Mr Andrew Duff. During the relevant time he was the chief financial officer of Primary. He was not personally involved in the negotiation or drafting of the agreements made with practitioners. By the time of the hearing before the primary judge, Dr Bateman who had been involved had passed away. However, hearsay evidence was allowed as to what Dr Bateman had told Mr Duff about the negotiation of the arrangements with individual practitioners. That evidence formed the basis for findings by the primary judge that have already been quoted.
89 In his affidavit evidence Mr Duff described the business of Primary as being to provide services to medical, dental and other health professionals, principally through the operation of medical centres. He said that Primary was a pioneer 'in the operation of large scale medical centres in Australia'. He said that at each Centre, Idameneo provided support services, including administrative services, clerical staff, nursing staff, facilities, plant and equipment and premises to enable medical practitioners to conduct their practice. He said that the Centres were set up to enable the practitioners to concentrate on practising medicine rather than the administration of the practice. He referred to the 'medical centre business' conducted by Primary.
90 During cross-examination, Mr Duff agreed that in the period from 2002 to 2007 Primary's activity was to develop and operate medical centres which provided a range of medical and health services to the public. He agreed that the location and construction of each of the Centres had to be of a nature that would enable a variety of health and medical services to be provided to the public. Some were constructed for that purpose and others were renovated. In the majority of instances the Centre provided pathology services and had a pharmacy. Mr Duff agreed that it was Primary who decided what services would be offered to the public from each Centre and that decision then impacted upon the nature of the construction or refurbishment that would take place.
91 Mr Duff was also taken to certain parts of the financial records of Primary. He agreed that year on year comparisons of patient attendances at the Centres was often dealt with in the commentary provided by Primary to the Stock Exchange. He also agreed that was done because the patient attendances were a critical component of the profitability of Primary. He said patient attendance figures would reflect part of the growth of the business. This evidence is consistent with the business seeking to increase patient attendances at the Centres, rather than being confined to an identification of practitioners as the customers of the business conducted by Primary through its subsidiary Idameneo.
92 It was put to Mr Duff that from a commercial point of view it was an objective of Primary to make its premises as attractive to the public for use as possible. Mr Duff responded: 'Yes. They were made to be attractive to doctors, yes, and patients'. Then, he was asked, so far as patients were concerned 'it was represented to patients that there weren't just doctors … at the premises, but there were a variety of related health practitioners who could attend to their needs if they needed them?'. To which Mr Duff responded: 'Correct. Yes'. Then, there was the following series of questions and answers:
Primary, in operating the medical centres, did so in a way to assist the patients to be attended to in as an efficient and productive manner as possible?---Yes. The - the systems and processes that are in place are designed to make the practice efficient. Yes.
…
… it was Primary who put the systems into place, wasn't it, within these medical centres?---It was. Yes.
Yes. So, an aspect of the systems was that there was a no appointment system?---Correct.
Yes. So, a patient could walk - if they felt unwell, could immediately go down to the - a medical centre and then be seen by the next available doctors?---Yes. Most were seen by the - they would select a doctor to choose…But they could see… a doctor, yes.
Yes. And that was one of the benefits, was it not, that Primary wanted to give to the public about the particular services being offered at Primary Health Care
centres?---Yes. It was accessible. Yes.
Yes. Accessible. And the other thing was bulk billing. It was a practice, was it not, that, where available, patients would be bulk billed as opposed to being not bulk billed?---Yes. Correct.
Yes. And that decision to bulk bill, that was one that Primary made, wasn't it?---Yes.
So, in Primary's ongoing relationship with the doctors, the doctors were not given the opportunity to determine for themselves whether they could bulk bill or not bulk bill?---Correct.
And so - and the process of bulk billing was seen by Primary as being an additional benefit of the - provided by medical centres of Primary Health that would encourage members of the public to come to their centres to seek services?---There was a number of reasons. That was one of them.
Yes?---Yes.
That was one of them?---Yes. Yes.
Could you elaborate on others that Primary adopted - - -?---Yes. They were… extended opening hours.
Yes?---So accessible - From 7 or 8 o'clock in the morning every day. So that was another major attraction. Yes.
Yes. So just on extended opening hours, it was from, what, 7 in the morning through to about 10 at night?---Correct.
Yes. And seven days a week?---That's right.
Yes. And in order to enable the provision of services over those hours and days each year, that was one of the reasons, was it not, why, in the sale of practice agreement, the practitioner was required to agree to work hours to enable Primary Health to maintain its medical centres as operating for extended hours seven days a week for 52 weeks of the year?---Yes, that's one of the reasons. Yes.
93 There are a number of references in the documents to the doctors and other health care providers at the Centres conducting their own practices and other businesses at the Centres and to Primary facilitating the operation of those practices at lower cost than would be the case in operating a smaller medical practice.
94 The Commissioner also placed reliance upon evidence that was before the primary judge concerned with negotiation by Idameneo of arrangements with particular practitioners. That evidence was mainly concerned with isolated dealings with a few practitioners. The content of those dealings did not take matters further than the other evidence to which reference has been made.