Stocks Special Reports LICs Credit Technical Analysis Funds ETFs Tools SMSFs
Learn
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features Technical Analysis SMSFs Learn
About

News

Budget 2017: This healthcare company sees upside in Medicare, imaging changes

Glenn Freeman  |  11 May 2017Text size  Decrease  Increase  |  

Page 1 of 1

The Federal Budget should have a positive effect on Australian healthcare companies, with the changes to Medicare rebates and pathology and imaging bulk-billing a shot in the arm for the sector.

 

While the banking sector has hit out at what it sees as "bank bashing" by the government, several healthcare companies are likely to benefit from the changes.

Budget 2017 has proposed the lifting of a freeze on the indexation of the Medicare Benefits Schedule. It has also outlined a plan to bring back the bulk-billing incentive for diagnostic imaging and pathology services, and the increase in the PBS co-payment and related changes.

"We will legislate to guarantee Medicare and the PBS with a Medicare Guarantee Bill. This new law will set up a Medicare Guarantee Fund to pay for all expenses on the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme," said Scott Morrison, Treasurer of the Commonwealth of Australia, in his Budget speech on Wednesday night.

"An additional contribution from income tax revenue will also be paid into the Medicare Guarantee Fund to make up the difference. The Bill will provide transparency about what it really costs to run Medicare and the PBS, and a clear guarantee on how we pay for it."

Morningstar's senior equity analyst covering healthcare, Chris Kallos, sees the changes as a significant positive for Primary Health Care (ASX: PRY), which runs a portfolio of medical businesses providing radiology and pathology services.

"Reintroduction of indexation raises our underlying revenue growth assumption for Primary's medical centres to 2.5 per cent, comprising 1.5 per cent from indexation and 1 per cent organic growth," Kallos said.

"Our 1.5 per cent indexation rate compares with our anticipated resumption of 2.5 per cent at an industry level, given current challenges for Primary Health Care in recruitment and retention of GPs in the medical centre division."

The government's previously planned cuts to bulk-billing incentives for pathology and diagnostic imaging were announced in December 2015, in the Mid-Year Economic and Fiscal Outlook, representing a $650 million adjustment for the industry.

Treasury's announcement on Wednesday night confirmed Kallos' earlier scepticism about these planned cuts, which were not reflected in his previous modelling of Primary.

"We weren't convinced that these would pass, and hadn't incorporated this approximately $50 million hit to Primary's EBIT into our modelling, but we view the measure as enhancing earnings certainty," he said.

Under the changes, indexation for practitioner rebates will be phased in over three years: general practitioner bulk-billing incentives from 1 July 2017; standard general practitioner and specialist consultations from 1 July 2018; and specialist procedures and allied health services from 1 July 2019.

The government will resume indexation of targeted diagnostic imaging services from 1 July 2020.

"However, according to industry bodies, this amounts to about 13 per cent of all radiology services currently covered by Medicare. As such, we are not changing our diagnostic imaging forecasts at this point," Kallos said.

More from Morningstar

Treasurer hands down "tax, spend, build" budget

Departure from Trump, Brexit effect buoys global credit opportunities

Make better investment decisions with Morningstar Premium | Free 4-week trial

 

Glenn Freeman is a senior editor at Morningstar.

© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.