The effect of the proposed $7 co-payment for medical care is already being felt, the chief of Australia’s largest medical and pathology services group says.
Announcing a full year profit result on Tuesday, Sonic Healthcare chief executive Colin Goldschmidt linked weak growth in the company’s Australian pathology division to patients putting off tests.
Dr Goldschmidt said he did not have hard evidence, but said media coverage of the federal budget proposal was “possibly” discouraging completion of pathology referrals.
He said doctor visits at Sonic’s bulk-billed clinics had also been weak.
“Many people think the co-payment went into effect on 1 July this year,” he said.
“If the co-payment legislation goes through as proposed it will have far-reaching effects for general practice, pathology and radiology.”
Proposed in the federal budget in May, the GP co-payment was mooted as a way for bulk billed patients, who have no out of pocket costs for doctor visits and tests, to contribute to the cost of their healthcare and discourage unnecessary visits and tests.
The proposal looks unlikely to pass through the Senate in its current form given Labor, the Greens and the Palmer United Party oppose it.
Health Minister Peter Dutton has been working with the Australian Medical Association on a modified policy, which could exempt vulnerable people including the elderly from the co-payment.
Dr Goldschmidt said patients’ health could be at risk. “My view is that if patients have a pathology referral it means they need to have the test done,” he said.
Primary Health Care CEO Edmund Bateman has said pathology is the sector most vulnerable to the co-payment.
The softness in the Australian pathology business, along with higher costs due to a costly collection centre rollout, caused Sonic to be “prudent” in its guidance of 5 per cent growth in group earnings before interest, tax, depreciation and amortisation in the coming year, Dr Goldschmidt said.
“Our guidance for FY15 might had been a little higher had we not been a bit conservative on Australian pathology,” he said.
Citi analyst Alex Smith said consensus was for EBITDA growth of 9 per cent. The measured outlook and a miss of consensus on full-year net profit rattled investors.
The stock had fallen 1.2 per cent to $17.59 at 12:57pm AEST, down from a 12-month high of $18.28 reached in May. It has climbed 23 per cent in the past year, outperforming the S&P/ASX200 index, which has gained 9 per cent in the same period.
The Sydney-based company said its net profit rose 14.9 per cent to $385 million in the year ended June 30. The result was boosted by strong growth in Australian and European pathology, but dragged back by fee cuts in the US business.
The result missed the consensus of $392.3 million, but was up from $335 million in the same period last year.
EBITDA rose 5.4 per cent to $681.5 million, which met guidance of 5 per cent growth. Revenue rose 12.3 per cent, also in line with consensus.
Foreign exchange tailwinds meant the growth rates in constant currency were more subdued. Revenue rose 4.8 per cent, while NPAT rose 6.5 per cent.
Australian pathology, which accounts for 29 per cent of revenue, had sales growth of 6 per cent. Australian imaging and medical centres both had revenue growth of 5 per cent to $415 million and $349 million respectively.
On a geographic split, Sonic now has more than half (51 per cent) of its revenue coming from offshore. UBS analyst Andrew Goodsall said the result benefited from a “solid portfolio effect”.
The US pathology business, which accounts for 21 per cent of revenue, had volume growth of 2.2 per cent, but revenue growth was flat. “[This] was consistent with our major competitors in the US,” he said. “Our average fee … came down a bit largely due to cuts in Medicare fees which represent about 22 per cent of our revenue in the US.”
Dr Goldschmidt said US volume growth was lifting again, after extreme weather in December, January and February disrupted the upwards trend. The company was close to announcing a new chief executive for the US business, he said.
Revenue in Britain rose 12 per cent in constant currency to $193 million. Dr Goldschmidt said in the 2015 financial year that could reach $300 million after including the contribution of a new joint venture with two of London’s leading hospitals.
Pathology revenue growth in Europe was strong, especially in Germany where the recent acquisition of Labco boosted revenue by 12 per cent in constant currency to $744 million. Excluding the acquisition, organic growth in Germany was 5 per cent.
The board declared a partially franked dividend of 40¢, payable on September 23