Sonic Healthcare said it will make up for Medicare funding cuts by charging patients for pathology and other tests that were previously free, sending a message that the Turnbull government will have to wear political pain for the policy change.
This week the federal government said it planned to save $650.4 million over four years by slashing bulk-billing incentive payments for certain pathology and imaging tests such as MRIs, X-rays, and urine and blood tests.
Sonic, a global pathology and radiology giant, said that it has no intention of absorbing the cuts and will charge payments and reduce services in rural and regional areas to protect its business.
Chief executive Colin Goldschmidt said the move was “completely unexpected” and “blind-sided the industry”. He plans to launch a political campaign and work with politicians and lobby groups that oppose the move.
“The vast majority of patients do not have to pay any out-of-pockets for their pathology and radiology, so we really believe this is a co-payment by stealth because the only way we can cope with cuts of this magnitude is by introducing a co-payment,” he said.
“It creates a financial barrier to receiving medical services and it discriminates against those who can’t afford services. It creates an incentive for patients to miss important tests or scans that can lead to a misdiagnosis or a delayed diagnosis.”
Revenue hit
In a statement to the Australian Securities Exchange the company said the Medicare fee cuts would reduce revenue by $50 million a year.
Without “mitigating actions” the company estimates that its earnings before interest, tax, depreciation and amortisation will fall by 5 or 6 per cent in 2016-17.
“Sonic Healthcare will work with opposition parties, consumer groups and patients to oppose these measures, as we believe they are unreasonable for the profession and patients and will jeopardise service levels and good patient care,” the company said.
In the wake of the fee cuts, affected healthcare stocks have been hammered as investors digested the earnings impact.
Investors have been further spooked by the implication that pathology and imaging are seen as a soft target to find savings for a stretched government budget.
Pathology collection
Primary Health Care and Capitol Health on Wednesday told Fairfax Media that they intended to recoup the hit to profit, either by cutting costs or bolstering revenue.
Mr Goldschmidt, who oversees around 2000 pathology collection centres in Australia, said the pathology industry wore a fee cut of a similar scale last year when cuts were announced for testing vitamin D, B12, and folate levels.
Since pathology collection centres were deregulated in 2010, industry players have been scrambling to open centres, and centre rents have been spiralling, putting further pressure on the sector.
“We have the huge burden of pathology collection centres and have had no indexation of pathology and radiology fees for approximately 20 years,” Mr Goldschmidt said.
He said the industry had been under the impression the government would not announce any surprise measures while the federal review of the Medicare Benefits Schedule is under way.