Pathology and diagnostic imaging providers get a breather

Plans by the Federal government to save $639 million over the next four years on pathology and diagnostic imaging services have been thrown into disarray.

The bulk billing changes were meant to come into effect from July 1, 2016, but the government is now unlikely to get the changes through the senate, even if it could get some of the independent senators on board.

That is mostly due to expectations that the government will call a double dissolution election in early May, before the May 11 deadline. A double dissolution dissolves both houses of parliament and sends the country to a full election – on the same day the policy is due to come into effect.

According to the Australian Financial Review (AFR), the intended cuts to the pathology and imaging services are unpopular with some crossbench senators.

UBS health care analyst Andrew Goodsall has told clients that he doesn’t expect the policy to start in July, “We form the view not only from a timing/process basis, but also given the political mileage the regulations would offer an opposition that has campaigned against the cuts.

That potentially gives pathology and diagnostic imaging providers like Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) more breathing room. There’s also the possibility that the Labor Party wins the election – in which case the cuts are highly unlikely to be passed.

Diagnostic imaging specialists Capitol Health Ltd (ASX: CAJ) and Integral Diagnostics Ltd (ASX: IDX) may also see some benefits in the short term.

However, all four companies will be sweating on the outcome of the Medical Benefits Schedule (MBS) review and its $19.1 billion spend, which is due to submit its second report to the Minister for Health in December 2016. The first was issued in December 2015.

Foolish takeaway

In the remote chance that the policy is passed and implemented, Primary and Sonic have already warned that they will impose co-payments to cover the lost revenue. However, that has been tried in the past and abandoned because it discouraged patients from getting tests done.

For now, pathology and diagnostic imaging providers have some breathing space, but it might not last very long.

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Motley Fool writer/analyst Mike King owns shares in Capitol Health. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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