Australia / Analyst Insights
Changes to incentive scheme could reduce pathology revenue

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Jemise Anning
May 25 2016

The pathology services and diagnostic imaging services industries have grown strongly over the past five years. Australia’s ageing population has increased the incidence of chronic illness, driving demand for both industries. However, in the 2015 Mid-Year Economic and Fiscal Outlook (MYEFO) the Federal Government announced measures to change pathology and diagnostic imaging bulk-billing incentives (additional government payments made to providers who choose to bulk bill their patients). The measures, if ratified in Parliament, will come into effect on 1 July 2016 and will change the operating conditions of both industries.

Over the past five years, the pathology services industry has thrived. Australia’s ageing population has increased the incidence of chronic illness, boosting industry demand and revenue growth. Technological innovation, which has broadened the range of tests available to referring doctors, has also contributed to increasing demand. Industry revenue is expected to grow by 3.9% annualised over the five years through 2015-16, to reach $2.8 billion.

The Federal Government’s 2015 MYEFO proposed the removal of bulk-billing incentives for pathology service providers. Although the measures are yet to pass Parliament, the effects are expected to be detrimental to the industry, with major player Sonic Healthcare estimating that annual revenue generated by its Australian laboratory segment will decline by 3.5%. However, major players such as Sonic are unlikely to absorb these declines and will instead increase co-payments, which are charged directly to the patients, to recoup any revenue losses.

These changes will also affect the diagnostic imaging services industry. Underpinned by Medicare’s schedule fee benefits for all diagnostic imaging procedures, industry revenue has grown strongly over the past five years. Similar to the pathology services industry, Australia’s ageing population has driven demand for diagnostic imaging over the period. There has been a shift towards more expensive imaging services, such as MRIs, nuclear medicine and computerised tomography (CT) scans, which has supported industry revenue growth. Over the period, Medicare funding has increased to cover the higher costs of diagnostic procedures. As a result, industry revenue is expected to increase by 6.5% annualised over the five years through 2015-16, to reach $3.4 billion.

Without mitigating steps, diagnostic imaging company Capitol Health estimates that the MYEFO measures will reduce its revenue by 5% to 7%, while Integral Diagnostics and Sonic Healthcare estimate a fall of 2% to 3%.  As a result, these industry players, along with Primary Health Care, have stated they too will charge co-payments to recover lost revenue. The proposed changes affecting these players include the alignment of bulk-billing incentives for diagnostic imaging with those of GP services, and the reduction of the incentive for MRIs to align it with other diagnostic imaging services.

As Australia’s population continues to age over the next five years, demand for both industries is expected to remain strong. However, industry revenue growth is expected to slow. While providers are expected to resist bearing the brunt of the potential government cuts by introducing co-payments, there will be a shake-up of operating conditions for pathology services and diagnostic imaging services.


Relevant industries:

Pathology Services

Diagnostic Imaging Services