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Federal Budget 2011

Federal Budget 2011: Healthcare view

Publish date: 11/05/2011

Headline items not major for listed players

The government has released the 2010/2011 Federal Budget. Despite finalising some major funding agreements over the last 12 months, the budget contained a mixture of some funding cuts as well as significant investments in mental health, regional health and imaging (primarily from recent cost savings).

Implication

  • Mental and regional health the focus: Headline items for the healthcare sector were investments in mental and regional health totalling ~$3b. Specifically, the government will invest in better detection and support services for mental health services as well as regional health projects, health facilities and clinical training opportunities. These major investments however are unlikely to have a material impact on listed healthcare stocks in our coverage realm.
  • Diagnosis funding reviews completed: Following the radiology funding review, the government will improve access to MRI services and incentivise bulk billing of MRI services. It will also consider the structure of MBS fees for radiology, but it claimed that the outcome would be cost neutral. While these changes are positive for PRY and SHL’s radiology businesses, they could be slightly disappointing for the radiology sector, which was hoping the lengthy funding review might deliver fee indexation.
  • Not much on primary care: The government built on major investments in primary care infrastructure and after hours care from last year’s budget. Incentives for medical centres to stay open longer could be a small positive for PRY, given its clinics have extended opening hours. However, additional investments in telephone advice lines and GP Super Clinics have generally had a limited impact on the GP service market to date. The loss of GP funding for specific mental health services could be a small negative.
  • Third time lucky on means testing rebate: The government will re-introduce legislation to means test the private health insurance rebate. While this could lead to some coverage downgrades and drop-outs, it is important to note that there is not a 1:1 correlation between memberships and private hospital volumes. The most common users of private hospitals are people 65+ years and women in their child-bearing years, both of which tend to be less price elastic. In turn, we remain confident in the strong fundamentals behind RHC.

Investment view

  • Based on our initial assessment from the budget, there is unlikely to be any material impact on stocks in our coverage universe. The potential positive for PRY and SHL from increased funding to MRI is partially offset by reductions in MBS fees for GP mental health care plans.
  • For RHC, the re-introduction of means testing legislation is not fresh news andwe do not expect a significant impact on PHI membership levels, but the move to increase scrutiny of prostheses purchases by private hospitals could remove some of the benefits of their scale purchasing.

Important information
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances.

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