Regulatory change to benefit Sonic Healthcare
In a somewhat unusual outcome, Sonic Healthcare (ASX:SHL) was a beneficiary of regulatory change in Australia in May. Your local GP, if they have a pathology lab on site, has likely been receiving rent for its pathology room well above the going market rate for similar space. The Federal Government has proposed to effectively re-regulate pathology collection centre rents. Such a proposal would see rental rates fall and revert to a market rent, saving the industry tens of millions of dollars. SHL and its industry support group have long lobbied for such reform. Proposed Federal Government pathology fee cuts from last December proved decidedly unpopular with the electorate, as this would have meant the imposition of co-payments by pathology companies to offset the lost revenue. By providing the rental cost cut to the pathology sector, pathologists will not need to impose co-payments (i.e. the burden now falls on the GPs). For SHL, we would expect the net outcome to be either neutral at a profit level, or perhaps an overall benefit – subject to the timing and degree of rental and staffing cuts. This appears to provide clarity for SHL’s Australian pathology operations, at least until the next round of changes.
View the May 2016 performance reports: