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Shares in Primary Health Care and Sonic Healthcare dived after analysts slashed their earnings estimates in response to funding cuts in the Federal Government’s Mid-Year Economic Financial Outlook yesterday.
Primary fell as much as 20% to $2.06 a share – almost a 17-year low, while Sonic fell as much as 9% to a 12-month low of $16.84.
The Government surprised the Pathology and Diagnostic Imaging (DI) sector by cutting the 10% incentive payments where patients are bulk-billed.
“We are calling this event an industry nadir, capable of resetting providers pricing or industry structure,” UBS analyst Andrew Goodsall says.
“Currently around 92% percent of pathology tests are bulk billed, and 87% of diagnostic imaging which compares with rates of 85% and 67% respectively, which applied prior to FY10 implementation of the incentives. We expect the cuts will confront industry, not only to recoup the immediate impact via copays, but to test and go beyond prior co-pay levels, where affordability allows. The alternate view is that smaller operators are unable to absorb the cuts, thus bringing about a final round of consolidation.”
Credit Suisse cut Sonic to Underperform vs Neutral.