National Pathology Conference

Dr. Ian Kadish

CEO

October 2013

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The Private Pathology Industry

Collection Centre Deregulation

Analysis of the Impact 3 years Hence

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Background | ACC Deregulation

Currently, the number of Approved Collection Centres “ACCs” that pathology providers can have for Medicare eligible

services is not restricted. In the 2009-10 Federal Budget, the Government committed to removing the limit that was

previously in place. These changes came into effect on 1 July 2010.

The move to deregulate collection centre numbers was based on a review conducted by KPMG and commissioned by

DoHA, Review of Current Arrangements for Regulation of Approved (Pathology) Collection Centres (“The KPMG Report”).

The Review found that Regulating the Number of Collection Centres:

• Created an “Uneven Playing Field” by inhibiting the growth of smaller providers while facilitating the growth of

larger providers;

• Created barriers to entry which reduced incentives for incumbent providers to decrease costs and pass these

savings on to consumers; and

• Suppressed incentives to innovate and differentiate services.

Our analysis shows that the 2010 Industry Deregulation has largely corrected these deficiencies.

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1. Increased Accessibility | Collection Centre Coverage by Postcode

Collection Centre Coverage by Postcode measured by number of postcodes with at least one collection centre divided by total number of postcodes

Our data shows that today over 87.1% of the population has access to an ACC in the postcode of their

residence, whereas previously only 78.5% of the population had that same access

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2. Increased Regional and Remote ACC Coverage

Collection Centre Coverage by Postcode measured by number of Regional and Remote postcodes with at least one collection centre divided by total

number of Regional and Remote postcodes

223 Regional and Remote postcodes that never had an ACC now have an ACC in place

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3. Improved Affordability | Pathology Bulk Billing Rates

Pathology Bulk Billing rates at all time high

Deregulation has increased affordability of pathology services.

78.5%

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Source: EW Consulting Pty Ltd, “Know Pathology” Campaign

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4. Improved Innovation | Deregulation Driving Innovation

We are seeing smaller pathology providers creating specialist niche markets for

differentiation:

• Regional specific niches

• Speciality niches (e.g. toxicology, histology & reproductive)

The rapid take-up in genetics testing:

• Non MBS, e.g. foetal abnormality testing

• MBS growth in cytogenetics +20.6% (Aug13 vs. Aug12)

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5. Removal of Industry Distortions

Deregulation has largely removed the gaming that some players were willing to engage in under the

old regulated system.

For example, under the previous regime, a private equity group set up a web of interrelated

companies that were allocated above normal license allocation that allowed it to get a legal but

“unfair” advantage.

For example, under the previous regime, anecdotally, questionably legal supplementary payments

were made to GPs and GP groups to overcome regulated rent restrictions.

We are seeing pathology practices now compete openly on value for service to doctor plus

patient.

LEVEL PLAYING FIELD.

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6. Improved Fairness | Smaller/Mid Tier Providers Scaling

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Industry Impact | Rent Affordability for Pathology Providers

Rent escalation painful to pathology providers BUT:

• Rent escalation per ACC minimal in our experience

• Impact of rent escalation pales in significance in comparison to the fee cuts >10% since 2009

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Industry Impact | ACC Market Share Since Deregulation

Minimal Change in market shares since 2010 Deregulation

“Know Pathology Know Healthcare” Campaign

• Industry-wide initiative to promote the value of pathology

• Includes public sector and all major private sector providers

• Pathology is not well understood by the public, by government, and other important stakeholders. The Campaign’s objective is to increase the public’s understanding of the industry

www.knowpathology.com.au