GP co-payment changes benefit Medibank, NIB and Sonic Healthcare

The Government has backed down from its controversial GP co-payment. What companies are better off?

More than one chief executive slept well last night. Medibank Private (ASX: MPL), NIB (ASX: NHF) and Sonic Healthcare (ASX: SHL) will all benefit from the revised budget.

Prime Minister Tony Abbott has backed away from the $7 mandatory co-payment for GP visits announced in May. The Prime Minister said there wouldn't be a 'change to bulk-billing for children under 16, for pensioners, for veterans, for people in nursing homes and other aged care institutions'.

The Government still plans to reduce the Medicare rebate paid to doctors for non-concessional patients by $5 and the doctors can recoup the loss by charging the patient directly.

The Government is also scrapping its original plan for a co-payment on pathology and diagnostic imaging services, which is a win for Sonic, Australia's largest pathology provider with 42% market share.

Furthermore, Sonic's Independent Practitioner Network of GPs (IPN), which contributes 9% of total revenue, largely abandoned the bulk-billing business model in 2005, which is still used by Primary Health Care (ASX: PRY). That change caused a drop in the number of consultations at the time, but may ultimately prove to be the better strategy as we expect its mostly private-billing patients to be less price sensitive.

Even with the reduced co-payment, the biggest winners will still be the private health insurers. Co-payments effectively increase the cost of healthcare for patients who rely on bulk-billing, making private health insurance from the likes of Medibank and NIB more attractive. Whether they're $5 or $7 won't make a whole lot of difference.

Medibank has already commenced a trial with Sonic's IPN where its members are bulk-billed for GP consultations and get access to special treatment such as guaranteed appointments within 24 hours.

With healthcare now accounting for nearly a fifth of the federal budget, it's becoming too much to bear. And with a deficit of $30bn in 2014-15, the Government has few options other than to keep encouraging a shift to private healthcare.

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