Performance
 
Financial Information
 
Governance


 

the businesses

Abano operates in two sectors of the Diagnostic market – radiology and pathology. The Diagnostic sector provided 25 percent of Abano’s revenue in the 2007 financial year.

PATHOLOGY

Aotea Pathology, in which Abano has a 55 percent shareholding, was established in November 2006 between Sonic Healthcare and Abano. The business holds a five-year $102 million fixed-price exclusive contract for community pathology services in the Wellington, Hutt Valley and Kapiti regions, which commenced on 1 November 2006. As part of this contract, Aotea is able to charge patients for private specialist tests, over and above the public contract.

The business provides services including the collection, testing and reporting of pathology tests from community-based patients to diagnose and monitor disease.

Pathology revenue is approximately 86 percent funded by the local DHBs under the five-year contract, with 14 percent from private testing, commercial testing and research. This private revenue percentage has increased from 10 percent last year.

RADIOLOGY

Abano has two businesses in the radiology sector – Ascot Radiology and Greenlane Imaging.

Ascot provides a comprehensive full modality scanning service to just under 30,000 patients a year from its clinic in Ascot Hospital, Auckland.

Greenlane Imaging was acquired in February 2007 and is a small single-modality CT company located within Greenlane Hospital with revenues of $1.4m. Over 50 percent of this revenue is for private referrals, mostly for cardiac and thoracic diagnosis. In addition to this, Greenlane Imaging operates a fixed-price three-year contract for the Auckland District Health Board.

From June 2007, Greenlane Imaging has operated as a satellite clinic of Ascot Radiology.

operational performance



Pathology

highlights and significant events

  • Medical Laboratory Wellington and Nelson Diagnostic Laboratory both operated under existing DHB contracts in the first half of the 2007 financial year.
  • In October 2006, Nelson Diagnostics was sold to Medlab South for $375,000 (a loss of $125,000) after the contract for pathology services in the Nelson Marlborough region was awarded to Medlab South. Medlab South assumed all responsibility for transition and redundancy costs.
  • Aotea Pathology, a joint venture between Medical Laboratory Wellington and Sonic’s Valley Diagnostic Laboratories business, was awarded an exclusive five-year $102 million fixed-price contract to provide community pathology services for the Wellington, Hutt Valley and Kapiti regions in June 2006. The contract commenced on 1 November 2006.
  • This new contract also provided for private charges for private specialist referred testing.
  • Successful merger of the two laboratories to form Aotea Pathology, with no interruption to normal laboratory services.
  • Integration of Valley Diagnostic Laboratories onto the existing Medical Laboratory Wellington site as part of the joint venture set-up, entailing expansion to a new floor and complete re-tooling of technologies and analysers.
  • Refurbishments and improvements at four major collection centres, including expanding and upgrading patient waiting rooms as well as adding space for staff undertaking pre-analytical work.
  • Initiated project to refit the technical laboratory to create one of the most up-to-date testing facilities in the country.

the market

The pathology sector remains one of the few which is primarily funded by the Government; although contract negotiations in the past 12 months have seen some DHBs, including Wellington and Hutt Valley DHBs, introduce patient charges. This is a significant change for service providers, resulting in an increased workload and the need to educate and inform patients and referrers.

Aotea Pathology is the first service provider in the country to introduce patient charges for tests referred by private specialists. A high level of communication with referrers and patients has fostered reasonable acceptance across the community. However, workloads have increased as a result and Aotea Pathology will be reviewing and optimising systems to cope with the additional administrative workload.

Ongoing contract reviews and tenders by DHBs have been an ongoing feature of the sector, leading to increased consolidation as the actual number of laboratories reduces and remaining laboratories are grouped into larger commercial partnerships. Significant market uncertainty has been created following the judicial review of the Auckland DHB contract with Labtests, which may impact on future contract rounds.

Recruitment and retention of quality staff is a challenge in the pathology sector, and the past 12 months have seen a number of strikes from union members around the country. However, Aotea Pathology has reached agreement with all staff for a three-year, single-site, collective agreement.

the outlook

Due to the reliance on public funding, pathology is not a growth area for the Group. Abano has a hold-and-maintain strategy in place, as it focuses on other sectors in the private revenue healthcare market.

The focus for the 2008 financial year is to continue to increase revenue from non-DHB sources, while managing costs under the fixed-price public contract. Demand management will also be key to ensure volume growth is within the parameters of the DHB contract.

In addition to this, the extensive refit of the technical laboratory will be completed in the first half of the 2008 financial year, to enable a continuation of IANZ accreditation.

Radiology

highlights and significant events

  • In June 2006, Ascot Radiology invested $1.4 million in new 64-slice CT scanner technology and set up a joint venture with leading Auckland cardiologists to utilise this technology.
  • Uptake of this technology has been above expectations.
  • Increased client referrals have increased revenue and EBITDA contribution over previous years.
  • Greenlane Imaging was acquired in February 2007.
  • On 31 May 2007, the option to acquire a further 40 percent of Ascot Radiology was exercised by Abano.

the market

The Auckland radiology market is very competitive, with more than eight privately owned businesses and eight hospitals providing radiology services. Ascot Radiology services the radiology needs of approximately 45 medical and surgical specialists who practise or undertake procedures at Ascot Hospital.

The sector is predominantly privately funded and has strong growth opportunities.

the outlook

Following the exercise of the option in May 2007 to acquire a further 40 percent of Ascot Radiology, Abano has indicated it will be introducing several radiologists into equity participation, and reducing its overall holding to approximately 70 percent.

Greenlane Imaging, which operated as a satellite clinic, has now become a subsidiary of Ascot Radiology.

The outlook for the radiology business is positive and Abano has a growth strategy in place. In line with this, plans are in place to open a new clinic at Ascot Central, the new clinical building currently being developed on an adjacent site to Ascot Hospital. The new clinic will provide radiology services for referrers in the Ascot Central building, as well as to the wider community, and is expected to open in mid-2008.

Abano believes radiology is an attractive investment area for the Group and further acquisitions are under investigation.