Intelligent Investor

Two companies dominate the pathology industry and their market share continues to rise. By any measure, the growth in productivity of Australian pathology has been spectacular. Rebates for pathology have, in real terms, fallen by roughly 60% since Medicare began in 1984. Pathology differs significantly from most medical disciplines because it's capital intensive, rather than people intensive. Tests rely on costly automated equipment so there’s an incentive to centralise its use and ensure the machines never run idle. In other words, the industry has significant economies of scale. Small, less well-funded pathologists often can’t afford to keep up with the latest technology, and so face a dire choice – slowly go out of business, or sell out to larger players. Of course, most pick the latter. Just two companies now dominate the industry: Sonic Healthcare (ASX: SHL), with a market share of 43%, and Primary Health Care (ASX: PRY), with 34%. Continue reading article: (VIEW LINK)


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