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Health Industry Outlook

After a year of global upheaval to many industries including healthcare, now more so than ever is the time to evaluate the performance and the sustainability of your practice going forward. Change has been rapid throughout the COVID-19 pandemic. The government response and stimulus packages were critical in keeping the economy afloat during the lockdowns implemented at the peak of the pandemic in Australia.

Prior to the pandemic, annual revenue growth across the health services industry in Australia was anticipated to be approx. 2% from 2020-2025.1 The reality of COVID-19 meant that 2020 revenue declined 3.2% and profit 7.1% across the health services industry.1 Different subsectors within in the health services industry had varying impacts from the pandemic. General practice experienced 0.8% revenue growth in 2020, facilitated by the introduction of telehealth and Medicare Benefit Scheme codes associated with this, however, profit declined approx. 22.6% in the sector in 2020.6

The Specialist medical services sector suffered a decline in revenue of 8% and 14.7% in profit in 2020, which can mostly be attributed to the cancellation of elective surgeries and non-essential treatments.2 However, 2021 is posed to provide a bounce back in revenue with an anticipated 12.3% growth now that the backlog of cancelled procedures and services is being fulfilled, with revenue growth predicted to stabilise at approx. 3% – 4% to 2025.2

Government support and stimulus measures were introduced rapidly in response to the pandemic and many businesses relied on these to survive 2020. However, the pot of money is not endless and all good things must come to and end, with the various measures introduced gradually ceasing from 30 September 2020. Cashflow boost and early access to superannuation have already finished, with the 150k instant asset write off, Jobkeeper and Telehealth MBS items all due to finish in the coming months.

There has however, been the introduction of temporary full expensing measures via the budget in October 2020. This measure enables businesses with a turnover of less than $5b to fully expense the business portion of new assets – no cost limit and businesses with a turnover of less than $50m to fully expense the business portion of both new and second-hand eligible assets. Businesses are not required to have opted into the simplified depreciation rules to access this temporary full expensing, however, if they choose not to apply the full expensing, they must notify the ATO in the approved form of this choice.

The cessation of stimulus measures, particularly those which had an immediate impact on cashflow, drive the need for businesses to take a step back and look at the future and sustainability of their practice.

There are several key factors driving profitability in the healthcare sector that need to be considered including:

Ageing population

Australia’s ageing population is anticipated to drive growth in the health services industry in the coming five years. Australian’s over age 65 use health services more frequently than younger Australians. The growth in this demographic has in turn strengthened the demand for health services. Furthermore, Australian’s aged over 65 tend to have greater private health insurance coverage and consequently higher utilisation rates of specialist medical services.1

Private health insurance uptake

Prior to COVID-19, December 2019 figures had just 44% of the population covered by private health insurance. March 2020 quarter statistics display a further decline in membership to 43.8% of the population, the lowest coverage since June 2007.4 The largest decline in membership was in those aged 30-34, with this expected to drop further due to a combination of rising premiums and perception of poor value for money.The pandemic and associated lockdown/reduction of “non-essential” health services, as well as reduced disposable income, is anticipated to further reduce private health insurance coverage. 1 & 2

Disposable income

Many healthcare services require out of pocket payments for patients, meaning disposable income is a central factor in determining the demand for certain health services, particularly specialist and “non-essential” services. Rising unemployment and an anticipated fall in “real household disposable income” poses a major business risk to certain health service providers. 1&2

Government spending / Medicare funding 5

Government funding accounts for just under 70% of health services revenue, posing it as a critical factor in the success of any healthcare business. The 2021 budget has increased Medicare investment to $28.8b in 2020-2021 and $31.6b in 2023-2024, $5.7b for mental health over five years, $20b into research over five years – with $424.3m of this going to new grants and opportunities and $230.8m into sport and preventative medicine.5 This provides significant opportunity for health care providers to maximise their position with this increased funding. Additionally, the Medicare freeze for specialist consultations and for targeted diagnostic imaging services has been lifted.

Thoughts for a sustainable practice and growth going forward:

To ensure your business remains successful you should be considering the following:

  • Benchmarking
    • Know how your business is performing against others in the industry
  • Service offerings and relationship management – reputation is everything
    • An IBIS health services industry report indicated that specialists that are well known or have a reputation for skilled work are more likely to receive referrals.2
  • Government subsidies and grants
    • Keeping on top of what is available and how you can take advantage of these
  • Cost controls
    • Be aware of your greatest costs and how these can be managed without reducing the quality of your service offerings.
  • Targeted service offerings to the ageing population
    • Greater needs and private health insurance coverage positions this demographic as a major driver of revenue and profitability.1
  • Cashflow management
    • Cash is king

The Health Services Team at Nexia Edwards Marshall keeps up to date with the latest developments in the healthcare industry. Get in touch with one of our great members to understand how we can help you maximise your business potential.




The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall NT. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.

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