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2026.09.29 | TB | Healthcare | Integral Diagnostics FY27 Outlook

原标题：Integral Diagnostics – Maintaining Momentum & FY27 Performance Outlook

#healthcare

Third Bridge · 2026-09-29

Analyst-led • 11 Sep 2026

Companies: IDX AU, NHF AU

Paul McCrow (PM) COO at Allevia Health (Healthcare Holdings Ltd)

Ollie Coughlin (OC) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

OC: Welcome to Third Bridge's Interview entitled Integral Diagnostics – Maintaining Momentum & FY27 Performance Outlook. I'm Ollie Coughlin, and I'm joined today with Mr Paul McCrow, former COO at Integral Diagnostics.

Paul, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

PM [00:00:30]: Yes. I agree.

OC [00:00:31]: Could you begin with a brief introduction to your background, please?

PM [00:00:36]: Yes, sure. My name is Paul McCrow, former COO for Integral Diagnostics. I was at Integral Diagnostics for just under eight years. Prior to that, I was with Sonic Healthcare for just under nine years, COO for SKG in Perth as well as Head of Operations. I'm currently the COO for Allevia Health in New Zealand, Allevia Health being New Zealand's largest private healthcare provider, which includes some radiology, but we're across 29 different healthcare groups in New Zealand.

Questions

00:01:10] Integral Diagnostics has kicked off a strategic review of its New Zealand asset. Could you walk us through the current funding model within radiology and radiology clinics in New Zealand today, delineating the rough payer mix across channels?

PM [00:01:40]: I know, you're familiar with the Australian model, but the New Zealand model is completely different. It is a mix of effectively contracts that radiology providers need to have with the funders, and there's a few major funders. Obviously, there's the insurance market. Southern Cross is the largest insurer, followed by Nib in New Zealand. Southern Cross last year, last August, went through a process and implemented standardised pricing across the country. That's the first, I think, in New Zealand where any provider, any funder has got standardised pricing, particularly from a private perspective. Insurance is typically depending on the business around that 25% of the revenue. You've got private. Where patients just pay out of their pocket for procedures that either aren't covered by ACC or insurance. That's typically around that 25%-ish as well.

Then you've got ACC, which is an accident commission. Any time a New Zealander has any form of accident, it's generally put through ACC. Yes, generally, ACC is standardised pricing and lower than the private and the insurance market. You have ACC high-tech and ACC normal. Basically, high-tech is MRI and PET and CT. You could have two contracts with ACC. Then, of course, you've got Te Whatu Ora, which is the public service over here that go through this hugely cyclical process where they suddenly realise that they've got 8,000 people on a waitlist for imaging. They'll outsource a whole heap, private sector ramps up and then all of a sudden, they're actually, we can't fund it. Then they just turn the tap off. Yes, Te Whatu Ora, it's extremely cyclical. There is no rhyme or reason behind what they do.

OC [00:04:01]: If you were to backtrack, how predictable is the cycle?

PM [00:04:10]: There is no predictability whatsoever. As a private provider in New Zealand, you cannot rely, you would never build your business on Health New Zealand outsourced scans because they're just so random.

OC [00:04:26]: You mentioned that it was 25 each across out-of-pocket, private, ACC [Accident Compensation Corp] and Health New Zealand.

PM [00:04:34]: Yes, 25-30.

OC [00:04:37]: For ACC?

PM [00:04:39]: Yes.

OC [00:04:40]: For Health New Zealand?

PM [00:04:43]: 25-35 depending on how much New Zealand want to outsource really. Then there's just a mix of a whole other bits and pieces that come through. It doesn't add up to 100, but it gives you the majority of…

00:04:59] On the private side, do you expect a proliferation of standardised pricing across insurers?

PM [00:05:18]: I think you'll see in the public realm, Southern Cross have posted significant losses in recent times, and they're the majority. The numbers for Southern Cross, I think they have about 65% of the private insurance market in New Zealand, and they pay about 74% of the claims. Southern Cross are certainly the major dominant player. Nib in New Zealand was about six months ago, they went to a co-pay. They're obviously feeling the pinch where patients now have to pay the medical insurance and then a gap when they access services. The insurance market is struggling over here with the increased volume in claims. That's all public knowledge. You can see that with any of the releases from Southern Cross in the last two years. Sorry, to answer your question, yes, I expect them to very much keep standardised pricing across the board.

00:06:32] What role do you see the gap that we discussed playing over the next 2-3 years? Given what we're seeing with Southern Cross and Nib, how much of the total bill could that potentially take up in 2-3 years, considering the price controls that they're putting through and the cost pressures for operators?

PM [00:06:55]: If you look at Nib and even some of the Southern Cross contracts, it's normally at 20% out-of-pocket. Southern Cross, most of their contracts, their private health insurance contracts don't have an out-of-pocket, and that's something that Southern Cross needs to address urgently to allow that, to be honest. I haven't seen them do it, but I think they should.

OC [00:07:21]: Is that an out-of-pocket at the moment?

PM [00:07:29]: At the moment, Southern Cross patients, most of their patient policies or their policies don't allow an out-of-pocket to be charged, which means that Southern Cross has to foot the whole bill, so I suspect that they will be looking at what Nib have done where they've moved to a price 80% coverage and a gap for the patient.

00:07:58] The degree of pricing freedom that Integral has within New Zealand across channels has a degree of variability within it. Could you walk us through that?

PM [00:08:14]: Not a lot, actually. Financial freedom is limited to the gaps that you can charge for or the amounts that you can charge for your private fee-paying patients, the prices that you've negotiated with each of the funders and if there's any gaps on those. By and large, the revenue per patient is pretty standardised now. Standardised for each of the contracts, so ACC, most of we're all on the same contracts. Southern Cross have rolled out their standardised pricing contracts. It used to be that you could negotiate your own and the variability in what people would get paid was massive. That was what it was when IDX bought into New Zealand. It's now that ability to set your own pricing or to negotiate your pricing with the funders has dramatically reduced.

OC [00:09:19]: Is it the same for every radiology clinic in the country?

PM [00:09:22]: Same for everyone. Yes.

OC [00:09:25]: What are the benefits of that scale piece and relationship for a large provider? Do you get any preferential treatment?

PM [00:09:31]: No, none. The preferential treatment, that boat has sailed, I'm afraid.

OC [00:09:40]: Is there an ability to charge gaps within ACC?

PM [00:09:50]: No.

00:09:51] One would want to index towards having a higher mix of private insurance as well as out-of-pocket patients. To what extent could that realistically be done?

PM [00:10:14]: Private patients, you can charge whatever you like, but of course, they then have the choice to go to whatever provider they like and whichever they deem the most value or the best value. Market pressure will always dictate what the price is. In competitive markets, that will keep it pretty standardised across. If you look at the New Zealand market up until about four years ago, there was one provider that was a monopoly from, effectively, Palmerston North, which is about three-quarters of the way down the North Island, (inaudible 10.51), and all of the South Island was owned by one provider, which is RHCNZ. That monopoly has changed over time. Affinity went into Wellington, and Beyond and Reform went into Christchurch, and Reform's going into Nelson at the moment. Their monopoly is diminishing rapidly.

00:11:20] Given the competitive dynamics, what type of YoY increases do you think you can get at the blanket level across procedures within private payers over the next 3-5 years?

PM [00:11:36]: Are you talking from a price perspective or…

OC [00:11:41]: Price, yes.

PM [00:11:45]: Yes, if you look at the price increases received by or announced by ACC, it's at least 50% of CPI. It's much lower than CPI. You may be able to get CPI with some of the other contracts, but you won't get above it.

OC [00:12:05]: Even private payer?

PM [00:12:07]: I don't think so. The difference here is traditionally New Zealand fees have been significantly higher than Australia. ACC did a price freeze for a number of years. The market is now aware of pricing globally and is rapidly trying to come back to those levels.

00:12:34] We've been hearing about pressures on the ACC [Accident Compensation Corp] and Health New Zealand side, with paltry increases. We're seeing more of a squeeze within insurance, and then it's so much better within out-of-pocket. Costs are still increasing. Where can the margin be insulated? Is it through the mix? What else can be done?

PM [00:12:57]: Mix does help and efficiency. Driving efficiency through particularly staff. Radiology is a staff-hungry business. In New Zealand, 45-55% of your staff, your revenue is staff costs. If you can make that more efficient, that's where you can make margin. I think you'll find that AI will start to actually show some margin increases as that gets rolled out into radiology, into radiologists more and more. Aidoc just got FDA approved for, what was the term, was basically doing an X-ray report for the radiologist and delivering it to them in a full form. It reads the report and delivers it to the radiologist. That's the first foray into, what I would call, autonomous reporting. I think actually, they called it draft reporting, that's right. That's not a horizon thing. That's FDA approved already. Discussions with Aidoc, they're expecting it to be in this market by the beginning of next year, Australia, New Zealand.

00:14:21] Across applications, whether it be detection, diagnosis or triage, there's varying success in terms of actual efficiency gains with a lot of these algorithms, as well as actual clinical adoption. Is that the silver bullet that providers are holding on to, and can we really see it as a silver bullet?

PM [00:14:50]: I think so. Certainly, in the next 5-10 years, you'll see that coming through more and more, increasing productivity of radiologists. Up until now, there's been certain clinical benefits. It's certainly or significant clinical benefits. Also triaging, making sure that those critical patients get put to the top of the list and seen and reported within minutes of them having a scan, AI doing detection and notifying a radiologist that there's an urgent case that needs to be reported. From a triage and clinical perspective, absolutely. From a throughput perspective, I guess, where we're at now looking at Aidoc's draft reporting and many of the other vendors are looking or have works in progress that will be delivered in the next 12-24 months to deliver already preformed report directly to the radiologists without the radiologists having to do anything that will dramatically improve their productivity.

OC [00:15:56]: Are there any rough percentages that you're thinking about?

PM [00:16:00]: It's not here yet, so I can't really tell you what that would look like. I've spoken to some radiologists who are saying that you could see 25% increase in throughput for X-rays. For me, if you look at most businesses, Australia and New Zealand, X-ray volumes anywhere from 35% to 50% of the volume, if you've got that being reported by AI and the radiologist is just checking it, there has to be significant productivity improvement.

00:16:40] How do the volume dynamics in the market typically track across the payer buckets? Is it equal across all? Do you expect a change in payer mix? Is there anything that gives you an expectation for that over the next 2-3 years?

PM [00:17:08]: I don't see it really changing, to be honest. The only thing that may change is the affordability of private health insurance, which may mean that more people go into the public system for their imaging, but I don't see that being dramatic, to be honest. I don't really see much mix change, to be honest. There is though a significant difference in New Zealand to Australia. MRI is much higher utilised here than Australia. Obviously, the deregulation in Australia, we'll wait and see if that changes. CT in private health is much lower compared to Australia.

00:17:50] How would Integral's footprint compare to the 25% split across each funding channel? Is the company indexed towards one over the other?

PM [00:18:09]: It depends on the specialty mix. Trinity is a neuro specialty. There may be some ACC in there, but I would think that most of that is going to be private or insured based. It has been a few years since I've been at IDX. The rest would be pretty much that split that I gave you.

00:18:50] One can get more scanners, CTs, MRIs, etc, into a clinic. To what degree can one cherry-pick and plan the volume by specialty, and index towards high-value CTs, MRIs and PET rather than just X-ray in practice?

PM [00:19:11]: In the most part, you can't. For example, ACC, you need to indicate how much you can do within a market, and they will allocate you work. They'll try to make sure that everyone gets a pretty much even split effectively. They do try to make it fair for all providers. Obviously, if you increase the number of scanners, you obviously increase the costs. You may not get the volume that you would have expected. There is a bit of a gamble in increasing, particularly if you're basing yourself on an ACC volume. Southern Cross, if it's an existing property, your contract will just play across all of your sites. You just need to make sure you've got the volume.

OC [00:20:07]: What's key in driving volume in New Zealand?

PM [00:20:12]: Normally, it's proximity.

OC [00:20:14]: Yes.

PM [00:20:15]: It's geographic.

OC [00:20:20]: Is pricing expected to play a greater role moving forwards?

PM [00:20:24]: Pricing, probably not because if you look at Southern Cross standard, ACC standard, there's at least 50 and Health New Zealand outsource is standard. You're looking at, at least 60% of your volume being on a set contracted price. It doesn't leave you a lot to play with your pricing.

OC [00:20:50]: The out-of-pocket patients will still come down to more localised dynamics.

PM [00:20:58]: There's going to be a limit as to how much out-of-pocket you can charge. What people will deem as acceptable out-of-pocket fee. A significant amount of private patients are there because they don't have private insurance, and they have to balance up whether how affluent they are. As you know, private health insurance is usually for those that are more affluent. Generalisation, of course.

00:21:44] Taking your view on the direction of travel, should we expect a meaningful shift towards public-sector outsourcing over the next 3-5 years, given what's happening with the squeeze in each of the other segments?

PM [00:22:02]: Public hospitals, public health are going through a significant investment into radiology and increasing their scanning footprint across the country to try to deal with the significant backlogs that they've had. Technology investment is one thing. Where are they going to get the staff? I'm not exactly sure, but they're certainly installing a lot of systems, MRI, CTs, etc, across the country. They still don't have any PET CTs at all in the public network. They're all privately owned.

00:22:45] With the money that public hospitals are putting into infrastructure, they've got to man those scanners. Would you expect potential wage pressure as a function of public-sector increases on private providers?

PM [00:23:01]: Yes, always. It's always there. It just varies as to how much.

OC [00:23:07]: What are your thoughts, based on what we're seeing with the budget?

PM [00:23:14]: I don't know that. There's an amount of pressure in there. I just don't know that the public system will get the staff to run those scanners to the degree they should be run, which means they'll still need to outsource. For some of them, it just won't be at the levels that they have been.

OC [00:23:40]: Do we still expect a decline in outsourced patients from the public sector towards private moving forwards?

PM [00:23:49]: In some modalities, yes. CT, they've already turned that off across the whole country.

OC [00:23:58]: You mentioned that PET, MRI and X-ray are all in private. What's the dynamic there?

PM [00:24:03]: X-ray isn't quite… It's not often outsourced, but MRI is.

OC [00:24:09]: Do you expect that to decline moving forwards?

PM [00:24:15]: They have numerous systems going in. Again, I don't know how they're going to staff it. I suspect that there will be increasing demand as the population ages. Even with the new systems, outsourcing, if it drops, it won't be significant.

OC [00:24:33]: Yes.

PM [00:24:35]: Demand will increase, but almost in line with increased capacity.

00:24:46] We mentioned that there's not too much that can be done on the payer mix side, and to a degree on the specialty mix side. You mentioned the pricing dynamics as well, and potentially volume, although there's not too much wiggle room there. To what extent can one play on average fee per scan? For example, at one of Integral's sites, can the company really influence that? If so, how?

PM [00:25:17]: There's limited levers to pull on that. Obviously, the levers that you do pull, there is a limit as to how much you can increase. There's probably not a lot that you can do in that space at the moment.

00:25:36] We've discussed some of the pressures within Integral's New Zealand segment, and the company is having a strategic review of it. Looking at the asset base today, what is the attraction? We mentioned the market limitations, but what is the attraction for a new owner?

PM [00:26:00]: Of New Zealand?

OC [00:26:02]: Of Integral's footprint within New Zealand.

PM [00:26:07]: They've got a mix of both sub-specialty and GP-focused businesses. Trinity is very focused on the neuro side, SRG on the MSK side. Astra is a mix of women's and oncology. Then you've got Horizon, which is very GP-focused. They cover multiple segments of the referral market with sub-specialty reporting from that aspect. From an owner perspective, if you look at the listed companies in New Zealand and the returns that the operating margins they're running at. If you look at where RHCNZ is, if you look at the Infratil results, EBITDAs in the middle 30s compared to Australia in the middle 20s.

00:27:09] Why do you think New Zealand has been a trickier asset for Integral over the past five years coming out of the pandemic, vs the Australian footprint?

PM [00:27:25]: I don't think IDX understood the New Zealand market as well as they thought they did. As the market has changed, the last five years has probably been the biggest change in the New Zealand radiology market in a very, very long time. The expectations of New Zealand were significantly higher than the reality. Hence, I think they had an impairment, was it two years ago? I think that's more based on the multiples that they bought in at and what they were expecting it to continue to deliver in a changing market just didn't line up.

00:28:13] We mentioned the breadth of sub-specialties and the referral network that Integral has within New Zealand. Previously, the company saw a fair amount of headwinds within the GP segment, with GPs going into their own practices within New Zealand. How commonplace is that today? You mentioned that fragmentation piece previously. To what extent is that still happening?

PM [00:28:43]: Yes, GPs have never really gone into the radiology space. There are some pockets of specialists that continues to grow slowly. From a GP perspective, it's not common.

00:29:01] How well-serviced would you say the current market is across the private sector? We mentioned some of the limits in public and the dynamics there. If the contractual relationships with the funders aren't a driver of volume, how much do those referral dynamics come into play?

PM [00:29:26]: It does. Referral dynamics come into it. New Zealand is a friendly country, to be honest. If you get good service or if you know the radiologist, referrers, and you know you get a good report from them, referrers will continue to use. It's very relational. It's not that different in Australia, there's a lot more choice in Australia, certainly in the Capitol cities. Yes, it's very relational.

00:30:01] How would you say Integral is perceived within New Zealand across GPs and specialists?

PM [00:30:07]: They're only in the Auckland market really. The success has been on their relationships. I think they're well received within the markets in which they play. As I said, referrals are very geographic. Patients who won't travel too far.

00:30:36] How would you expect referrals across GPs and specialists to trend YoY for Integral over the next 3-5 years? Is there anything that points towards any dampening or acceleration anywhere?

PM [00:30:49]: No, not really. I think there's a few changes in the competitive landscape beyond coming in and proliferating quite quickly across the country, but that's not necessarily in Auckland against IDX. I can't really see significant changes in that space beyond where we are. There'll be some natural growth as population grows and population ages. There'll be new entrants or expansion of existing entrants to new geographies, but nothing more than what you would normally see in any market.

OC [00:31:26]: Is it Capitol that's being a bit of a disruptor?

PM [00:31:33]: Beyond. Capitol owned by IDX, sorry, they're merged.

OC [00:31:42]: Within Auckland, is there anything that's potentially going to have a disruptive effect to Integral's referral relationships? How easy would it be to displace those?

PM [00:32:02]: I'm not aware of anything.

00:32:19] For a new potential acquirer, what would you say the opportunity is with Integral's New Zealand asset? Obviously, you're buying the scale as it stands and those relationships. What is the ability to grow geographically from where they are today? I'm also thinking about the company's tele platform.

PM [00:32:38]: If you look at IDX compared to their competitors, they haven't expanded their geographic footprint through greenfields very much, not compared to their competitors. An opportunity would be for them to do that. They have done it through acquisition and bolt-ons rather than through greenfields. They have stayed within Auckland. I think there's other opportunities that IDX could explore, but they'd need to actually look up to do that.

00:33:14] What type of headroom is there on the greenfield side? Is the market serviced enough? Are you seeing enough volume there to go after by propping up another site?

PM [00:33:28]: There's probably pockets of that in the market in New Zealand.

OC [00:33:32]: Where would be the opportunity vs saturated?

PM [00:33:37]: I probably can't answer that one.

00:33:43] With the IDXt tele platform and the potential acquirer of Integral's New Zealand asset, how do you think that would unfold with regards to IDXt maintaining that relationship? Would that just turn into a standard vendor-client relationship?

PM [00:34:12]: I don't know that there'd be much change. I'm not quite sure how much IDXt is reporting into New Zealand. I think a lot of the doctors in New Zealand are reporting into Australia, but not the other way around.

OC [00:34:27]: Does Integral presumably lose some of the support that it has in the FTE [full-time equivalent] base to service IDXt volumes with the sale?

PM [00:34:38]: I don't know that there'd be much change, to be honest. The whole purpose of IDXt was to support both the internal overflow reporting, but that really wasn't an issue within IDX New Zealand. IDXt was set up to service the internal lack of capacity and to provide our doctors the platform in IDX to earn extra money without going to our competitors who are doing tele reporting like Everlight and also to do it at a significantly lower cost to the business than what external providers were charging.

00:35:25] With the growth and interest we're seeing from companies such as Qscan spinning out their own platform from the existing bricks-and-mortar business, how entrenched would you say IDXt is in servicing Integral's internally generated volumes? Can the company really play on the same stage as companies such as Everlight and potentially Qscan's new platform, or would it evolve into being a tele platform in its entirety?

PM [00:36:04]: You were talking to the founder of IDXt here. It was my brainchild, so I know it well. I turned on IDXt at the beginning of COVID because I had radiologists across the country who weren't engaged, and we had pockets in Queensland and WA that couldn't keep up with the volume, and I had Victoria and some others that just weren't busy, and I was outsourcing to external providers that were ripping me off. If you look at the margins in teleradiology, if you look at potentially what Everlight does, if you look at what Medica in the UK did when they were a listed company, they're all sitting between 45% and 55% operating margin. It's a highly lucrative business. Now the costs are low. It's literally a workstation for the doctor and some software and maybe one person in the office to push the work around, but Clario Orchestrator that most people use does that automatically for you on a rules-based engine. The doctors dictate into VR, and the report comes out the other end of the sausage factory, it's a very cheap business model.

OC [00:37:38]: To maximise that, you'd want to be servicing external contracts.

PM [00:37:45]: They are winning heaps.

OC [00:37:48]: What about if you're clogged up doing bricks-and-mortar stuff internally?

PM [00:37:52]: Last I heard, IDXt had over 100 radiologists reporting in their… Now of course, that's not 100 FTE because some of them are one day a week, etc. Some of them may do it in blocks, but they've got access to significant volume should they need it.

00:38:12] We're looking at around 140 radiologists at IDXt, from memory. I've heard estimates that around 70% of IDXt volumes will be servicing bricks-and-mortar-generated internal volumes. Do you think that's capping the revenue and earnings potential of the IDXt platform? To what degree can Integral realistically let that business breathe as a pure-play tele platform if it's being hamstrung by having to clear internal volumes?

PM [00:38:55]: There's significant interest from radiologists to do telereporting, hence, the proliferation. It was Everlight, then I-MED came on board with their I-TeleRAD, Qscan started theirs. IDX started theirs. You've got many teleradiology businesses now simply because radiologists can see they can earn money without even having to leave home. They don't have to deal with patients. They don't have to deal with… They just get on and report and make money. It is highly desirable from a radiologist perspective. From a 70% internal perspective for the volumes, you really only need one or two doctors sitting in a practice to manage patients, manage any contrast reactions, etc. You don't need the historical five or six. If you've got telereporting doctors who are either the same cost or less and can report 1.5-2x the volume, it's more cost effective. It's actually a win for them, not a hamstring for the wider IDX, and it means that with 140 doctors, they can scale up if there's an influx of patients or a reduction of radiologists in the clinic, they can still service the same work.

00:40:22] I appreciate that IDXt servicing internal volumes would be advantageous for the business as a whole, and to your point, if you're having to outsource your volumes externally to another vendor, you're going to get skinned. IDXt is able to do that with its own tele platform. If only 30% of its throughput is able to go towards the higher-pricing opportunity externally because Integral is having to service around 70% of volumes internally, with the growth opportunity that's inherent in that business, to what degree can the company really shift away from servicing internally? Do you think that's a structural limit vs Everlight, Anytime Radiology - Qscan's spin-off?

PM [00:41:19]: Like anything, there's a positive and a negative. They've got guaranteed work, firstly, because there's always going to be internal work. If they're doing 70/30 now, they can continue to scale the external work, knowing that they will always have a baseline amount of work that they can perform internally. They can scale up.

OC [00:41:43]: Does 70 sound about right to you?

PM [00:41:47]: It sounds about right based on the contracts that I know they've won in the last few years.

OC [00:41:52]: Should we expect incremental growth, roughly speaking, based on the rate at which the IDXt business is growing, to come from those external contracts with higher pricing?

PM [00:42:06]: Yes. No, they've got some significant external contracts. They won mid-North Coast for public hospitals, for example.

00:42:14] Do you think clients or potential customers looking to outsource scan volumes view IDXt any differently from pure-play vendors such as Everlight or Anytime Radiology?

PM [00:42:40]: Not necessarily. If you look, there are some of the biggest companies that don't have teleradiology businesses outsourcing their teleradiology to their competitors to I-TeleRAD to IDXt. They just want the work done.

OC [00:43:03]: There's nothing about having a bricks-and-mortar footprint or the potential for internal conflict that would make a client potentially favour Everlight over IDXt.

PM [00:43:22]: I think you'll find that the cost between the vendors is significantly cheaper from those that are being supplied by their competitors than a pure-play teleradiology provider.

OC [00:43:37]: Is Everlight far dearer than IDXt?

PM [00:43:41]: That's certainly my experience.

OC [00:43:42]: Does it come down to pricing in today's world?

PM [00:43:47]: I could deliver telereporting at 50% of the price of Everlight.

OC [00:43:52]: Is it because of favourable economics, or because of how Everlight just prices itself?

PM [00:43:59]: That's just the pricing they hit you with.

OC [00:44:02]: Yes. Understood.

PM [00:44:04]: Having said that, I haven't used Everlight for a number of years now. They may have changed their model, but not what I'm hearing in the market.

00:44:18] Integral has been going through a process of integrating Capitol. The reports seem to suggest it's executing well. How would you assess the company's FY26 performance following the integration? What are your thoughts moving forwards as well for performance?

PM [00:44:42]: When I looked at the results, I was intrigued it's… I expected them to have actually seen more synergies coming through than what they did. If I look at the results with the IDX and Capitol and pro forma and you look at the YoY change, it's not significant. I'm seeing labour go up 5.6%, for example. Why is it up 5.6%? I would have thought there was more synergies being pulled out of there. I think there's a lot more that they can do in that space. It will be interesting to see what this new CEO does.

00:45:40] Labour has been a focus even before Integral's new CEO, Jason Martinez, took the helm. We know that AI is on the horizon here. Realistically, what could we expect over the next 12 months in terms of labour efficiencies?

PM [00:46:08]: I didn't see anything that's going to change the dial for them in their presentation, to be honest. For me, I would think it's going to be the year after. I think Jason needs to get his feet under the desk and understand it's a large complex business, particularly with Capitol now in there. You aren't talking about oil and water, particularly in Victoria with Capitol joining. You've got a premium quality provider like Lake vs a very much throughput-based Capitol throughout most of Melbourne with the exception of Olympic Park. They're very much about throughput and not necessarily around the same level of quality that Lake delivers. It is a big oil and water there.

00:47:00] Could you walk us through why what we've discussed is inherently an issue? We've heard this notion that Capitol is historically GP-volume-led and bulk-billing. With the BBPIP [Bulk Billing Practice Incentive Program], it seems potentially advantageous to have that perception and DNA within that business, while also having that premium piece as well with IDX. Do you think that's fair? What would be the pros and cons of that, based on what we're seeing in the market reimbursement dynamics?

PM [00:47:31]: You're talking about the Medicare rebate uplift, if you will.

OC [00:47:36]: Yes, exactly.

PM [00:47:39]: Generally for the work that you can do for X-rays and the low-tech modalities, X-ray, ultrasound, etc, you can generally charge a higher gap than what the incentive is on any of those. If you get a 10% uplift on an X-ray, average price for an X-ray in Australia is about AUD 58, 10% is AUD 5.80. You're not going to charge a patient AUD 5.80, your gap is going to be AUD 20 or AUD 30. If you did charge a gap, ultrasound average fee, Medicare is about AUD 110. Would you charge AUD 11 gap on an ultrasound? No. It's just not worth it. You'd be charging AUD 50, so the revenue uplift can be much higher, but of course, if patients are paying out of pocket, they actually want a level of customer service, but they're not feeling like they've rushed through the process as well. There can be some time cost in that.

00:48:49] Reconciling all the variables, what is the volume uplift you potentially get within Capitol and the throughput benefits vs the pricing constraints there?

PM [00:49:01]: Yes. You've got to get through more to generate the same revenue.

OC [00:49:04]: Yes, and it's not feasible.

PM [00:49:07]: It can be, but you have to get through a lot more patients to make it happen.

OC [00:49:14]: Can IDX change the knitting of Capitol, premiumise it to a degree and look to improve its specialist mix?

PM [00:49:27]: Yes. I think that it will have to be slowly, slowly, and it will have to happen in pockets. IDX looked at Capitol when I was there. I have looked at this in depth. There are pockets where I think particularly on the eastern side of Melbourne, where they could become more premium, and I'm sure they're looking at that. I would expect that there'll be certainly with deregulation of MR, they'd be looking at locations where they can either install an MR or expand their footprint or even consolidate their footprints. I think that there's the ability for them to mix them a little bit more than what they have been.

OC [00:50:16]: What would you say are the risk factors within that? How delicate of a process is that?

PM [00:50:32]: It really does come back to that staff engagement and changing some of the cultural norms within either organisation, where I think there's probably potential for, say, some of the Lake clinics to become more Capitol-focused with higher throughput, lower fees, etc, and there's some sites for Capitol that could do the opposite and slow down and add fees and premium services, but it will come back to that cultural change piece as well.

00:51:10] How easy a job would it be to build up or leverage existing specialist and referral networks within the opportunity pockets that you have in mind?

PM [00:51:29]: It will come back to actually having the right resources and having sub-specialty reporting available in those locations. If you look at the pockets on the east side of Melbourne, Lake has never been on the east side of Melbourne. They're all west and heading out Ballarat-along. They're very western-focused where Capitol is very eastern-focused. You need to add in some specialist radiologists, some obviously install equipment and then market it, get out there, get the doctors out to see referrers and build the brand. It's very doable.

00:52:14] Margin, productivity and remuneration are key focuses for FY27 for Integral. They have been previously as well. How can that unfold with the change of leadership? How can the company structure remuneration to improve margin and radiologist productivity? It seems like a really delicate process to get right.

PM [00:52:56]: I need to be careful how much I disclose here, but the radiologists normally, they are the highest paid in the business for a reason, and they are normally negotiated with the CMO or the CEO. Obviously, we have changed… IDX has changed the CEO. I know of Jason's reputation and he's likely to be more cautious in the way he approaches remuneration for the highest-paid staff members than his predecessor.

OC [00:53:39]: Cautious in what ways?

PM [00:53:48]: He probably won't pay them to the level that the previous CEO did.

OC [00:53:53]: Presumably, you can just jump ship and you're going to be able to find a gig elsewhere. Is that fair to say?

PM [00:54:02]: To a degree. I think if you look at some of the markets, if you're in Ballarat, there's only a few choices, for example, for that relocation.

00:54:18] How will what we've discussed take shape? You're blunting the YoY wage growth, but will there be a change in the structure to sweeten that reality?

PM [00:54:30]: Yes. Most radiology providers in Australia have moved to a base-plus remuneration model. IDX is probably a little slower than some of their competitors. Instead of paying a doctor, let's say, AUD 800,000 or AUD 900,000 per year, you would pay them a AUD 500,000 base and then they would have to deliver a certain level of performance based on their billings to get incremental. They may get 20% of their fees over AUD 2.5m or something like that to bring them up. Only those that have actually done the work would earn that AUD 800,000 or AUD 900,000. If you look at the I-MEDs, the Lumus, the Qscans of the world, they moved to that during COVID because they could see the fixed costs just too high.

OC [00:55:28]: Why is Integral so slow?

PM [00:55:32]: It will be interesting to see what the new CEO does.

OC [00:55:37]: Ian just couldn't do that shift. It was a cultural piece. It was managing that potential reaction.

PM [00:55:56]: Yes, potentially. You've also got a GP negotiating with specialists. Ian being a GP. That's just my theory on it.

OC [00:56:10]: Will Jason have any more luck?

PM [00:56:17]: From what I understand of Jason's history, he's a lot stronger in that space.

00:56:23] What's the risk of labour churn?

PM [00:56:33]: There's always a risk. There's always a risk. There's a shortage of radiologists across the country. There may be churn. The biggest risk of churn with any radiology group, and this is not just IDX is that, if you make it too hard, you look at the average age, they'll just retire. They'll just retire and do telereporting.

OC [00:57:02]: Right. You're sitting happy at AUD 900,000 per annum. You're brought into the office and offered AUD 500,000 with a flexible incentive piece.

PM [00:57:15]: You have to work, yes.

00:57:20] Could you put some rough percentages around what we're discussing? I'm trying to get a sense of the sentiment within the labour base and how the change in remuneration would be received.

PM [00:57:29]: I wouldn't know what the Capitol guys were on. I know a lot of them that I tried to pick up over the years were already on that base plus and they were working hard and earning much more than I could give them as a fixed rate.

OC [00:57:40]: Specialists are on the salary.

PM [00:57:45]: The base plus in Capitol, they were already… This is pre-merger, obviously. I could get most of them across because they were earning pretty well within the Capitol ranks because they are working hard. If I look at some of the other competitors, 80-90% of their contracts are on either a fixed percentage or a base-plus contract, like Lumus, for example, on something like that for a majority of their doctors. IDX, if you look at all of the traditional businesses they bought pre-COVID, none of those radiologists were on a base plus.

00:58:25] Is there any way to think about, roughly today, what that split might be between salary and base plus?

PM [00:58:33]: It's probably the inverse of the market. The base IDX, excluding Capitol, I would have said it would have been at least 80% were on a fixed rem contract, 20% on some variable contract.

OC [00:58:53]: Realistically, to what extent could that be changed over the next 12 months or however long it might take?

PM [00:59:03]: That's where I think in the next 12 months, Jason, is to establish the relationships to have those conversations. I don't think you can come in and change that immediately.

OC [00:59:13]: Yes. Is it just a hearts-and-minds piece? Is there a concession that needs to be made elsewhere to make that happen?

PM [00:59:29]: You need to win the relationship, you need to prove the benefit and why they need to make that change. You may find that if you can convert the majority of them and the minority who may be under-productive are no longer required because the rest have picked it up.

00:59:49] What are your thoughts on Integral's FY27 outlook, looking for above a 21% EBITDA margin vs 20.9% in FY26, and the potential conservatism within that? With the prospect of walking that tightrope on remuneration, is that potentially the reason the company is allowing itself some breathing room?

PM [01:00:22]: It's not much is it. I looked at that and thought that was completely… I don't know what happens in IDX right now. I looked at it and thought that's completely conservative. To me, it screamed that there were still some issues going on within the business. They should still be getting further synergies out post-merger. That minor change moving into a deregulated MR market, maybe they're seeing that they think they will drop their MR volumes as it deregulates. I'm not sure.

OC [01:00:56]: From competitive pressure?

PM [01:00:58]: From competitive pressure, it did seem very conservative to me.

OC [01:01:01]: How might that look?

PM [01:01:04]: If they're losing margin or they're losing market on their MR, they're going to have to save costs, and they're going to have to move their radiologists cost base, but if they're losing MR, they don't need as many radiologists either.

OC [01:01:23]: Is that just a referral piece? Could the company lose referral volumes for the MR?

PM [01:01:29]: Yes. If you look at some of those regulated markets in Australia, some of the wait-lists are just ridiculous or have been 4-6 weeks wait for an MR in some markets, deregulated on every street corner effectively. Those scanners that were running 4:00 to 23:00, they'll go back to almost normal hours because others have come in and cut their grass. Market will change because patients might wait 4-6 weeks if they can get it done within the next week.

OC [01:02:11]: Integral mentioned this notion of labour being matched to volumes provided, which is tracked very closely. As we see deregulation, it shouldn't necessarily be an issue from an operating cost perspective.

PM [01:02:25]: There will be, but they'll be able to reduce staffing proportionately, I'm guessing, but there will be natural attrition. If you are one of two providers in a market and two more open, the market is halved, you don't need as many staff. Staff will be poached by your competitors as they open, and it will rebalance.

01:02:50] Is there any way to think about what degree of MR share could be at risk?

PM [01:02:55]: I'm not close enough to know.

01:02:57] Regarding Integral's conservative margin forecast, we've mentioned the MR risk and labour. Is there anything else that you were hypothesising as to why there is that conservatism?

PM [01:03:16]: They're probably being conservative given that they're going to have a new CEO and new CFO, and they don't want to labour them with something that they're going to have to front up to and try and drive harder that they haven't owned the development of, to be honest. If I was in Jason or I can't think of her name, the new CFO, you'd want a conservative budget on first year while you understand the business and drive it the year after.

01:03:45] You mentioned that Jason is probably going to be a bit firmer on radiologist compensation. Are there any other changes that you think Integral's CEO, Jason Martinez, and CFO, Jenny Martin, will be looking to drive, and that they might have more luck with than their predecessors? What key priorities do you think they'll be looking to make headway on?

PM [01:04:06]: I would think that the new CFO will be looking strongly at the head office costs, to be honest.

OC [01:04:14]: Just to get more out of the synergies there.

PM [01:04:21]: Yes, absolutely.

OC [01:04:23]: Are there any rough numbers? We've got 10 out already, 14 on the prospect of another four. Do you think there's more fat that can be taken out?

PM [01:04:34]: I'm quite sure there is, but it will take a little bit of time for them to get in and get their feet under the desk to understand that and to be able to assess and make changes.

OC [01:04:47]: Roughly, how much more?

PM [01:04:52]: I couldn't tell you. I would have thought there was at least another five or six in there, but…

OC [01:04:57]: On top of the 14?

PM [01:04:57]: Yes.

OC [01:05:00]: We'll have to pause it there. Thank you very much for your contributions. I enjoyed the conversation.

PM [01:05:08]: Yes. No problem. If you need anything else, let me know. Transcription ends at 01:05:15 of the recorded material