Avoid budget pain with these 3 top healthcare stocks

Medicare changes could hit revenues in 2015.

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Australian Treasurer Joe Hockey will later this month deliver the budget for 2014/15. Commentators and the media expect it to be brutal, with cuts to public services everywhere in order to improve Australia’s current credit position.

Note that this is just like a family cutting back on the occasional night out in order to help pay off the credit card, though on a much larger scale. Australia’s ‘credit card’ balance is large, and growing, which is what Mr Hockey is trying to fix up by slashing spending, however he also risks severe voter backlash and the risk of slowing down the country’s economic recovery.

One of the most-discussed proposed changes last week was a change to the Medicare Benefits Scheme and the Pharmaceutical Benefits Scheme (PHS). These changes could include a co-payment from patients for traditionally bulk-billed medical services, and a $5 increase in the price of prescription medicines under the PBS.

Who will be impacted?

Well, notable listed companies that rely on bulk billing are few and far between on the ASX, but two names that stand out are drug wholesale group Sigma Pharmaceutical Limited (ASX: SIP) and diversified healthcare group Primary Health Care Limited (ASX: PRY). Sigma may see drug prices rise and Primary could be impacted by lower customer numbers if a co-payment is introduced.

Who won’t be?

Companies such as Ramsay Health Care Limited (ASX: RHC), Sonic Healthcare Limited (ASX: SHL) and ResMed Inc. (ASX: RMD) are largely immune to the proposed changes in Medicare and the PBS. The companies instead rely more on private healthcare groups, who could end up being a surprise beneficiary of the proposed budget cuts. If the cost of public healthcare increases for the consumer, the option of private healthcare becomes more appealing and companies such as NIB Holdings Limited (ASX: NHF) could receive a boost in customers over time.

Foolish takeaway

Investors should remember that the actual budget cuts simply won’t be known until Mr Hockey releases the details on 13 May. If the mentioned changes to Medicare and the PBS come into effect, we could see the share prices of some ASX-listed healthcare stocks come under pressure. Time will tell, but there’s a chance that this will represent a great, long-term buying opportunity for wise investors.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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