CRASH: Why the Primary Health Care Limited share price was smashed today

The Primary Health Care Limited (ASX: PRY) share price has come under intense selling pressure today, falling as much as 20.2% to just $2.06. It’s the lowest share price since late last century and compares to a 1.1% rise for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

So What: With a market value north of $1 billion, Primary Health Care is one of Australia’s biggest healthcare companies which operates a network of medical centres, pathology centres and imaging clinics throughout Australia.

It’s a great industry to be in thanks largely to Australia’s growing and ageing population, while it’s also defensive in that spending generally remains strong no matter what’s happening in the broader economy.

However, Primary Health Care has now run into a roadblock which could prove very damaging to its top and bottom line figures (revenue and profits). The Federal Government is conducting a review into the Medicare Benefits Schedule which aims to improve the overall outcome for patients and save unnecessary costs for the government and taxpayers. That will likely include a crackdown on doctors ordering too many scans and x-rays which can cost hundreds of millions of dollars per year.

Primary Health Care’s latest headache came just yesterday when the government announced its plans to cut spending on services such as pathology and diagnostic imaging by $639 million over four years. That was part of its mid-year economic and fiscal outlook (MYEFO).

Primary Health Care isn’t the only company that will likely be impacted by the changes. Capitol Health Ltd’s (ASX: CAJ) share price has fallen another 11.9% today, while Sonic Healthcare Limited’s (ASX: SHL) shares have fallen 5.7% thus far.

Now What: There’s a chance that today’s sell-off may have been something of an overreaction, especially considering the shares have since rebounded to $2.22, down 14% for the day so far. However, the future does still remain unclear for Primary Health Care. While it could prove to be a great pick-up for long-term investors at today’s price, the shares could also fall even further than their current level.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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