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Why health care shares are soaring today

Different medical icons on virtual screen

At lunchtime, Australian health care shares have jumped, with Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) up 5.9% and 6.2% respectively.

They aren’t the only ones either, with Capitol Health Ltd (ASX: CAJ) up 5.9% and Sirtex Medical Limited (ASX: SRX) up 3.9%.

Integral Diagnostics Ltd (ASX: IDX) has seen its share price rise 3.4%, while giants Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL) are up 2.9% to $115.10 and 2.6% to $113.75 respectively.

Given that Sonic and Primary are leading the top movers in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), today and their dominance in the pathology and diagnostic imaging sectors suggests that some positive news has been released today in regards to potential government funding cuts to the sector.

And that was indeed the case with reports that the government has delayed the bulk-billing changes for 3 months while it seeks to introduce legislation to ensure pathology centres pay fair market rents. That only applies to pathology centres and discussions with the diagnostic imaging sector is ongoing.

As we wrote in December 2015, the government plans to pull more than $600 million of funding for pathology and diagnostic imaging. However, the measure was meant to start from July 1, 2016, but with the federal election now on, it’s more likely to start on July 1, 2017. That means that the sector will still see $197 million of payments in the 2017 financial year.

While we have seen several health care providers report that pathology and imaging volumes are down, the reprieve could see practitioners revert to normal practices and resume sending patients for pathology tests and imaging. That could see the likes of Sonic, Primary, Capitol and Integral report less-ugly financial results.

The other health care shares could be rising for a number of unrelated reasons.

Sirtex’s share price is up on news that the company has appointed a new CEO for its US operations, with more details here. Cochlear’s share price rise could be in response to a big fall last week when the share price fell more than $5.00 to $110.38. CSL continues to see its share price soar, up 8% year-to-date and 27% in the past 12 months.

Foolish takeaway

While the reasons for the health care share prices rising today are many, over the long term many are exposed to continued tailwinds of a rising demand for health care and a growing elderly population. That is unlikely to abate in the short term.

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Motley Fool writer/analyst Mike King owns shares in Capitol Health, Sirtex, Cochlear and CSL. You can follow Mike on Twitter @TMFKinga

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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