Ramsay Health Care Limited (ASX: RHC) is the largest private hospital operator in Australia and one of the largest in the world. It has been a very, very strong performer since it listed and it could continue to be good because of the ageing tailwinds of Australia and its investment into more hospitals. However, three things have recently caught my attention that have caused me to be a little less bullish about Ramsay: ABC Investigation ABC’s Four Corners recently did an article discussing how many patients can end up with thousands of dollars in out-of-pocket costs due to…
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Ramsay Health Care Limited (ASX: RHC) is the largest private hospital operator in Australia and one of the largest in the world. It has been a very, very strong performer since it listed and it could continue to be good because of the ageing tailwinds of Australia and its investment into more hospitals.
However, three things have recently caught my attention that have caused me to be a little less bullish about Ramsay:
ABC’s Four Corners recently did an article discussing how many patients can end up with thousands of dollars in out-of-pocket costs due to surgeon and other specialist fees.
A lot of medical bills incurred outside of hospitals aren’t actually covered by private health insurance. By law, private health funds are not allowed to operate outside of hospitals.
The investigation also found that patients had been charged a booking or administration fee, which medical bodies say are not allowed, according to the ABC.
None of this directly relates to Ramsay. However, as a Ramsay shareholder I am concerned that considering a lot of private hospital business is surgery related, this investigation could lead to less surgeries being done in Ramsay’s hospitals due to suspicion of the whole industry, even if none of this actually occurred in any of Ramsay’s hospitals.
Private health insurance
The cost of private health insurance continues to rise and the unaffordability is still an issue, perhaps even more so because wage growth is the lowest it has been.
Ramsay is very dependent on the private health insurance because someone is unlikely to use Ramsay’s hospital if they don’t have private health insurance.
According to reports, the latest data shows that the biggest number of people left the private health system over the past year.
Non-profit private hospital operators
I recently read an article in the AFR that suggested one of the biggest contributors to Healthscope Ltd (ASX: HSO) closing its Geelong hospital was the new Epworth Geelong Hospital.
Epworth HealthCare is Victoria’s largest not-for-profit healthcare group with 12 locations in Melbourne and Geelong. In 2017 it admitted almost 177,000 patients.
Not-for-profit operators are having a significant effect in the superannuation industry and Epworth is starting to have an effect in the private hospital industry.
Ramsay’s recent Australian segment half-year result was much better than Healthscope’s, but non-for profits could be a negative for Ramsay over time.
The above three reasons are not enough to make me want to sell my Ramsay shares, but it has made me a bit more cautious on the share, even if it’s only trading at 21x FY18’s estimated earnings.
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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.