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Ramsay Health Care share price jumps on government guarantee news

The Ramsay Health Care Limited (ASX: RHC) share price has jumped more than 4% at the time of writing, after the private healthcare provider reported the Australian Government has offered a viability guarantee to the private health sector during the coronavirus pandemic.

Private hospitals to fight COVID-19

Private hospitals have suffered with the cancellation of elective surgeries, but are now being drafted into the government’s COVID-19 response plan. The Australian Government has agreed to guarantee the viability of private hospitals in return for their assistance in managing the coronavirus outbreak. Ramsay Health Care has confirmed it is in discussions with Australian Governments regarding the provision of support for government coronavirus responses.

All states and territories will complete COVID-19 partnership agreements with private hospitals, which outline activity requirements. The Australian Government will contribute 50% of funding towards this activity. Private hospitals are expected to retain capacity for responding to the pandemic with the expectation they will resume normal operations when the pandemic ends. 

Private hospitals will be required to retain workforces for the operation of their facilities and for redeployment across the health system at the direction of government. The viability guarantee also requires private hospitals to make infrastructure, equipment, supplies, and other capabilities fully available to Australian governments for use in the COVID-19 response and non-COVID-19 activities. 

Ramsay shares jump on federal financial assistance 

Financial assistance provided by the federal government to private hospitals will take into account payments from states and territories and for privately funded services. The agreement is intended to contribute to the ongoing viability of private hospitals, not profits or debt repayments. 

Private hospitals will also be required to integrate with state and territory health systems for use in the COVID-19 response, as directed by state and territory or Commonwealth health ministers. The guarantee is designed to ensure continuity of private hospital capacity during the pandemic and enable the sector to resume business as usual activities once the pandemic has ended. 

The Ramsay Health Care share price is currently up by 4.78% to $61.12 per share at the time of writing.

Previous impacts

Ramsay Health previously withdrew its full year earnings guidance as a result of uncertainty surrounding the impacts of coronavirus. The spread of coronavirus in Europe has required surgeries to be deferred as governments seek extraordinary support from private operators such as Ramsay to deal with capacity requirements.

Previously, elective surgeries had been fast-tracked to minimise potential future disruption, but have since been cancelled in a number of jurisdictions. Ramsay Health Care has reassured the market that it has headroom in existing debt facilities, with the earliest not due to expire until October 2022.

Now the private hospital operator looks set to be drafted into the coronavirus fight, but will benefit from government backing.

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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.

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Kate O'Brien