Ramsay Health Care share price on watch amid Bupa contract termination

Ramsay is playing hardball with Bupa…

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Key points

  • Ramsay is terminating its contract with private health insurer Bupa
  • It wants a fairer deal as it battles rising costs and private health insurers watch their profits swell
  • Bupa customers may have to switch health funds to get treatment from Ramsay in the future

The Ramsay Health Care Limited (ASX: RHC) share price will be one to watch on Thursday.

This follows the release of an announcement after the market close today in relation to a contract termination.

Why is the Ramsay share price on watch?

This afternoon Ramsay revealed that it has issued a notice to private health insurance provider Bupa to terminate the Hospital Purchaser Provider Agreement between the two parties.

According to the release, unless a resolution is reached between the parties, Ramsay’s contract with Bupa will be terminated with effect from 2 August 2022.

Ramsay appears to believe that private health insurers are not pulling their weight despite accumulating huge profits.

“Costs of providing care have significantly increased for private hospitals over the past two years. On the other hand, health insurers have accumulated profits of $1.8 billion in the calendar year to 31 December 2021,” said Ramsay Australia CEO Carmel Monaghan.

What’s next?

The release explains that patients booked to be admitted to a Ramsay facility prior to 2 August will not be impacted. After that date, during a legally enforced transitional period, Ramsay will continue to accept benefits paid by Bupa for approved treatments.

However, once the transitional period ends, Bupa insured patients will be required to pay an upfront payment on admission. This will be the difference between the statutory default benefit Bupa is required to pay and Ramsay’s hospital treatment costs.

Ms Monaghan said that “Ramsay still hopes to reach agreement with Bupa prior to the contract termination date,” but this appears to be far from guaranteed.

The private hospital operator advised that it will be communicating with impacted patients to keep them informed and provide them with options which, in light of the portability rules in the Private Health Insurance Act, include leaving Bupa and changing health funds.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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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