Ramsay Health Care says hospitals are wearing the costs of inflation - and shutting down

Ramsay Health Care says there needs to be a reset between insurers and hospital providers, who are wearing the costs of inflation, pushing many out of business.

The hospital industry is suffering more than he has experienced in his career to date Ramsay Health Care boss Craig McNally says, with 16 hospitals shutting down in the past 18 months as providers bear the brunt of inflationary cost pressures.

Ramsay on Thursday reported a fall in underlying net profit of 23 per cent to $140.4m for the half, however once non-recurring items were removed the result was $143.5m, down just 3.1 per cent.

Revenue was up 10.5 per cent to $8.16bn.

Feeding back in a $618m post-tax contribution from the sale of its Asian joint venture Ramsay Sime Darby, and the net profit came to $758.5m, up 290 per cent on the previous corresponding period.

While analysts generally cheered the result and the company’s shares gained 7.3 per cent to close at $54.91 on Thursday, Mr McNally said there had to be a reset in the relationship between payors and providers, who were currently bearing the brunt of cost pressures in the sector.

Mr McNally said hospital providers were “wearing the inflationary impacts and need to be compensated accordingly’’,

“I think it’s certainly obvious that insurers have had an improved financial position coming through Covid,’’ he said.

“I’m not sure that government can do a lot about the balance between insurers and providers, but recognising that it’s the providers who are wearing the inflationary impacts and need be compensated accordingly is important.’’

Mr McNally said Ramsay itself was in a strong position and he didn’t want to be seen to be dancing on anyone’s grave, but said small providers, particularly in the not for profit sector, had been struggling, with 16 hospitals closing over the past 18 months.

“The industry will swing from that position and as the industry improves we’re really well placed in terms of the portfolio of assets we have and the investments we’ve made to continue to ride that upswing, but certainly the industry across the board is suffering more than I’ve seen it in my career,’’ Mr McNally said.

The company told the ASX it had made “some progress agreeing to new terms with payors’’.

“In order to ensure long term sustainability, the industry in all regions must push for higher compensation as recent increases still do not address the impact of inflation over recent years,’’ the company said.

Mr McNally said Ramsay expected to continue to grow its earnings in the current financial year.

“This will be weighted to the second half, primarily due to the return of seasonality in our European earnings which have been smoothed by government support over the last few years,’’ Mr McNally said.

“The long-term outlook for Ramsay remains strong.’’

UBS said the Ramsay results were in line with expectations, with a strong performance from its UK operations.

“Europe sees continued EBIT decline but again delivered a better result than we thought.’’

Wilsons Advisory analysts said it was a better result than they expected.

“We went into it sensing downgrades but now, cannot see that. Ramsay’s European business might be mispriced at current levels.’’

Ramsay will pay a fully franked dividend of 40c per share for the first half, down from 50c, on April 5.