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Ramsay calls for insurance shake-up as hospital bailout hopes sink
Michael Smith Health editor
Oct 24, 2024 – 5.37pm
Ramsay Health Care has called for health insurance funding to be automatically linked to cost inflation. The head of its Australian hospital operations said the company was prepared for a “fight” if insurers did not agree to do more to cover unexpected surges in staff wages.
Ramsay, the country’s largest private hospital group, also said it was not expecting the Albanese government to bail out struggling facilities or deliver any solutions to the sector’s crisis as it prepares to release the findings of a Department of Health review into the $22 billion sector.
The closure of a private maternity ward in Gosford on the NSW Central Coast announced this week triggered warnings on Thursday of more hospital closures unless insurers tipped more money into the system or Health Minister Mark Butler takes action to prop up loss-making facilities.
“I am not expecting solutions from the government, but I think there is a bit of pressure on [them] from the closure of maternity services like Gosford. You would imagine there would be MP pressure in some of those regions which will necessitate some thought,” Ramsay’s Australia boss Carmel Monaghan told analysts on Thursday.
“I don’t think there is a bailout coming for hospitals that aren’t doing so well. I can’t see that happening.”
While Ramsay is more profitable than other big private hospital groups, its margins are under pressure from soaring wages. Ms Monaghan told investors the company was in talks with a number of health insurers to address funding shortfalls from cost inflation. She said while there had been “some recent success” she would not rule out further disputes with insurers if they did not come to the party.
“There are quite a number of negotiations underway. I hope we don’t have to bash them up but if we have to, we will. I can’t say there won’t be a fight but if that’s what it comes to...,” she told analysts after a site inspection of Ramsay facilities in Perth.
She said Ramsay wanted “automated indexation” when health inflation was higher than expected. That model would automatically link future funding to cost inflation compared to the current system, where funding is negotiated in contract talks with each insurer.
However, health insurers said a tax hike on NSW health insurance passed by parliament on Thursday meant there was no money left to increase funding for hospitals.
“To date, health funds have provided multiple voluntary payments to private hospitals to help them survive tough financial conditions. However, the Minns government’s tax hike will cannibalise any reserves to do this in future. There is nothing left,” Rachel David, chief executive of Private Healthcare Australia, which represents health insurers, said.
Ramsay on Thursday outlined plans to expand its hospital network and invest in emergency departments and other outpatient services despite the pressure on the sector due to inflation and lacklustre patient numbers. It also said it was confident of getting more work from state governments paying for public patients to use private hospitals, although company data showed this had dropped off in the last two years.
“New South Wales have turned off the tap for a while, but they have a big waiting list … there will be pressure at some point and the pressure valve will have to be released,” Ms Monaghan said.
Ramsay is under pressure to improve its operational performance with the value of its shares down 20 per cent so far this year. The company has appointed Woolworths’ former head of supermarkets Natalie Davis as its new chief executive. She is expected to formally take on the role at the end of this year.
Some investors are disgruntled with the company’s rejection of a $20 billion takeover bid from private equity firm KKR in 2022 of $88 a share. Ramsay shares closed down 4¢ at $41.77 on Thursday, valuing the company at $9.7 billion. The stock has lost 20 per cent of its value so far this year.
“I do think the company is undervalued, given no market value being placed for Ramsay Sante, but for the market to get confident, Ramsay needs to improve operational performance,” said Blackwattle Investment Partners portfolio manager Ray David, an investor who has been calling for a change of strategy at Ramsay. Sante is the company’s European operations.
Preliminary findings of the Butler hospital review obtained by The Australian Financial Review in July revealed a government warning that some hospitals would close in the next 12 months with a shift from overnight stays to same-day procedures harming profit margins. It said the private sector was “uninvestable”.
Insurers and hospital groups had been expecting a summary of the report to be released this week, two months later than originally expected.
Michael Smith is the Health Editor for The Australian Financial Review. He is based in Sydney. Connect with Michael on Twitter. Email Michael at michael.smith@afr.com
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This is more useful information on
the Private Hospital sector which, I suspect, is really struggling and needs a
proper plan for co-existence with the public sector. It seems clear that both mental health and acute care are in some difficulty.
The system has always been a bit ‘Micky Mouse’ and the time has come to get it back on a sustainable footing.
A good few hard heads need to give
this some careful thought! If Ramsay is struggling there will be some smaller entities in deep 'do-do'!
David.
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