Shares in Ramsay Healthcare are down almost 7.8% this afternoon to $41.08 after the company’s full year results underwhelmed investors.
While the company posted full-year earnings in line with its forecasts, its margins were hit by cost inflation impacting the private hospital industry over the past year, and it provided a disappointing outlook for the year ahead.
The company's statutory net profit stood at A$888.7 million, bolstered by the sale of its Asian joint venture, Ramsay Sime Darby. Annual profit from continuing operations for FY24 came in at $270.6 million — down 2.7%, on revenue of $16.66 billion, up 11.3%.
Ramsay managing director Craig McNally said escalating costs are impacting the company's margins, with the reimbursement rates from private insurers not aligning with inflationary pressures.
"We have made some progress with private sector payors on tariff indexation; however, tariffs from payors remain out of touch with cost inflation," McNally remarked. He emphasised the necessity for substantial reform to harmonise the operational costs with the compensations received from private health insurers.
Ramsay CFO Martyn Roberts highlighted that the cost-of-living squeeze was pushing many patients to public hospitals. He said: "We've seen a substantial increase in private patients opting for public hospitals to avoid out-of-pocket costs.”
UBS analysts noted that costs were “very stubborn’’ although Ramsay’s revenue was in line with expectations. UBS said: “We think lower activity growth guide is likely to lead to some questions given 4-5% consensus revenue growth expectation and volume growth now looking like no more than about 3% with reimbursement headwinds still a problem.”
Looking ahead, McNally predicted a slower pace in patient activity for FY25 and foresaw challenges in margin recovery due to persistent inflation and investments in digital and data programs.
This comes as Health Minister Mark Butler oversees a review of the private hospital sector, with high-level discussions occurring recently in Canberra. One proposal includes a "national efficient price" to establish a baseline for services — a model already implemented on a state-by-state basis in the public system.
McNally expressed concerns about the feasibility of this model, citing the lengthy process of its implementation in Victoria and its potential inefficacy in addressing current industry issues. But he does stress the need for significant reform to reset the balance between the cost base for operators and what they are paid by private health insurers.