The Ramsay Health Care share price could surge next week

The Ramsay Health Care Limited (ASX: RHC) share price could surge next week.

According to reporting by the Australian Financial Review, apparently there is a new National Health Reform Agreement which could stop public hospitals charging privately insured patients for insurance benefits.

The agreement means the public hospitals won’t be able to get any extra financial benefits for treating private patients. Apparently around 14% of public hospital beds are being used by private patients. This causes non-private patients to have to wait longer.

Michael Roff from the Australian Private Hospitals Association said: “We know the practice has driven up premiums and disadvantages public patients who are pushed further down public hospital waiting lists.” Not so good for the Ramsay share price or earnings if private patients are in public hospitals.

Why this could cause the Ramsay Health Care share price to surge

I think the Ramsay Health Care share price could be a good performer next week, assuming the overall share market doesn’t fall.

There are at least two key reasons why people are happy to go to a Ramsay hospital. They think the cost isn’t too much. And they think they’ll get quicker (and arguably a better) service at Ramsay than using a public hospital. This change could help both of those factors. Why go to a private hospital if you get cheaper, preferential treatment at a public hospital?

This practice by public hospitals has reportedly pushed up the price of private health insurance premiums, which would also essentially indirectly push up the cost for policyholders. Lower private health costs could mean more patients for Ramsay. Potentially good news for the Ramsay share price. Volume is important for private hospitals, just like hotels. 

People may also decide that they don’t want to wait longer for public hospital service. They may be inclined to go to a private hospital like Ramsay. As the largest private hospital business it would likely be the biggest beneficiary from this agreement.

Foolish takeaway

With the ongoing coronavirus global pandemic, we’re not likely to see a huge increase in patients for Ramsay. But it tilts the scales for Ramsay. The Ramsay share price certainly isn’t cheap right now. But it usually isn’t. The coronavirus spread will stop in Europe eventually. Ramsay’s earnings could come bouncing back. The Ramsay share price may rise before then, perhaps as early as next week.

More reading

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• $3,000 invested in these 3 ASX industries could make you a fortune in the future
• 3 high quality ASX healthcare shares to buy and hold forever
• If you invested $10,000 in the Ramsay Health Care IPO, this is how much you’d have now

Motley Fool contributor Tristan Harrison 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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