NSW and Victoria have extended limits on public and private non-urgent overnight elective surgery to preserve capacity as hospitalisations peak over the next month. Ramsay’s 3Q22 result is likely to mirror the 1H22 outcome with results affected by COVID/Omicron restrictions.
Rising Omicron cases has persuaded the NSW Ministry of Health to place restrictions on non-urgent, overnight Category 2 and 3 elective surgeries. This applies to private hospitals effective from 10 January but occurs at a time when many of Australia’s doctors are away on holiday anyway. RHC has indicated that previous lockdowns have cost around $15-20 million EBIT per month, but with government outsourcing and viability support, January 2022 could yet tilt towards breakeven.
The Victorian Department of Health and Human Services has also imposed changes with surgical restrictions effective immediately (6 January). Elective surgery is now restricted to urgent elective surgery including Category 1 admissions in all private hospitals and day procedure centres.
Neither state has indicated when the restrictions will be lifted creating further uncertainty for RHC’s earnings. At this point, we assume a late February resumption of all surgeries.
RHC is continuing to support the public sector, particularly in NSW where it will prepare its private hospitals to deal with a rapid but short surge in Omicron cases. During past lockdowns, this allowed some RHC facilities to still function at 75% utilisation.
Alongside outsourcing, states are also obliged to compensate RHC for any costs associated with having facilities on standby using viability agreements.
Investment view
We expect that an impaired result for FY22f will be followed by a strong recovery in FY23f. We note that non-COVID care cannot continue to be deferred without consequences.
Forecasts are suggesting the peak of Omicron cases will occur in the next two weeks. Public hospital forecasters are worried about the ability of state public hospitals to cope, particularly due to staff shortages due to isolation requirements. This may be mitigated by state exemptions for key health workers to break close contact isolation requirements if they are not symptomatic.
Our view on RHC remains focused on a strong FY23f recovery as conditions normalise and the backlog of surgery keeps utilisation rates high. FY23f will also be boosted by the UK acquisition of mental health provider, Elysium.
