The Ramsay Health Care Limited (ASX: RHC) share price is under the spotlight after the private hospital operator warned of potential COVID impacts.
Ramsay’s profit hit
The Omicron COVID variant impacts are now spreading to the private health industry as well.
In response to rising COVID-19 cases, the NSW Ministry of Health has introduced restrictions on non-urgent overnight category 2 and category 3 elective surgeries which will be introduced on all private hospitals in NSW effective 10 January 2022.
If you’re wondering what those types of things are, Ramsay said: “Category 2 admission within 90 days desirable for a condition which is not likely to deteriorate quickly or become an emergency. Category 3 admission within 365 days acceptable for a condition which is unlikely to deteriorate quickly and which has little potential to become an emergency.”
Ramsay also noted that changes made by the Victorian Department of Health and Human Services (DHHS) to the surgical restrictions imposed in that state. Elective surgery is now restricted to urgent elective surgery procedures.
Neither the DHSS or the NSW Ministry of Health has provided a date at which those restrictions will end and Ramsay will be able to return to business as usual.
How much could this hurt profit?
Ramsay mentioned when it released its FY21 result that the impact on its FY22 EBIT (EBIT explained) due to surgical restrictions will be material and will depend on the geographical coverage, extend and duration of restrictions. It has already revealed some profit effects for FY22.
Whilst keeping in mind that January is the seasonally quietest month on the year in the Australian business, the estimated total EBIT impact in the FY22 first quarter in Australia due to disruption caused by COVID, including restrictions on elective surgery and the increased costs associated with COVID, was $55 million.
Summary thoughts on this and the Ramsay share price
The Ramsay share price has fallen by around 5% over the last couple of days. However, that may have been more related to the overall drop the ASX share market experienced this week as the Ramsay drop coincided with that decline.
I’m not sure if Ramsay is a buy or not right now. COVID continues to impact the situation. The private health industry faces long-term affordability issues for some policyholders and it’s hard to say how things are going to play out aside from a shorter term backlog of patients (like surgeries).
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