How Ramsay HealthCare (ASX: RHC) Could Survive High Inflation

Healthcare is often described as defensive, but that does not mean it is immune to economic pressure. When inflation rises, hospitals feel the impact quickly. Wages increase, energy bills climb, medical supplies become more expensive, and staffing shortages push costs even higher. For Ramsay Health Care, the largest private hospital operator in Australia, these pressures are very real.

Surviving high inflation is not about waiting for conditions to improve. It is about adjusting how the business operates, how it earns revenue, and how it controls costs without compromising patient care. Ramsay’s path forward depends on a combination of negotiation, efficiency, discipline, and long-term thinking.

Inflation Hits Health Care & hospitals Where It Hurts Most

Hospitals are labour-heavy organisations. Staff costs typically account for more than 60 percent of total operating expenses across the private hospital sector. Nurses, doctors, technicians, and support staff are essential and in short supply globally. When wage inflation accelerates, hospitals cannot simply reduce headcount without affecting care quality.

Beyond labour, inflation affects almost every input. Medical consumables, pharmaceuticals, food services, laundry, electricity, and digital systems all become more expensive. Unlike many industries, hospitals cannot pass these costs directly to patients in real time. Pricing is often negotiated in advance with insurers or governed by regulation, which means margins can tighten quickly.

This mismatch between rising costs and slower revenue adjustment is the central challenge Ramsay must manage.

Reimbursement Rates as a Key Pressure Valve

One of the most important tools Ramsay has is negotiating higher reimbursement rates. Private hospitals rely heavily on payments from private health insurers. If these payments fail to keep pace with inflation, financial stress builds rapidly.

In recent reporting periods, Ramsay secured higher payout ratios from major insurers. Industry data shows that insurer payout ratios, which measure claims paid as a percentage of premiums collected, have moved closer to the mid to high 80 percent range. This shift improves hospital revenue per procedure and helps absorb rising wage and supply costs.

While higher reimbursement does not eliminate inflation, it narrows the gap between cost growth and revenue growth. Over time, this alignment is critical for restoring margin stability.

Productivity and Efficiency Matter More Than Ever

When revenue growth is constrained, efficiency becomes essential. Ramsay has focused on improving productivity within existing hospital infrastructure rather than relying solely on expansion.

One example is better utilisation of operating theatres. Increasing theatre usage by even a few percentage points can significantly lift revenue without proportionally increasing costs. Internal programs aimed at improving scheduling, reducing cancellations, and streamlining patient flow help achieve this.

Another focus area is workforce management. Reducing reliance on high-cost agency staff and improving roster planning lowers labour expenses while maintaining service levels. These changes do not grab headlines, but they directly impact the cost per patient.

Capital Discipline in an Inflationary World

High inflation makes capital allocation more complex. Construction costs rise, financing becomes more expensive, and returns on large projects become harder to predict. In this environment, discipline matters.

Ramsay has shown a willingness to reassess its investment priorities. Rather than expanding aggressively, the focus has shifted toward improving returns from existing assets and strengthening the balance sheet. Leadership changes at senior finance levels reinforce this emphasis on capital efficiency and long-term financial resilience.

Avoiding overinvestment during uncertain periods helps preserve flexibility. That flexibility becomes valuable when conditions stabilise and opportunities re-emerge.

Portfolio Decisions Reflect Economic Reality

Not all healthcare services respond to inflation in the same way. Some areas face rising costs without sufficient pricing power or demand stability. Ramsay’s decision to close a large portion of its psychology clinics reflects this reality.

While such decisions can be controversial, they highlight the need to allocate resources where sustainability is strongest. Hospitals around the world are reassessing service mixes to focus on areas with consistent demand and clearer funding pathways.

By concentrating on core acute care services, where demand is structurally supported by ageing populations and chronic disease prevalence, Ramsay strengthens its long-term positioning.

Government Partnerships as a Stabilising Force

Inflation pressures are not limited to private healthcare. Public systems also face rising costs and growing waiting lists. This creates opportunities for collaboration.

Ramsay has increasingly worked with state governments to perform elective surgeries for public patients in private facilities. These arrangements improve utilisation rates and provide more predictable revenue streams.

From a system-wide perspective, these partnerships help reduce pressure on public hospitals. For Ramsay, they offer activity stability during periods when private patient volumes may soften due to cost-of-living pressures.

Digital Investment as a Long-Term Offset

Technology does not solve inflation overnight, but it can reduce its impact over time. Ramsay has invested in digital health records, data analytics, and automation to improve planning and reduce administrative burden.

Better data improves forecasting of patient demand, staffing needs, and supply usage. Automation reduces manual processes that are labour-intensive and prone to inefficiency. Over the long term, these improvements lower the cost per admission and improve care coordination.

In an inflationary environment, even small reductions in unit costs can make a meaningful difference at scale.

Healthcare Demand Provides a Structural Buffer

One reason Ramsay can navigate inflation better than many industries is the nature of healthcare demand. People require medical treatment regardless of economic conditions. Australia’s ageing population further supports long-term demand growth.

According to government data, Australians aged 65 and over are expected to make up more than 20 percent of the population within the next two decades. Older populations require more hospital services, particularly for surgery and chronic conditions.

This structural demand does not remove inflation pressure, but it provides a revenue foundation that many sectors lack.

Adapting Without Losing Purpose

High inflation forces difficult decisions, especially in healthcare where financial outcomes and patient care are deeply connected. Ramsay’s response is not built on a single solution. It is a combination of better pricing alignment, operational efficiency, capital discipline, service mix adjustment, government collaboration, and digital investment.

Disclaimer:

General Financial Product Advice and Regulatory Framework: Pristine Gaze Pty Ltd (ABN 66 680 815 678, ACN 680 815 678) operates as Corporate Authorised Representative (CAR No. 001312049) of Alpha Securities Pty Ltd (AFSL 330757), which is licensed and regulated by the Australian Securities and Investments Commission under the Corporations Act 2001 (Cth). This report contains general financial product advice only and has been prepared without consideration of your personal objectives, financial situation, specific needs, circumstances, or investment experience. The information is not tailored to individual circumstances and may not be suitable for your particular situation. Before acting on any information contained herein, you should carefully consider its appropriateness having regard to your personal objectives, financial situation, and needs, and consider seeking personal financial advice from a qualified financial adviser who can assess your individual circumstances and provide tailored recommendations.

Investment Risks and Market Warnings: All investments carry significant risk, and different investment strategies may carry varying levels of risk exposure including total loss of invested capital. The value of investments and income derived from them can fluctuate significantly due to market conditions, economic factors, company-specific events, regulatory changes, commodity price volatility, currency fluctuations, interest rate movements, and other factors beyond our control. Securities markets are subject to market risk from general economic conditions and investor sentiment, liquidity risk affecting the ability to buy or sell securities at desired prices, credit risk from issuer default or deterioration, operational risk from inadequate internal processes, sector-specific risks including industry regulatory changes, technology obsolescence, management changes, competitive pressures, supply chain disruptions, and mining-specific risks including resource estimation uncertainty, operational hazards, environmental compliance, permitting delays, commodity price cycles, geopolitical factors affecting mining operations, and exploration risks. Small-cap and speculative mining stocks carry additional risks including limited liquidity, higher volatility, dependence on key personnel, limited operating history, uncertain cash flows, and potential failure to achieve commercial production.

Information Accuracy and Limitations: While we endeavour to ensure information accuracy and reliability, we make no representations or warranties (express or implied) regarding the accuracy, reliability, completeness, timeliness, or suitability of information provided, except where liability cannot be excluded under applicable law. This report may include information from third-party sources including company announcements, regulatory filings, research reports, market data providers, financial news services, and publicly available information, which we do not independently verify and for which we assume no responsibility. Past performance, examples, historical data, or projections are not indicative of future results, and no guarantee of future returns is provided or implied. To the maximum extent permitted by law, Pristine Gaze Pty Ltd and Alpha Securities Pty Ltd, together with their respective directors, officers, employees, representatives, and related entities, exclude all liability for any errors, omissions, inaccuracies, loss or damage (including direct, indirect, consequential, or special damages) arising from reliance on information provided, investment decisions made based on this report, market losses, opportunity costs, and technical issues or system failures.