Healthscope, Australia's second largest private hospitals operator, still expects flat earnings in the current financial year as softer conditions in the private sector puts pressure on margins.
Chief executive Gordon Ballantyne said the company is confident of the private healthcare industry's long-term future, given that a growing and ageing population is driving demand for healthcare services.
"However, softer private hospital market conditions and variability in patient case mix have resulted in some margin pressures, where costs in certain areas of the business have grown faster than our health fund revenue increases," Mr Ballantyne told shareholders at Healthscope's annual general meeting in Melbourne on Thursday.
Case mix refers to the mix of types of patients - by specialty, treatment or diagnosis - in a hospital at any point in time.
Healthscope affirmed its expectation that operating earnings before interest, taxation, depreciation and amortisation (EBITDA) for its hospitals division in the 2018 full year is likely to be broadly similar to the previous corresponding period.
First-half operating EBITDA for the hospitals division is expected to decline, but EBITDA should grow in the second half, with momentum carrying into 2019 and beyond.
Healthscope's hospitals division generated operating EBITDA of $359.4 million in 2017, up 1.3 per cent on the prior year.
But hospitals in Victoria and Tasmania, which generate about one third of divisional earnings, underperformed because of increased competition, a slower lift in patient volumes at newer facilities, and high wage costs.
The Australian private hospitals market has also been challenged by a decline in private health insurance participation rates, and public hospitals competing for private patients.
Healthscope chairman Paula Dwyer said on Thursday that the federal government's private health insurance reform package announced last week was pleasing.
The package focuses on increasing private health insurance participation through more affordable policies for younger Australians, and increasing the overall affordability of health insurance through savings from a reduction in prostheses pricing.
Healthscope shares were 3.75 cents, or two per cent, higher at $1.91.75 cents at 1214 AEDT.
