"Thanks skinsy, a compelling research note but im easily persuaded and get lost in the complexities of govt,/public/private hospitals. Im looking forward to your response, rebuttal Adam."
While I pay little heed to analyst recommendations and target prices, I think that analysts do provide a valuable service when they publish relevant information or offer unique, proprietary insights into a situation.
I think the CS analyst does so in this case, he/she is correct in his/her observation that there are affordability issues for people accessing private hospitals, either due to lower PHI benefits being paid, or due to lapsing in PHI membership.
This is quite observable.
However, where I definitively disagree with the analyst is in his/her view that the shift from patients from private to public hospitals is "structural". For that to be the case, given that the public hospital sector was already some time back creaking at its seams from excess demand, it implies that either:
1. governments - state and federal - have been hurriedly investing in new hospital capacity; or
2. public hospital emergency departments are even more burdened than the near-crisis level at which they were operating a few years back (which is precisely what the investment in new hospitals by the private sector was intended to alleviate); or
3. waiting lists for elective surgery are blowing out.
Now we know that Point 1 is not true.
Points 2 and 3 are likely to be happening.
But, clearly, that is not sustainable due to simple physical limitations, and - while I suspect it might be the situation for some limited period of time (maybe a couple of years) - I am convinced that it is not sustainable, and that something will need to give in order to reverse the trend (a trend which I anyway don't believe is occurring on a wholesale scale, but is rather just happening at the margin).
So, instead of it being structural (which connotes an element of it being permanent), I think the trend - to the extent it is occurring - is a cyclical one.
This is a very simple study of supply and rising demand for hospital theatres and beds.
The rising demand is, indeed, something that is structurally permanent, while increasing in supply has to come from the private sector. That is a physical axiom, because governments are not building new hospitals (if anything, they are looking to shut down older, inneficient ones).
So, no matter which way it is cut or sliced, the solution to the problem keeps coming back to the private hospital system.
And if affordability is the problem, then the most cost-effective way to address that problem will be for the government to create some economic incentives for people to attend private hospitals (what exactly those incentives are, I'm not sure, but I suspect they will take the form of making PHI membership attractive from a taxation point of view); because the alternatives to that - namely expanding the public system on any grand scale - is clearly firmly off the agenda and is likely to remain that way given the significant capital cost involved, in addition to the long lead times, when the pressure on the system is already being experienced right now, and are likely to intensify.
So, short rebuttal as follows:
1. Yes, the analyst is right: it is a problem currently.
2. But it's likely to be happening only at the margin.
3. It is cyclical, not structural.
(20min delay)