Medibank – Shareholders Feeling Better

According to one fund manager the hottest topic in financial services at present is whether the low 1H2016 hospital utilisation rate that put a rocket under the share prices of Medibank Private and NIB is even remotely sustainable.

Hospital utilisation is a key driver of claims costs and basically refers to the frequency at which policyholders are attending hospital. It is measured by the number of episodes (such as births or knee replacements) per a fixed number of policy holders in a given period.

At times pre-float Medibank Private had attributed 70% of growth in hospital claims to steadily rising utilisation rates.

But in Medibank Private’s 1H2016 results a favourable utilisation outcome was the fourth ranked reason for better than expected claims experience. The factors listed first were payment integrity savings, hospital contract renegotiations, and product and mix changes, factors that are all under Medibank Private’s control.

Medibank said it expected a ‘moderation’ of favourable utilisation rates this half.

Grahame Danaher, the long-time CEO of not-for-profit health insurance fund Westfund, which focusses on regional NSW, warns that improved utilisation rates benefited the whole industry in 1H2016, and are not sustainable.

Across the industry there has been increased volatility in quarterly claims experience and the March quarter is already looking to be a reverse of the ‘light’ claims experience enjoyed by most of the industry in the December quarter, he said.

Grahame says the health insurance industry is facing a number of headwinds at present, not least government’s cost-cutting efforts which are likely to see doctors attempt to pass increased costs on to health funds.

Policy downgrading is also hurting the top line. As the biggest player and with few growth options Grahame says Medibank Private does not look in ‘great shape’.

Of the speculated candidates to replace outgoing Medibank Private CEO George Savvides, Grahame says former NAB finance chief Craig Drummond would bring a welcomed focus on costs.

As the CEO of a non-listed mutual for the past 20 years, Grahame is happy to share his views on the prospects for the health insurance sector. Institutional clients are invited to get in touch with First Mail to arrange a telephone chat with Grahame next week. First in, best dressed.  


Source :Stewart Oldfield, Wilson HTM 

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