The healthcare industry is one of my favourite industries. It's proven to be one of the best sectors to be invested in over the last five years and I think the next five years will be fruitful too.
There's a wide range of healthcare shares on the ASX from giants like CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) to smaller growth shares like Nanosonics Ltd (ASX: NAN).
However, most of these healthcare businesses focus on a small area of the overall healthcare treatment process. It could be possible for a competitor to produce a better service.
I think private hospitals are a good way to get diversification to all the different health issues.
Healthscope Ltd (ASX: HSO) and Ramsay Health Care Limited (ASX: RHC) are Australia's two largest private hospital operators and I think both are them are worthy of consideration for an investment.
Ramsay is a global private hospital business with large operations in Australia, France and the UK.
The vast majority of Healthscope's business operations are in Australia, although it does have a small presence in Asia.
Both Ramsay and Healthscope should have good futures because the number of over-65s is expected to increase by 75% over the next two decades. This should provide a large boost to patient numbers over this time period.
The number of over-65's increasing by such a high percentage gives both private hospital operators strong tailwinds because it's the oldest generation that are most likely going to visit a hospital. The oldest generation are also the wealthiest and most likely to have the finances needed for private health insurance.
Over the last five months the share prices of Ramsay and Healthscope have fallen by 4% and 5% respectively. I believe that this has created good value for prospective investors, even if the share price has recovered somewhat over the last few weeks.
I expect that the government will try to assist the private health insurance sector one way or another. There have already been a few small announcements such as cheaper prices for younger policyholders.
If the private health insurance uptake increases again then Ramsay and Healthscope could recover nicely.
Foolish takeaway
Ramsay is currently trading at 24x FY18's estimated earnings with a grossed-up dividend yield of 2.75%. Healthscope is currently trading at 20x FY18's earnings with an unfranked dividend yield of 3.47%.
I think both shares would make a good long-term buy at today's prices and I'm happy to be a shareholder for many years to come.
