The Ramsay Health Care Limited (ASX: RHC) share price has been stubborn this week. This is despite news of the termination of the company's agreement with health insurance provider Bupa.
On the day of the announcement yesterday, the Ramsay share price closed at $70.57, slightly lower than its previous close. Currently, shares in the private healthcare operator are down 0.09% to $70.50 apiece.
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Why the Ramsay share price held steady
Negative news tends to push down a company's share price. But in this instance, Ramsay had already flagged its notice of termination of the Bupa contract in May. So, the market saw this coming.
Yesterday, Ramsay confirmed it could not reach a resolution on key terms of a new contract. As such, it decided to part ways.
For patients of Ramsay who are insured with Bupa, the termination means the contractual and agreed transitional arrangements apply for a period of at least 60 days. As a result, a Bupa-insured customer is required to pay the difference between what Bupa pays out and Ramsay's total hospital fees.
Ramsay also noted it is liaising with impacted patients to assist with providing alternatives, which include changing health funds.
Although the agreement has been terminated, both parties are still on speaking terms in the hope of striking a new agreement.
The rise of private health insurers
According to a statement by the Australian Medical Association (AMA) in May 2022, "some larger private health insurers were increasingly trying to use their market power to squeeze private hospital operators in order to improve their own bottom line".
Evidently, Ramsay is not budging given its market position. However, this could prove to be a risky move amid the continued shortage of nurses pushing up wage expenses, as well as supply chain pressures.
Meanwhile, private health insurers have benefited from the pandemic, boosting their bottom line over the last two years.
It appears private health insurers are in a better position to negotiate terms and if more negotiations break down, it could mean Ramsay is facing a genuine power shift over the short to medium term.
As a result, this could spell trouble for the Ramsay share price. The company might need to pay more to private health insurers to secure patients, leading to lower returns on capital.
Monitoring the market share of the dominant private health insurers could be a sound method of determining who is winning the arm wrestle.
