The silver lining to Australian healthcare’s growing pains revealed

Most of the challenges are driven by supply-side pressures.

According to a recent report by Dexus Research, the positive thematics for demand in the healthcare sector have led to strong performance over the past decade. These are ongoing. 

This quarter, the analyst discusses some of the pressures associated with such rapid growth. 

Here’s more from Dexus Research:

Private health insurance hospital coverage has remained flat over the year as consumers deal with rising premiums. In addition, with the indexation of Medicare, rising service fees are leading to higher out--of-pocket costs for patients. Nationally, GP visits have flattened over the past year after a decade of growth, albeit telehealth attendances have declined in favour of in-person appointments. 

In the private hospital sector, demand for elective surgeries is strong with the number of patients admitted for surgery increasing by 18% in FY23. However, elective surgery waitlists have grown longer, with patients waiting an average of 49 days to be admitted for elective surgeries over the FY23 period, compared to the average of 40 days in the prior year. Staff shortages are contributing to the backlog, slowing the rate at which the waiting lists can be treated. These factors, along with general cost inflation is are among the challenges being felt by the private hospital sector. 

Staff shortages have become more prevalent in the healthcare industry, with Victoria University projecting a shortfall of more than 100,000 nurses in 2025 and anecdotal reports of shortages of clinicians in some areas. APHRA has reported a 2.9% increase in registered health practitioners over the past year, with 14.3% more applications for registration, yet this is still not keeping up with the demand for healthcare workers. Technological advances will likely help aid digital transformations within the workplace, helping to ease the pressure on staff within the industry. 

Returns are easing at a slightly slower rate to the other property sectors as all are affected by high interest rates, with the total return reported by MSCI at -1.3% in the year to Dec-23. Healthcare assets have historically been above all property sectors and continue to hold stronger through this property cycle. 

The silver lining to these challenges is that they are driven by supply-side pressures such as inflation and staff shortages rather than weakness on the demand side. Demand thematics remain generally positive. Pressures faced by operators are a reminder that while healthcare tends to be a lower risk sector than say office, it is not without risk, and the fundamentals of covenant and location remain important.