Why has Healthscope entered receivership?

One of Australia’s biggest private hospital operators, Healthscope, has gone under, putting a ‘for sale’ sign on 37 hospitals across the country.

Healthscope, which treats about 650,000 Australians each year and employs about 19,000 staff nationally, appointed receivers on Monday after lenders voted to end their support for the company’s current owner, Brookfield. The good news for Healthscope’s staff and patients is that the hospitals will stay open until they find a new owner, with the Commonwealth Bank and Westpac (among the banks collectively owed $1.6 billion by Brookfield) providing additional funding to keep the lights on.

Healthscope chief executive Tino La Spina says it is business as usual for the country’s second-largest hospital operator.Credit: Eamon Gallagher

Why is Healthscope in receivership?

Healthscope was bought by Brookfield, a Canadian private equity company, in 2019 for $4.4 billion. At that time, Brookfield, which manages more than $1 trillion in assets, said it was confident Healthscope was on a good wicket and ready to capitalise on the trend of Australia’s ageing population needing more medical care.

However, things under Brookfield got off to a poor start once COVID hit, which put a stop to elective surgeries and significantly bumped up the daily running costs of Healthscope’s hospitals. A bigger problem emerged as the pandemic pressures receded, as the funding model of operators like Healthscope came under pressure. With revenue unable to keep up with rising costs, and Brookfield weighed down by its $1.6 billion debt, the company could no longer make payments to its lenders nor pay rent to landlords.

How many hospitals does Healthscope operate in Australia?

Healthscope runs 39 facilities across the country. It has 13 hospitals in New South Wales, 13 hospitals in Victoria, five in Queensland and four in South Australia, and runs a single facility in each of Western Australia, ACT, Northern Territory and Tasmania.

What controversies have happened at Healthscope-run hospitals?

Some of Healthscope’s hospitals have been particularly controversial. The company’s Northern Beaches Hospital in NSW came under intense fire following the death of a two-year-old patient last September. An internal investigation of the death found serious failures in the hospital’s response and eventually led to a ban on public-private partnerships in the state.

Northern Beaches Hospital came under fire following the death of a two-year-old patient last September.Credit: Renee Nowytarger

A parliamentary inquiry into the hospital’s performance was launched in 2019 after a string of high-profile incidents, including one case where a cancer patient had the wrong side of his colon removed due to an error in his pathology report.

Meanwhile, the Holmesglen Private Hospital in Victoria has been caught up in controversy as well, most notably for a 2021 incident in which a 17-year-old schoolboy died at the hospital.

What does this mean for Australia’s private health system?

Healthscope’s financial collapse has raised concerns about the financial model that underpins Australia’s for-profit healthcare sector, which is tackling rising costs and changing public expectations of the value provided by private hospitals.

Private hospitals rely on contracts with private health insurers, such as Medibank and NIB, to cover their costs (staff wages, rents, specialist care facilities) and make a profit.

While the cost of providing service has continued to rise for Healthscope, it says insurers have become reluctant to pay their fair share. Structural issues are also at play. Insurers are introducing more at-home treatment for ailments that would previously require a lengthy – and lucrative – hospital visit.

With Brookfield weighed down by its $1.6 billion debt, the funding tensions exploded last year when the company threatened to tear up its contracts with BUPA and a coalition of non-profit insurers (the Australian Health Service Alliance), potentially exposing more than 6 million Australians to hefty out-of-pocket fees at its hospitals. Healthscope resolved the funding dispute with BUPA in January and the non-profit insurers in March.

What next for Healthscope?

While the emergency funds from CBA and Westpac will keep Healthscope’s hospital operating, the receivers are now looking for buyers for the hospitals. The company has said that it has received 10 credible, non-binding offers and is expected to announce a new owner by mid-August.

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