Healthscope’s ills point to unhealthy connection between public patients and private profit

Merging hospital services with for-profit businesses, creating a quasi-capitalistic-socialistic entity, is a complex task. We see this in the financial difficulty facing Healthscope and its 38 hospitals, now under receivership. This stumbling business is causing every Australian government; Commonwealth, state and territory, acute problems.

The Northern Beaches Hospital is meant to provide public hospital services for Sydney’s northern coastal suburbs.Credit: Renee Nowytarger

But the NSW government has the extra problem of a failing Healthscope business – the Northern Beaches Hospital (NBH) – which is meant to provide public hospital services for Sydney’s northern coastal suburbs.

The NBH money problems were foreshadowed in the NSW Audit Office report of April 2025. Healthscope, operator of the $500 million for-profit, public hospital, needs to transfer the hospital to the government, well before the contract’s 2038 end date.

The current NSW government, while opposed to privatised public hospitals, is reluctant. But before exploring this dilemma, a review of private participation in public services sets the background.

Beginning in the 1990s, Australian governments were fixated by illusions of savings through privatising traditionally-provided government functions. Some wanted “to throw the private sector a (profitable) bone or two” as the late NSW premier John Fahey would say. Others wanted to reduce government debt by shedding responsibilities to the private sector. But governments also wondered whether private sector firms were inherently more efficient.

The Howard federal governments turned aged care and childcare into profit-seeking industries. They privatised government IT systems, employment services and government buildings and they replaced public servants with thousands of contractors. Led by NSW governments, state governments allowed private toll roads, privately-run prisons, private water desalination plants, public schools built and maintained by private firms, the sale of government occupied buildings; they also authorised for-profit public hospitals.

Governments mostly managed this outsourcing incompetently. Taxpayers nearly always paid more, billions more, because of these privatisations.

In 1994 the Fahey government, the owner of the newly built Port Macquarie Hospital, authorised Mayne Nickless to operate it as a for-profit public hospital. So troubling and costly was the deal that the responsible minister, Ron Phillips, declared the Coalition would never do another. It was left to the Carr government to pay a reported $35 million in 2004 to buy out the contracts.

This expensive lesson that profits and public hospitals are restless bedfellows was overlooked when NSW premier, Gladys Berejiklian, opened Healthscope’s newly-built NBH in 2018. From the state’s position, the Northern Beaches agreement was far superior to the Port Macquarie contracts. Healthscope advised the NSW Audit Office, “the NBH operates efficiently and delivers significant cost savings to the Government”.

NSW Audit observed that NBH “is not effectively delivering the best-quality integrated health services and clinical outcomes”, but that is perhaps a nebulous standard. What is evident from the audit report is that NBH surpasses the 16 agreed standards set by NSW Health. Healthscope says NBH “met or exceeded the performance of most other public hospitals in NSW on most clinical measures”.

There have been isolated but tragic mishaps affecting NBH patients, including the avoidable death of a young child last year. But these unfortunate health mishaps occur in every jurisdiction and would not cause the government to assume control of NBH’s operations. While there are valid criticisms of and shortcomings in NBH, it is providing a critical function.

Why then does Healthscope wish to surrender control over NBH? In Healthscope’s view, the intensity of government oversight of NBH is burdensome, and the level of public scrutiny undermines staff morale and public confidence. But, perhaps more importantly to Healthscope, the NBH agreement leads to significant and persistent underfunding by
government. Given Healthscope’s own reported financial difficulties, it is understandable that it would wish to shed a loss maker.

NSW Health has quality of service risks by installing pervasive reporting, but its funding of clinical services has proved intolerable to NBH which has suffered material financial problems.

Healthscope has concluded that the current model ruling the relationship between NBH and NSW Health is unsustainable. NSW Audit is sympathetic: its main recommendation is to question whether “the NBH public-private partnership is the appropriate model to deliver the best quality integrated health care”. This recommendation is tantamount to saying the NBH model ought to be abandoned.

But there is another question: while there are reports of successful for-profit, privately-operated public hospitals in WA, what model satisfactorily balances the provision of a free, high-quality health care, accountability to taxpayers and yet deliver acceptable profits?

The private sector has an important role in our society. So does government.

Tony Harris is a former NSW Auditor-General and senior Commonwealth officer.

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