Healthscope banks sign on Houlihan Lokey amid stakeholder talks

As Houlihan Lokey represents Healthscope lenders, health insurers say private hospital operators need to ensure their business model is sustainable. Picture: iStock.

US-based advisory firm Houlihan Lokey is understood to have been officially appointed by Healthscope lenders to negotiate with the private hospital operator.

But as Healthscope hopes to pass some of its cost burden on to health insurers, the insurance industry believes that the answer is in creating a sustainable business model, not necessarily just handing out additional funding.

Medibank group executive Milosh Milisavljevic told DataRoom that the health insurer was working constructively with its hospital partners on support options and creating more sustainable healthcare settings.

“The challenge is how do we support hospital viability and make sure they continue to provide essential services, at the same time do it in a way that’s sustainable, that doesn’t push up premiums and helps accelerate the health transition,” he said.

Mr Milisavljevic said it was known that Australia needed to make the transition towards more short stay, home care and virtual health.

“Australia trails many countries in the uptake of new care settings,” he said.

“Consumers are demanding more choice and control over their healthcare, and for many people that now means receiving care at home or in a short stay hospital, or virtually.”

Healthscope has held recent meetings with lenders relating to a reorganisation of the Healthscope business.

Among its lenders are Australia’s top four banks, Challenger and financiers out of Asia.

It comes after DataRoom revealed earlier that the US-based Houlihan Lokey, known for its expertise in restructuring and with a Sydney office, was in the running for the role advising lenders, competing with a handful of rivals.

Others that pitched for the advisory mandate were believed to be groups like KordaMentha, McGrath Nicol and likely Rothschild & Co.

Healthscope’s lending group consists of about 25 financiers and Healthscope, which is owned by the Canada-based private equity firm Brookfield, has debt of about $1.6bn.

Brookfield purchased the business for about $4.4bn in 2019 but as part of the deal, sold the hospitals that Healthscope owns for about $2bn.

Healthscope, the country’s second largest hospital operator with 38 hospitals serving every state and territory, is not in default on its loans, but its earnings are under pressure from rising industry costs.

Attempts are being made to secure additional annual payment rises from health insurers – at least double the current rate of 1 to 2 per cent.

Meetings have also been held with landlords, including NorthWest Healthcare and HomeCo Health and Wellness REIT, although they are understood to be taking a hard line when it comes to any requests for rent reductions.

Structural challenges have been facing private hospitals, as insurance premiums rise, making private healthcare more unaffordable.

Technology means more procedures can be carried out in short stay hospitals or day centres.

Also working for the lenders is Ashurst, as MA Moelis, FTI Consulting, and law firms Arnold Bloch Leibler and Emmett Law help Healthscope.