Healthscope bids for itself as not-for-profit to dodge $100m tax bill

Healthscope, the country’s second largest private hospital operator, is in receivership. Picture: Nadir Kinani

Healthscope’s receiver McGrathNicol will receive early offers next week from parties interested in buying all or parts of the country’s second largest private hospital operator.

The twist, though, is that one of the bidders will be Healthscope itself, and that to give itself the winning edge it is planning to turn itself into a not-for-profit operator.

A not-for-profit group escapes the requirements of paying payroll tax, which is 5 per cent, and could provide a $100m-a-year earnings benefit when it comes to Healthscope.

A not-for-profit needs to operate within a trust, and proceeds would need to go to a nominated charity.

But chances are that, after the rent is paid and debt is paid down to its lenders in the coming years, Healthscope would not have any spare change that would be handed on to a third party.

DataRoom understands that receivers have briefed parties with interest in the outcome of the sale process, which have been told that, based on interest to date, it appears that lenders owed $1.6bn would receive more from a break-up of the business compared to an all-of-company buyout.

Not-for-profit operators such as Calvary, St Vincent’s and St John of God have interest in buying some of the roughly 40 hospitals within the Healthscope portfolio.

Although private equity firms have lined up, it was a private equity firm – Brookfield – that owned the business before it collapsed, which puts it out of favour with the government when it comes to ownership of the business.

The government contracts work to Healthscope, so it has some influence over the outcome.

Catholic healthcare providers, which do not provide certain reproductive-related or voluntary assisted dying services, would also be unlikely to gain government blessing for owning the business as a whole.

As earlier reported, final bids are due in September, with Houlihan Lokey also assisting on the sale process.

Anyone who takes on Healthscope would need an estimated $400m to pay for its capital spending needs.

But there is a strong view among industry experts that some hospital assets are no longer fit for purpose and need to close, because of the additional computerised equipment used in operating theatres and the additional number of staff needed in rooms for certain procedures.

Other issues are the wrong speciality mix and the wrong location.

Among other firms that have bid for Healthscope assets when the business was up for sale in March by Brookfield are Macquarie Group, Ramsay Health Care, Epworth, Cabrini Health, Healthe Care, and new comers are Genesis Capital and Mercury Capital.

Brookfield purchased Healthscope in 2019 for $4.4bn, then sold its real estate for $2bn to help fund the transaction.

The company then became loss-making following the pandemic, when it was hit by higher staff costs and reimbursement payments from health insurers that the industry claims were not enough to cover rising costs.

Landlords include the interests of HMC Capital and Northwest Properties REIT.

Among the consortium of about 20 lenders to Healthscope are Australia’s top four banks and, more recently, distressed debt funds such as Polus Capital, which has loans worth $300m that it purchased for 40c in the dollar.

In the weeks before the business entered receivership, Tino La Spina picked up the reins as chief executive and has been advocating for the company to remain owned by lenders and recapitalised.