As suitors circle Healthscope, its management mulls a different path

The sales process for Healthscope’s failed private hospital business kicks off in earnest on Monday with up to 30 potential suitors due to file their tentative offers for its 37 Australian hospitals, employing 19,000 staff nationally.

But the non-binding offers won’t include a bid from Healthscope’s current management, who are contemplating a scheme to convert the company into a not-for-profit entity.

Healthscope CEO Tino La Spina is planning a bid for the business to buy itself and become a not-for-profit operator.Credit: Eamon Gallagher

It would mirror the resurrection of Australia’s largest childcare provider Goodstart Early Learning from the ashes of the collapsed ABC Learning empire, as a not-for-profit provider.

Healthscope insiders have confirmed reports in The Australian Financial Review last week that its chief executive, Tino La Spina, is working on the plan as an alternative to a sale of the business to either commercial interests or other Australian not-for-profit operators such as St Vincent’s Health Australia.

Healthscope declined to comment. People with knowledge of the proposal, who are not authorised to discuss the matter, confirmed that the plans are not advanced enough to put in a non-binding indicative offer by the Monday, July 21 deadline.

But La Spina’s team has been consulting the receivers from McGrathNicol who are managing the sale, with a view to putting in a proposal during the second stage of the sales process, where interested parties are expected to lodge binding offers for the business.

This includes local not-for-profit operators, ASX-listed Ramsay Health Care, privately owned Healthe Care and a potential debt-for-equity swap that could see lenders like British-based Polus Capital take control.

The receivers are acting for lenders which are owed $1.7 billion, according to documents lodged with the corporate regulator, the Australian Securities and Investments Commission (ASIC). Australia’s Big Four banks are among the lenders that will be hit with significant losses as the sales price is not expected to get anywhere near what is owed them.

The debt includes $52 million owed to the former owner, Canadian financial giant Brookfield, which had $2 billion in equity wiped out when the group collapsed into administration earlier this year.

Lenders contacted by this masthead, who did not wish to comment publicly on the sales process, welcomed a potential offer from the Healthscope team, which would have the benefit of not having to pay payroll tax, so it could potentially make a better return to lenders.

Healthscope insiders also pointed to advantages enjoyed by not-for-profits when it comes to fringe benefits tax (FBT), which means it could offer salary packaging to the 19,000 staff that would help with retention and keep a lid on salary expenses.

The second stage of the sales process starts on July 28 and is expected to run for eight to 10 weeks, with a new owner expected to be announced in October.

At the creditors meeting last month, which was managed by KordaMentha’s Craig Shepard as lead administrator, he noted: “The group’s 37 hospitals all remained open and operating on a business-as-usual basis with no impact on staff, doctors or patient care.”

Most of the viability issues that have affected Healthscope relate to its unsustainable debt, which will be significantly reduced by the receivership.

Landlords will also be wearing a lot of the pain to help many of these hospitals become financially viable for a new owner via lower rent costs.

The public battle to get more money from private health insurers such as Medibank and NIB is also expected to help. Health Minister Mark Butler backed off from threats to intervene in private health insurer funding of private hospitals last month after insurers promised to increase their funding of the struggling sector.

“The trend is going in the right direction again, but there still is more to do to underpin the viability, the strength of this critical sector of our health system. But I have taken the view that, three months on, there is no cause right now for me to take regulatory action against private health insurers. We will continue to monitor this closely,” he said last month.

About 70 per cent of elective surgeries in Australia take place in a private hospital, making it a vital part of Australia’s health service.

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