Healthscope to survive as not-for-profit after private equity bid rejected

Healthscope lenders have approved a plan that will keep most of Australia’s second-largest private hospital operator intact as a not-for-profit operation following its financial collapse last year after private equity owners walked away.

The announcement comes after lenders owed $1.7 billion rejected a private equity offer for its Prince of Wales Private hospital in Sydney, which was finalised early on Friday morning.

“The transition of this significant portfolio of hospitals to a well-capitalised not-for-profit organisation, operating in accordance with its care-focused charitable purpose, would support the long-term sustainability of the private health sector in Australia, taking pressure off the public health system,” the receivers from McGrathNicol, led by Keith Crawford, said in a statement.

“We believe the plan announced today for the Healthscope portfolio is in the best interests of all stakeholders, preventing hospital closures and protecting jobs.”

Private hospitals provide the vast majority of elective surgeries performed in Australia.

The announcement is a significant victory for Healthscope boss Tino La Spina, who has led the bid to keep the rest of its hospitals together and pursued the plan to make it a not-for-profit operator, which means it immediately sheds significant costs like payroll tax which may have been costing the group as much as $100 million a year.

“This is a transformative day for our people, our doctors, our patients and the Australian healthcare sector. Our whole organisation has been galvanised by the idea of transforming Healthscope into Australia’s largest not-for-profit hospital operator, reinvesting surpluses back into our hospitals and people to continually improve patient care,” he said.

Last November La Spina warned that some of the hospitals had not attracted any buyer interest and faced the risk of closure if a break-up of the hospital operator was pursued.

The offer was the last being considered for five of Healthscope’s so-called crown jewels, which were put up for sale to the highest bidder as part of a plan for receivers to raise hundreds of millions of dollars for lenders owed $1.7 billion from the collapse.

Late last year, the receivers sold Canberra-based National Capital for $251 million to Ramsay Health, and also found buyers for Gold Coast Private, Victoria’s Holmesglen Private and Hobart Private Hospital.

They have already banked $190 million from the NSW government after it terminated Healthscope’s operation of Sydney’s Northern Beaches Hospital under a public private partnership model.

Lenders owed $1.7 billion had to balance the proceeds from the potential sale of the Sydney hospital with the need to ensure the remaining group of hospitals were still viable. The fact that lenders are expected to receive as little as 50c for every dollar they are owed indicates how little value is ascribed to dozens of Healthscope’s hospitals.

The last big hurdle for the receivers and new owners are the rents charged by landlords for some of the hospitals, which were unviable and contributed to its collapse last year.

Late last year, the receivers from McGrathNicol rejected a proposal from Canada’s Northwest Healthcare to carve off the 12 hospitals where it acts as landlord as part of a deal with not-for-profit Calvary – which would be the new operator – in a deal worth $140 million.

High indebtedness was another major factor in the collapse, along with funding problems with private health insurers, and the loss of financially lucrative multi-day stays in hospital by private patients in favour of at-home care.

Healthscope collapsed into administration in May last year after Canadian financial giant Brookfield was unable to reach an agreement with either its lenders, or landlords like Northwest, that would help make the business viable.

The other landlord, Healthco – backed by rich lister David Di Pilla – acquired 11 of the Healthscope hospital properties in 2022 for $1.2 billion.

Both Healthco and Northwest have announced plans to transfer their hospitals to new operators if receivers do not offer them an adequate deal on rents.

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