Public-private pain: buying back Sydney's embattled Northern Beaches hospital faces uncertain prognosis

The Guardian

2 days ago

Just before the New South Wales parliament rose for the winter break, an unusual piece of legislation passed through both chambers late in the evening. It aimed to strengthen the arm of the Minns government in its negotiations to return the Northern Beaches hospital (NBH) to public ownership by threatening changes to the terms of the contract with its private partner, Healthscope.
NBH is the only public-private partnership (PPP) in NSW where public hospital services, including emergency care, are delivered by the private sector. The Labor government, a staunch critic of PPPs, has vowed it would not enter any such deals in the future. To underscore its stance, it has now passed legislation banning PPPs to deliver acute care.
After years of mounting debt and a string of complaints about care standards – including a toddler dying in a chair while waiting hours for care and a woman whose baby died in childbirth because an emergency caesarean was offered too late – the hospital went into receivership in May. Untangling its private components from its public ones and settling the terms of the government's buyback are proving painful.
The PPP was put in place by the previous Coalition government in 2013, despite a similar failed experiment by the Greiner government at Port Macquarie hospital almost two decades before.
The Minns government had resisted earlier calls to buy back NBH, but it has now been forced into action after Healthscope's collapse, with debt of $1.6bn.
Local MPs and staff at the hospital had long been sounding the alarm about the impact of the financial incentive for profit on patient care.
The independent Wakehurst MP, Michael Regan, has campaigned for a government buyback, proposing legislation that would return the hospital to public hands with no compensation at all.
With the financial future of a hospital serving more than 370,000 residents on Sydney's northern beaches uncertain, the government has concluded a buyback is its only option. It is adamant, however, that it does not want to pay a 'windfall gain' and so supported the amended legislation.
The Northern Beaches hospital continues to operate normally with a financial lifeline from the Commonwealth Bank, while a government-appointed taskforce negotiates with Healthscope's receivers, McGrathNicol.
Progress, however, has been slow.
The parties have not reached agreement over the price or exactly what it is that the government is going to buy.
One of the problems is that the private and public components at NBH are closely integrated, unlike some other hospitals, where the private facilities are often housed in a separate building with its own services.
NBH has separate wards, but many services – such as theatres, nursing staff, cleaning, , X-ray, pharmacy and pathology – are shared, with several operated by third-party private companies.
The building itself had also been sold to a property trust, which leases it back to Healthscope, adding further layers of complexity.
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The cost of building the hospital was well north of $1bn, with the government contributing $600m at the time. A report in 2015 said the total cost to taxpayers – for the building and for Healthscope providing the public hospital beds over the life of the contract to 2038 – was $2.14bn.
Healthscope also has rights to operate the private component until 2046.
But is it a lucrative deal or not?
It was revealed in a scathing independent report by the NSW auditor general, Bola Oyetunji, released in April that Healthscope was anxious to exit from running the public hospital part of NBH and had made two offers to the government to sell in 2023.
The special legislation passed in late June arguably tips the scales in the government's favour by making it clear that receivership is a breach and starts the clock ticking on a resolution.
'If a mutual agreement is not reached, the amendments would give the health minister the power to issue a termination notice to Healthscope,' the treasurer, Daniel Mookhey, said in a statement.
'In addition, the treasurer would have the power to ensure that compensation negotiations occur in a reasonable time frame and to appoint an independent person to determine compensation if agreement cannot be reached.'
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But the approach by the government has drawn criticism from business and the opposition (which ultimately supported the bill) on the grounds that it amounts to retrospective alteration of a contract and raises the question of sovereign risk for future investors in NSW.
For the time being, the receivers and the taskforce appointed by the government are back at the table. A spokesperson for Mookhey said they are looking for a quick resolution.
The government has a pot of money available for the buyback of the hospital. The 2025-26 budget revealed unallocated funds of $860m. It could all go smoothly or it could end in the courts.
'We are continuing to engage in constructive discussions with the NSW government on the future ownership of Northern Beaches hospital,' Healthscope said in a statement. 'Given the government's policy position against further public-private partnerships in the health sector, we believe this is in the best interest of the Northern Beaches hospital staff, patients and wider community.'
There have been serious questions about NBH's ability to provide reliable healthcare since it opened in 2018. Staff reported shortages of basic supplies and an inefficient IT system where records were divided over several databases.
Some teething problems were resolved early on, but staff continued to be concerned about the tensions between profit and patient care.
The auditor general's April report confirmed critics' concerns, finding the PPP 'creates tension between commercial imperatives and clinical outcomes'.
It found the hospital had failed to act on warnings about risks to patient safety and outcomes, and its electronic medical record systems 'present quality and safety risks', which Healthscope and the government's Northern Sydney Local Health District had known about since the hospital opened in 2018.
In 2019, Healthscope was bought by a Canadian private equity firm Brookfield. High levels of debt intensified Healthscope's financial pressures and resulted in more concerns about how the PPP was operating.
At the same time, the private hospital sector was at war with private insurers over a reduction in payout amounts for in-hospital care, which added to financial pressures.
NBH – or at least its public hospital operations – will be returned to public ownership. The more likely outcome is that the government will buy the whole hospital, though this is not certain. It hopes the sale can be resolved quickly – and without blowing the budget.
That will be welcomed by nurses who want to be employed on the same terms as their colleagues working in government-owned hospitals, including better patient ratios.
For patients on the northern beaches, there will hopefully be an improvement in services, though Healthscope insists it already performs well compared with other similar hospitals.
One of the big changes is likely to be the types of operations offered at NBH. At the moment, more complex cases are channelled to the Royal North Shore hospital under opaque policies put in place by the Northern Sydney Local Health District. With the same ownership, there will be less incentive for this practice to continue.