Call the medics: How Healthscope ended up in hospital

Australia Broadcast Center

27-05-2025

Health and wealth. It's a potent pairing that often divides communities, states and nations.
Unlike the United States, where health often is dictated by wealth, the British and Australian health systems are underpinned by government commitments to public health with a supporting private system.
But the collapse of Healthscope this week, Australia's second biggest privately owned hospital operator, once again has exposed the often-conflicting goals between government responsibility for health services and subsidised but privately run institutions looking to maximise profit.
Can care services — whether it be in child, aged or health sectors — adequately deliver for the community as they seek to maximise returns to shareholders?
According to Stephen Duckett, an honorary professor at University of Melbourne and a healthcare expert, Australia has a "sorry history" when it comes to running these kinds of partnerships.
"Governments have naively assumed that the private sector always operates more efficiently and often been overly generous in the contracts they've signed," he says.
"And the private sector has been naïve in thinking it could extract more profit than was possible."
Healthscope's exasperated debtors called in receivers on Monday after months of financial dramas that saw the foreign-owned hospital group default on its rental payments.
Fingers are pointing everywhere when it comes to blame.
Healthscope management has thrown mud at the health insurance industry while admitting its owners paid too much and saddled the operator with too much debt.
The health insurers, meanwhile, have taken aim at foreign-owned private equity investors, accusing them of being out to make a quick buck.
Healthscope has operations in every state and territory across the country.
Some of them provide vital community work. In Darwin, Healthscope has the only privately run medical service, while in some parts of Victoria, the company provides the only mental health services.
Among the 37 institutions under the company's control is Sydney's Northern Beaches Hospital, undoubtedly the company's most controversial operation.
A public hospital contracted out to Healthscope by the previous Liberal government, it shot to prominence for all the wrong reasons after the death of two-year-old Joe Massa, who suffered cardiac arrest after staff left him alone with his parents.
The tragic incident ignited community outrage and has been the subject of numerous inquiries.
Even before Healthscope's collapse, NSW Premier Chris Minns was keen to explore ways to take the hospital back under government control.
That may be a possibility now the company has gone under. But the state government so far is playing it cool.
Health Minister Ryan Park told Sally Sara on AM Breakfast this week that private sector health care would never again intrude on the public system.
"My view is that this is not a model of health care we should ever be doing in NSW ever again," he said.
"Because the public health system is designed to deliver those acute public health services."
That's a model that has evolved across the country in almost every state and territory.
Federally funded public health services deliver the bulk of critical health services while the private system provides more than two thirds of elective surgery.
Healthscope's demise began on the day the purchase deal was inked.
In late 2019, just months before the COVID-19 pandemic swept the globe, Canadian-based asset manager Brookfield snapped up the healthcare group for $4.4 billion.
If the purchase price appeared a stretch, what followed was bound to break the elastic.
Elective surgery virtually ceased during the extended lockdowns across the country, making the operations unviable.
To make matters worse, Brookfield lumbered the hospitals with $1.6 billion in debt as it repatriated cash back to head office.
The properties, meanwhile, were sold off to two commercial property trusts. One was a Canadian outfit, Northwest Healthcare Properties Real Estate Investment Trust, which took the bulk of the hospitals.
The other was an Australian group, HMC, run by former investment banker David Di Pilla, who shuffled the 11 hospitals, worth about $1.5 billion, into a property offshoot called HWC.
Having paid so much for the hospitals, HWC charged what it believed was an appropriate rent.
But by late last year, Healthscope was in serious financial difficulties. It was drowning in debt, not pulling in enough revenue and unable to meet the rent.
In February, after months of threats, Healthscope told HWC it would refuse to pay rent unless it could receive some kind of relief, which was never forthcoming.
By that stage, even the owner, Brookfield, refused to tip in any more cash and the 27-member banking syndicate began selling off debt at 50c in the dollar.
Australia's second-largest private hospital group declared war against the health insurance industry in October last year.
Desperate for cash, it began charging patients, including those covered by health insurance, a "hospital facility fee": $50 for same day services and $100 for overnight services.
Dr Rachel David, chief executive of the peak body representing health funds, Private Healthcare Australia, described the move as "an unethical new low".
One fund launched legal action, arguing the out-of-pocket fee breached its contract, prompting Healthscope to tear up contracts with all the health funds.
The body's spokesperson Ben Harris told AM Breakfast that health funds were committed to working with the receivers as they searched for new owners.
He didn't waste the opportunity to further criticise Healthscope's private equity owners and managers.
"At the same time as it delivered millions of dollars of profits to its foreign investors, it's left these hospitals with a massive amount of debt and rents which are much higher than the rest of the sector," he told Sally Sara.
Brookfield is likely to take a hit on the deal. So too are the bankers, many of which have already sold their debt for half price.
As for new owners, David Di Pilla's HMC pitched up an offer for the entire hospital portfolio even before the administrators arrived.
But Stephen Duckett believes it will be broken up and sold off to rivals, and perhaps even health insurers.
"Some buyers will find certain hospitals are complimentary to their existing portfolios and will see better value for some assets than other buyers," he said.
That could see insurers taking a greater role, expanding into hospital management, a development some see as potentially problematic.
"There are potential risks with 'vertical integration' but those risks are mitigated because it is the surgeon who chooses where to operate."
According to Duckett, private insurers and private hospitals are here to stay. But while it's too late to wind back the system, the product needs to be improved.