Healthscope collapse raises questions about the viability of private hospitals

Australia Broadcast Center

26-05-2025

The collapse of Australia's second largest private hospital group is an early warning sign for the financial viability of private hospitals, a health policy expert says.
Healthscope's network of 37 private hospitals treat about 650,000 Australians each year and employ about 19,000 staff nationally.
Owned by the Canadian-American investment firm Brookfield, the indebted operator fell into receivership on Monday after its syndicate of banks and hedge funds withdrew support.
It appointed corporate restructuring firm McGrathNicol as receiver and promised patients and staff it would keep its hospitals open.
Yet the collapse of a major hospital care provider has raised questions about the financially viability of Australia's private health sector.
Although Federal Health Minister Mark Butler described Healthscope's struggle as "unique," he recognised there were "challenges" for the profitability of private hospitals.
Meanwhile, Monash University Professor of Health Economics, Anthony Scott, said the collapse of the business is a signal that the private health sector may shrink.
Dr Scott said private hospital operators were struggling to maintain profitability due to workforce shortages and higher costs of supplies and equipment.
This has put operators at loggerheads with health insurers that fund the system but do not want to charge customers more.
"Hospitals want more money for the increased activity and costs of providing their services," Dr Scott said.
"Whereas health insurers, particularly the for-profit health insurers, want to keep premiums down for members so that they're profitable too."
The tension between the two became evident in September 2024 when Healthscope threatened to end agreements with private health insurers.
Healthscope owner Brookfield still owes $1.6 billion to lenders and has been unable to pay to keep operating its facilities, including Sydney's Northern Beaches Hospital.
"There is a general feeling in the sector that it's hard to make money from private hospitals at the moment," Dr Scott said.
He added the drop in private insurance memberships and knock-on effects of the Covid pandemic are continuing to put pressure on the private health sector.
Speaking at a media conference on Monday, Federal Health Minister Mark Butler admitted "there are some viability challenges to private hospitals as a sector".
"That's why a couple of months ago I announced my expectation to insurers that they would lift the benefit payments ratios," he said.
"But I think people who observe this part of our healthcare system understand that Healthscope and its ownership structure ... is something of a unique case."
Still, Professor Scott said Healthscope's collapse shows that private equity firms do not see hospitals as financially viable.
"It's an important issue, particularly when costs are increasing and profits are not to be made, but then again some people might argue that you shouldn't make profits from health."
The latest figures show about half of all hospitals in Australia are private, and of these 62 per cent are for-profit, while the rest are run by not-for-profit organisations.
Dr Scott said non-profits like St Vincent's were "more likely to weather the storm" of the cost-of-living challenges because of their ownership structures.
This means the collapse of Healthscope does not necessarily spell the beginning of the end of the sector.
"Private hospitals might still exist, but they might be on a smaller footprint because they will have to close parts of their services to keep costs down," Dr Scott said.
"Remember some maternity units have closed in recent years."
Healthscope chief executive Tino La Spina said it is "business-as-usual" and all 37 of the operator's private hospitals would remain open during the receivership.
Healthscope said it has a current cash balance of $110 million to keep the business running, with the Commonwealth Bank offering an additional $100 million in loan funding.
"There is no interruption to the outstanding care we provide. Our incredible teams are all working as normal, providing the high standard of care they always have," Mr La Spina said.
"The additional funding, while we do not anticipate it being required, provides additional support."
Minister Butler said there would be no taxpayer bailout, with Healthscope having enough funds for "several months of operations" as it goes through an "orderly stable process of the sale".
While he did not say what would happen if the money ran out before all the hospitals find new owners, he did say a "disorderly" process would have an effect.
Dr Scott added public hospitals were already under a lot of pressure too, with health policy rhetoric in recent years shifting toward strengthening primary care to lower demand.
"In the next year or so, we're going to see the same issues from public hospitals wanting more money from the government," he said.
"[The rhetoric] is all about preventing people from going into the hospital in the first place, but a lot of those policies are not in place yet."
He suggested revisiting the regulation of prices and contract negotiations between private hospitals and private health insurers could potentially help the private hospital sector to be more efficient.
"The funding models would need to be looked at in the long-term to ensure the sustainability of the whole hospital sector, not just private hospitals."
Healthscope runs the 37 facilities listed below.
NSW
Victoria
Queensland
South Australia
Western Australia
Tasmania
ACT
Northern Territory