Healthscope faces financial distress amid debt challenges

AUSTRALIA – Australia’s second-largest private hospital operator, Healthscope, is grappling with a significant financial crisis, facing a US $1.6 billion debt and potential insolvency.

The company, acquired by Brookfield in 2019, has been unable to meet its debt obligations, leading to a series of strategic decisions aimed at addressing its financial instability. ​

Healthscope’s financial troubles stem from a combination of factors, including excessive debt levels, insufficient earnings, and a limited pool of hard assets available for sale.

The company has appointed restructuring experts at KordaMentha to prepare a contingency plan in case it is placed into voluntary administration.

Lenders holding part of Healthscope’s US $1.6 billion loan are preparing for potential secondary sales after a lock-up period ends in mid-May, according to people familiar with the matter.

This situation has raised concerns among doctors and landlords about the potential breakup of the company, which could create a national healthcare crisis in the middle of a federal election campaign. ​

Asset sales and potential breakup

Several entities are currently reviewing Healthscope’s data, but there is skepticism about a single buyer acquiring the full business.

HMC Capital, a major hospital landlord with previous investment interest, is expected to bid only on properties it already owns.

Other parties like Pacific Equity Partners and Ramsay Healthcare are considering acquiring selective or nominally valued assets.

This piecemeal approach could lead to a breakup of the company, raising concerns about the continuity of healthcare services provided by Healthscope’s hospitals. ​

Government intervention and public-private partnership challenges

The New South Wales (NSW) government is contemplating regaining control of the Northern Beaches Hospital’s public component amid mounting financial difficulties faced by Healthscope.

Healthscope has expressed willingness to return the hospital to NSW Health, acknowledging that the facility would be more stable under public control.

However, NSW Treasurer Daniel Mookhey emphasized that Healthscope should not expect profits from this transition, given past management issues.

The government has also proposed legislation, known as “Joe’s Law,” to prevent future public-private hospital partnerships in acute care settings.

This move follows the tragic death of a two-year-old patient at the Northern Beaches Hospital, which exposed systemic problems and raised questions about the viability of public-private partnerships in healthcare. ​