Australian healthcare provider can’t pay its bills and time is running out

The most dramatic event was not foreseeable. A year after Chersky’s chat, COVID-19 hit and Australia’s private hospitals were effectively shut down.

But it was when Australia’s for-profit health sector emerged from the pandemic that it became clear that more foreseeable problems had accelerated – especially for operators such as Healthscope.

Private health insurers such as Medibank and NIB have kept customers happier – and costs lower – by allowing a lot more at-home treatment for services that previously required a lengthy hospital visit.

That means lucrative multi-day admissions to private hospitals have dropped over the past five years while costs have soared for private hospital operators in the wake of the pandemic.

On Monday, hundreds of nurses and midwives at the public hospital operation that Healthscope runs at Northern Beaches Hospital went on strike with demands that include a one-off 15 per cent pay rise and mandated nurse-to-patient ratios.

Any pay rise would almost certainly set the bar higher for Healthscope’s private operations next door.

Private health insurers, which private hospitals rely on for most of their income, have also been reluctant to financially support a sector which has a cost base that – they think – is no longer fit for purpose.

From the viewpoint of Healthscope and its current owners, the private health insurers are squeezing the life out of private hospital operators which provide the core service that operators such as Medibank are selling to their customers.

It was clear how acute the problems were becoming last year when Healthscope and Brookfield took the desperate step of publicly brawling with the private health insurers.

In November, it threatened to block millions of PHI customers from funds such as BUPA unless customers paid hefty out-of-pocket fees.

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But Healthscope has also had to face up to the fact that the levels of rent it pays, and the hefty $1.6 billion debt owed to lenders, are way above what the business can afford to pay. Cuts are needed to both expense items if the business is going to claw its way back to viability.

What happens next is not clear.

Healthscope’s “for sale” sign was not a voluntary move. Lenders forced Brookfield to take this step in return for them agreeing to keep it out of administration last month by delaying part of their loan payments.

It may not be enough to save Brookfield’s investment. Reports in the Australian Financial Review reveal just what a disaster this has been.

Some debt holders did not agree to the standstill on debt payments. At least one has sold its loan for less than half of the outstanding loan amount.

If lenders are expecting such a massive loss, it means Brookfield has almost certainly torched the multi-billion dollar investment it made in Healthscope.

What Brookfield hasn’t lost just yet is its reputation.

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