Have they learnt nothing?′ Radical surgery in store for hospital giant
Now we’re down to the nitty gritty of how to save all of Healthscope’s 37 private hospitals from extinction following the collapse in May, and buyers controlling the sales process are considering serious action.
Sydney’s Prince of Wales joins four other flagship Healthscope hospitals on the block, which could be sold individually to the highest bidders and raise hundreds of millions of dollars to repay lenders.
Other hospitals are Victoria’s Holmesglen Private, Canberra’s National Capital Private, Gold Coast Private and Hobart Private.
The sale of these Healthscope gems could help ensure that the remaining business, a not-for-profit hospital operator, remains intact under current boss (former Qantas high flyer) Tino La Spina.
But as first reported, staff were at town hall on Wednesday. Australian Financial ReviewLa Spina was not willing to give up these valuable assets without a fight. So why would he? Even with these five hospitals under his watch, it will be difficult enough to keep the remaining hospitals afloat.
And it’s hard to argue with a specific point La Spina made about a private equity player being in exclusive talks to buy the Prince of Wales private hospital.
“Didn’t they learn anything?” he asked the staff.
The reason Healthscope, its 19,000 staff and dozens of hospitals across the country are in this mess is precisely because its former private equity owners ($2 trillion Canadian group Brookfield) couldn’t make money from the business and walked away.
It was an easier option than dealing with the extravagant lease deals Brookfield agreed to, the massive debt load needed to finance the deal, and a post-pandemic world that was rapidly tearing apart the Canadian group’s business plan.
Moving away from the private hospital sector, which provides about 70 per cent of elective surgeries in Australia – taking huge pressure off state and federal governments in the process – is not a great way to win friends here.
These governments will be tense again. The buyers’ job is to maximize returns for lenders, not taxpayers, who will foot the bill if less livable hospitals are stranded by wheel-and-trade that provides plenty of business for various investment bankers.
But back to Healthscope’s current state. This week could have been much worse for La Spina.
In what could be a decisive call on the future of Australia’s second-largest private hospital operator, buyers of McGrathNicol this week rejected a key deal that could have unraveled the group.
Canada’s Northwest Health Service has offered to separate 12 hospitals for which it acts as landlord, in a nearly $140 million deal with non-profit Calvary.
Two suitors insist they are “still on the table” after the deal was rejected, but the buyers, acting on behalf of lenders owed around $1.7bn, have turned their attention to five hospital deals before Christmas that could decide the fate of the entire Healthscope group.
Healthscope is already raking in $190 million from the end of its scandal-prone role at Sydney’s Northern Beaches Hospital.
The extra hundreds of millions of dollars from the sales will come off the back of a whopping $1.7 billion in debt owed to lenders like Commonwealth Bank and opportunistic debt funders like Polus Capital and Canyon Partners.
Polus and Canyon acquired a third of Healthscope’s loans for less than half the price as some of the original lenders sold the failed hospital operator this year. They stand to profit from financial chaos.
The refinancing debt will solve one of the biggest problems for Healthscope’s sustainability, but another will remain: unsustainable rents.
23 hospitals owned by private owners are among the centers struggling to survive financially. The good news on that front is that both landlords, Northwest and HMC’s Healthco, appear to be agreeing to deals.
Healthco, backed by rich lister David Di Pilla, bought 11 of the Healthscope hospital properties for $1.2 billion in 2022.
It says conditional agreements have been signed with alternative tenants for all 11 hospitals it owns, with “detailed commercial terms acceptable to landlords”. It contains an implicit promise that this agreement includes a rent cut.
Northwest’s deal with Calvary is also understood to include significant concessions to Brookfield’s existing lease, which it agreed to at a time when the landscape of Australia’s private hospital sector was very different to what it is now.
Turning Healthscope into a nonprofit under La Spina’s proposal would also reduce costs as it would lose its payroll tax bill, reportedly saving the group $100 million a year.
Healthscope staff also pointed out the benefits that nonprofits enjoy when it comes to fringe benefits tax (FBT); This means the company can help control and retain salary spend by offering salary packaging to 19,000 staff.
Staff have already agreed to a deal that will deliver most of the benefits of this pay package to the company in the short term and help the company stabilize financially.
These workers will be watching developments closely in the lead-up to Christmas to see if their sacrifice will be rewarded.
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Colin Kruger is senior business correspondent for the Sydney Morning Herald and The Age newspapers.Connect via email.
