Healthscope Eyes Not-for-Profit Model Amid Bids

Healthscope is positioning to acquire itself under a not-for-profit structure in an effort to reduce payroll tax and improve earnings. However, this move could affect both creditors and competitors that are looking to acquire the group’s hospital assets.

As Australia’s second-largest private hospital operator, Healthscope recently entered receivership. The appointed receivers, McGrathNicol, are preparing to evaluate initial bids next week. While other healthcare operators and private equity groups are readying their own offers, Healthscope plans to compete by shifting to a not-for-profit model that could provide it with a financial edge. This change may remove an estimated $100 million in annual payroll tax obligations, making it a stronger candidate to reacquire its own operations.

Established not-for-profit healthcare providers such as Calvary, St Vincent’s and St John of God have shown interest in selected Healthscope assets. The group currently operates a network of about 40 hospitals. Transitioning to a charitable trust model does require that profits be directed toward approved charitable work. However, Healthscope’s financial performance is likely to remain under pressure for some time due to existing lease obligations and debt repayments that creditors are owed.

Current lenders, who are exposed to roughly $1.6 billion in debt, are expected to recover greater value from a sale of individual assets rather than from a full company acquisition. Private equity firms considering bids are also dealing with political headwinds. Brookfield, the hospital group’s former private equity owner, has faced criticism from government stakeholders who view its stewardship as a contributor to Healthscope’s financial decline. This could influence which bidders are favored for future public healthcare contracts after any transaction takes place.

The sale process highlights longer-term structural issues across the sector. Healthscope requires approximately $400 million in capital expenditure. Still, some facilities may not warrant further investment due to outdated buildings, workforce inefficiencies or poor alignment with demand. Final bids are expected by September. Houlihan Lokey is advising on the process. Other potential buyers include Macquarie, Ramsay Health Care and Genesis Capital.

Brookfield acquired Healthscope in 2019 for $4.4 billion and later sold hospital property assets for $2 billion to support the acquisition. Since then, the business has faced rising staff costs and weak insurance reimbursements, particularly during the pandemic, pushing it into operating losses. Its hospital landlords include HMC Capital and Northwest Properties REIT. About 20 lenders are involved, including major Australian banks and distressed debt investors such as Polus Capital, which reportedly purchased $300 million in loans at a deep discount.

Source: The Australian, Healthscope, Capital Brief

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