The health minister, Mark Butler, has convened an urgent meeting with the chief executives of Australia’s private hospitals and health insurers amid warnings the second-largest private hospital operator, Healthscope, is facing a financial crisis.
The Australian Financial Review reported this week that Healthscope had retained insolvency experts KordaMentha to prepare a contingency plan in case it is placed into voluntary administration.
Healthscope operates the 488-bed Northern Beaches hospital under a public-private partnership with the NSW government. It provides public hospital services for around 350,000 people in the Sydney region.
It is the only such arrangement in the NSW health system and a voluntary administration would put the major facility in unchartered waters, potentially triggering a “step in event” and requiring intervention from the state government.
Healthscope also operates 37 private hospitals around Australia.
All private hospital groups have been facing headwinds since the Covid pandemic, which caused prolonged shutdowns. Since then, private hospitals and private health insurers have been locked in a protracted battle over how much private hospitals should be paid from patients’ private insurance premiums.
The problems for Healthscope are particularly acute. It was purchased in 2019 by the Canadian private equity fund Brookfield, and is burdened with more than $1.6bn in debt.
Early this week, Healthscope was issued breach notices for 11 of its 38 hospitals after it failed to pay rent due to its landlord, HealthCo Healthcare & Wellness REIT, an investment vehicle run by HMC Capital, which owns the buildings.
In February, it announced plans to close maternity services at its private hospitals in Hobart and Darwin.
The first meeting of CEOs was scheduled for Friday. Butler has called for it to focus on taking “ immediate steps” to increase payments from insurers to private hospitals so they can deliver better care. This is known as the benefits ratio. It has historically been at 90% but has slid to as low as 83% in recent years. The ratio varies between health insurers. Labor recently approved a 3.7% increase in annual health insurance premiums ahead of the next federal election.
The CEOs have three months to negotiate a more generous funding deal for private hospitals, or Butler will take unspecified regulatory action.
“The private hospital sector is facing a number of challenges that can only be managed by hospitals and insurers sitting down together and sorting it out,” Butler said.
“For more than 12 months, the Government has made it clear that we expect them to do so but they have not put the interest of patients first.
“I’ve asked the CEO Forum to take immediate action to increase payments to hospitals to ensure patients are able to access important services.
“If there aren’t sufficient actions taken within the next three months, I’ve asked for advice on regulatory actions that I can take to ensure patients can access the care they need.”
Butler said he had asked the Australian Competition and Consumer Commission and the Australian Prudential Regulation Authority for advice on what could be done if the actions were insufficient.
Healthscope was contacted for comment.
