Investing in hospitals is often seen as a safe bet. People get sick regularly, and the population is aging. Australian private hospitals also benefit from a government-supported private healthcare system. Yet, on Monday, a major private equity-backed hospital deal took a sharp downturn. Healthscope, one of the country’s largest private hospital operators, was placed into receivership. This development has sparked debate about whether Australia’s private healthcare model needs urgent reform.
In 2019, Brookfield, a Toronto-based private equity giant, paid $4.4 billion to acquire Healthscope after a heated bidding war pushed the price higher. At the time, the price seemed steep. There were early signs that more Australians were dropping out of private health insurance, which threatened future revenue.
Healthscope had just opened its largest project, the Northern Beaches Hospital. But the new facility struggled with staff shortages and supply problems, adding strain to the company’s finances.
Peter Breadon, health program director at the Grattan Institute, described the situation as a “perfect storm.” He said Brookfield “competed fiercely” and paid a premium, then took on heavy debt just before interest rates surged. On top of this, the Covid-19 pandemic struck, disrupting hospital operations.
Elective surgeries were delayed or canceled during the pandemic, cutting a major source of revenue. When patients returned, many chose day surgeries over overnight stays, reducing income from hospital room charges—a trend seen worldwide.
Breadon said, “It was a mix of bad luck, bad timing, bad decisions, and broader challenges across the sector.” He stressed that Healthscope’s troubles do not signal the entire system is collapsing but do highlight its weaknesses.
Signs of Healthscope’s financial trouble became clearer earlier this year. The company began missing rental payments on some properties. In March, a landlord managed by HealthCo issued a breach notice over unpaid rent and warned that rival hospital operators might take over.
Less than three months later, Healthscope’s lenders pulled their support. This forced the company into receivership on Monday.
Healthscope reassured the public that its 37 hospitals would remain open with no disruption to staff, doctors, or patient care. A sales process has now begun.
Health economics expert Professor Francesco Paolucci from the University of Newcastle said Healthscope’s failure reflects deeper problems in Australia’s private health sector. Private hospitals face rising costs from an aging population, more chronic illnesses, and staff shortages.
Paolucci described a “blame game” between hospitals and insurers over who should cover these costs. He said the government must create a clear framework to manage these challenges.
“There’s currently no proper framework in place,” he said.
More than 60 private hospitals have closed in recent years. Paolucci warned it wouldn’t be surprising if more face financial trouble soon.
Failing to fix these issues has consequences for the public system, as private hospitals support public healthcare, and private insurers receive billions in government subsidies.
Health Minister Mark Butler told ABC that the federal government will not bail out private hospital operators. He called Healthscope a “unique case” with complex financial arrangements.
Butler acknowledged the need for broader reform. He said private health insurers should increase the portion of their income paid to hospitals. “I’ve set a deadline for insurers to resolve this. If they don’t, I’m ready to act,” he said.
The collapse of Healthscope has intensified calls for sector reform. The Grattan Institute has proposed setting a fixed minimum price for hospital visits to end disputes between insurers and hospitals over care costs.
Healthscope’s receivers are working to sell the 37 hospitals. This could be done by splitting the network among several buyers or selling it as one package. The company said it has received about 10 non-binding offers and expects the sales process to take up to 10 weeks.
Dr. Rachel David, CEO of Private Healthcare Australia, said the private sector would be better off without Brookfield. “Healthscope’s downfall shows why multinational private equity is the wrong model to own and run hospitals,” she said. “Since taking over in 2019, private equity made poor decisions that led to this collapse.”
Brookfield did not respond to requests for comment.
Mark Fitzgibbon, former CEO of health insurer Nib, remains optimistic about the future of private hospitals. Despite structural challenges, he believes the sector is valuable and essential.
“These assets still hold great value and will find their market price,” Fitzgibbon said. “With Australia’s growing population and rising healthcare spending, the long-term outlook for private hospitals is positive. But change and disruption are inevitable.”
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