Healthscope’s landlords and a consortium of hospital operators have proposed to break up Australia’s second-largest private hospital business after landlords failed to reach a deal with receivers over proposed rent reductions.
Under the proposal sent to receivers on Wednesday by Canadian landlord Northwest Healthcare and ASX-listed HMC Capital, 16 of the company’s remaining 28 hospitals would be operated by not-for-profit firm Calvary Health Care. Pacific Equity Partners-backed hospital operator Healthe Care would be taking on six, and private operators Acurio, KnG and an unnamed party would pick up the rest of the embattled company’s operations.
“Calvary has refined our proposal because we strongly believe we can deliver a solution that has genuine, sustainable benefits for the healthcare sector, those who work in it and those who access services,” Calvary chief executive Damien Bruce said.
Calvary is already acquiring two Healthscope hospitals sold off by the receivers.
Late last year, the receivers sold Canberra-based National Capital for $251 million to Ramsay Health, and also found buyers for Gold Coast Private, while Calvary signed up to buy Victoria’s Holmesglen Private and Hobart Private Hospital.
Dr Anuj Gupta, a director of KnG, said her company has “deep experience in the healthcare sector and strong connections to the communities these hospitals serve. We would welcome the opportunity to work alongside clinicians and staff to support the ongoing delivery of patient care.”
The news comes just days after Healthscope formally parted ways with its chief executive Tino La Spina after a clash with the receivers. He championed the current deal that would keep the group intact – under his leadership – as a not-for-profit.
La Spina was highly critical of any deal that would put Healthscope hospitals back in the hands of private equity owners following its collapse last year. Canadian buyout giant Brookfield walked away from the business, which it had loaded with too much debt.
Other major factors in the collapse included funding problems with private health insurers, and the loss of lucrative multi-day hospital stays by private patients in favour of at-home care.
Private hospitals provide the vast majority of elective surgeries performed in Australia.
In February this year, Healthscope lenders who were owed $1.7 billion approved the not-for-profit plan after rejecting Pacific Equity’s offer for the company’s Prince of Wales Private hospital in Sydney.
The receivers, led by McGrathNicol’s Keith Crawford, declined to comment about the new offer. Insiders who are not authorised to speak due to the sensitivity of negotiations said it does not materially improve the proposals rejected previously.
Late last year, the receivers from McGrathNicol rejected a proposal from Northwest to carve off the 12 hospitals it owned in a deal with Calvary worth $140 million.
Crawford said in February that the not-for-profit plan was the only option that would keep all of Healthscope’s hospitals open and prevent job losses.
But the proposal still needed the approval of landlords.
“The transition of this significant portfolio of hospitals to a well-capitalised not-for-profit organisation, operating in accordance with its care-focused charitable purpose, would support the long-term sustainability of the private health sector in Australia, taking pressure off the public health system,” Crawford said at the time.
In February, Richard Roos, the co-head of Northwest’s Australasian operations, blasted the not-for-profit proposal, saying its real purpose was “to enrich offshore hedge funds at the expense of Australian taxpayers.”
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.