The viability of private healthcare in Australia has been thrown into doubt after Brookfield’sdecision to place Healthscope, the operator of 37 private hospitals, into receivership. After months of acrimonious negotiations with private health insurers and a failed search for buyers, the global investment firm has walked away. This is a “canary in the coalmine” moment for the private hospital sector.
Brookfield’s exit suggests that private hospitals, at least in the near term, are no longer a safe bet for private equity investors. The reasons are complex but not new. The sector has been under pressure since 2016, when shares in Healthscope and RamsayHealthCare tumbled amid falling demand for private health insurance – a trend not seen since the early days of Medicare.
Australians were questioning the value of private cover as premiums soared, out-of-pocket costs ballooned, and insurers quietly trimmed the list of services they would fund. Complaints surged. Confidence eroded. This was bad news for private hospitals. Healthscope was de-listed from the stock exchange and bought by Brookfield.
In response, the federal government introduced reforms: capping premium increases, introducing tiered gold, silver and bronze policies, and trying to make specialist fees more transparent. But these measures have largely failed to restore trust or affordability, as witnessed by the events of the last few days.
The pandemic has only deepened the cracks. Elective surgeries were cancelled, demand for private care dipped and, when it returned, it did so in a landscape reshaped by inflation and workforce shortages. By late 2022 inflation had peaked at 7.8%, squeezing household budgets and prompting many to delay or forgo care – especially in the more expensive private system.
At the same time, hospitals faced rising costs for supplies and consumables, while medical fees continued to climb. Nursing shortages, exacerbated by burnout and shifting work-life expectations, made it harder to maintain services.
Though inflation has since eased, many of these pressures remain. Health workforce retention is still a major concern. Medical out-of-pocket costs continue to rise. And the public remains sceptical about the value of private healthcare.
What happens next for Healthscope depends on who takes over. Any new owner is likely to cut costs, potentially closing smaller, less profitable hospitals. Patients will need to go elsewhere.
Public hospitals are facing growing demand from an ageing population, with a renegotiation of the national health reform agreement, the key funding deal between the commonwealth and the states. In Victoria the state government has injected $9.3bn into public hospitals, a sign of the growing strain across the board.
The reasons why Healthscope is in trouble give us some clues about what we might do to ensure sustainability of the sector. There will always be fights about funding, whether it is private health insurers and private hospitals, or governments and public hospitals.
Brookfield’s decision raises urgent questions about how we fund and regulate private healthcare in Australia. The opaque and often adversarial contracts between private insurers and hospitals need greater oversight. Financial risk must be more evenly shared. And we need smarter, more localised workforce planning to address chronic shortages.
Ultimately, the private system must reckon with its value proposition. While it may offer shorter wait times, care from senior specialists and private rooms, these benefits are increasingly offset by unpredictable and rising out-of-pocket costs. And when hospitals are owned by private equity firms, as in the case of Healthscope, there’s growing concern, backed by international evidence, that quality of care will take a back seat to profit.
The question now is whether we treat Healthscope’s collapse as an isolated failure – or as a catalyst for deeper reform.
Anthony Scott is a professor at the centre for health economics at Monash University