Healthscope\u2019s collapse has been labelled a death knell for the private healthcare sector, but investors remain confident in its strong, long-term fundamentals.<\/p>\n\n\n\n
The private healthcare operator of 38 hospitals, day surgeries, rehabs and clinics went into receivership on Monday (May 26), calling in McGrathNicol to handle its affairs.<\/p>\n\n\n\n
Owner Brookfield Asset Management, which has not commented on the collapse, acquired the operator, billed as \u201cbest-in-class\u201d and the second-largest private hospital operator in Australia, for $4.1 billion in 2019.<\/p>\n\n\n\n
But the highly leveraged operator faced industry-wide challenges including workforce constraints, an imbalance between elevated costs and private health insurance reimbursements, and a shift towards day surgeries.<\/p>\n\n\n\n
Real Asset Management head of healthcare real estate Sam Wood says that the Healthscope situation may be headline-grabbing, but should not be considered a yardstick by which to measure the whole industry.<\/p>\n\n\n\n
\u201cThis is a specific brand with its own issues,\u201d Wood told The Urban Developer<\/em>.<\/p>\n\n\n\n \u201cThe whole sector was exposed to inflation in hospital services, which, in general, has been 4.7 per cent over the last four or five years, compared to average CPI of about 3.6 per cent.<\/p>\n\n\n\n \u201cBut you leverage that up, as Brookfield did, and you have exposure to debt which has increased from 2 to 6 per cent in that time … you\u2019re going to have nowhere to run.\u201d<\/p>\n\n\n\n In fact, despite these woes, healthcare sits in the middle of the pack, coming in 10th of the 20 categories the Australian Bureau of Statistics considers in its insolvency data.<\/p>\n\n\n\n The sector experienced 374 administrations in the year to May 11, 2025, compared to the construction industry\u2019s 3055 insolvencies.<\/p>\n\n\n\n RAM group chief executive Scott Kelly says that it can be frustrating when all private health is lumped into the same category as Healthscope.<\/p>\n\n\n\n \u201cThe whole sector is solid, it has really good fundamentals and that\u2019s a sector you want to be in as a real estate person.\u201d<\/p>\n\n\n\n Investor interest in Australia\u2019s private healthcare sector has been keen for many years, but as Brookfield\u2019s cash splash on Healthscope showed, market entry and expansion is expensive.<\/p>\n\n\n\n \u201cIn the last year or 18 months, we\u2019ve seen softening of prices in line with the cash rate, but also just a little bit of noise around Healthscope and things like that has actually offered up an enormous buying opportunity,\u201d Wood says.<\/p>\n\n\n\n \u201cFrom an institutional investor point of view, and anyone that knows healthcare real estate … they are grabbing this window as a probably once-in-a-decade kind of buying opportunity.\u201d<\/p>\n\n\n\n RAM itself is opening up the war chest.<\/p>\n\n\n\n \u201cWe are definitely net buyers of healthcare real estate, and we are aggressively pursuing the next 12 to 24 months those buying opportunities.\u201d<\/p>\n\n\n\n It\u2019s early days for Healthscope-operated assets.<\/p>\n\n\n\n Healthscope\u2019s two major landlords are Northwest Healthcare Properties REIT and HMC Capital\u2019s listed HealthCo Healthcare and Wellness REIT, having undergone several sale and leaseback activities during the past few years.<\/p>\n\n\n\n However, not all of the Healthscope portfolio would hold investor appeal.<\/p>\n\n\n\n \u201cThe Healthscope type of hospitals, [are] big and inflexible, and structurally, they\u2019re not the healthcare of the future,\u201d Kelly says.<\/p>\n\n\n\n \u201cThey represent the healthcare of the past. Day surgeries can now do 45 instead of 10 surgeries \u2014 you can go in and get your ACL done in about half the time it used to take, and that\u2019s really impactful for their profitability.\u201d<\/p>\n\n\n\n It\u2019s why RAM has invested in a day-surgery-anchored development at Cleveland, in Brisbane \u2014 a $16 million, purpose-built surgical centre operated by Ramsay Health Care.<\/p>\n\n\n\n And international interest is continuing.<\/p>\n\n\n\n \u201cWe\u2019re now seeing really strong demand, particularly from overseas capital, to come into the sector,\u201d Kelly says.<\/p>\n\n\n\n \u201cThey\u2019re seeing through the noise to the long-term attractiveness of the sector and want to take advantage of softness in asset prices.\u201d<\/p>\n\n\n\n That\u2019s not to ignore the challenges in the sector, which Centuria Healthcare managing director Andrew Hemming says have been persistent.<\/p>\n\n\n\n \u201c[These challenges] largely resulted from increased operating costs, which haven\u2019t translated into better patient outcomes,\u201d Hemming says.<\/p>\n\n\n\n Restricted immigration has led to higher-than-usual wage inflation, with increased costs for capital equipment, he says.<\/p>\n\n\n\n Compounding this are increased building costs that have impacted operators, who are generally responsible for hospital repairs and maintenance, as well as the higher cost of debt from rising cash rates.<\/p>\n\n\n\n \u201cIn short, private hospital operators are facing unprecedented rising costs and restrictive revenue,\u201d Hemming says.<\/p>\n\n\n\n \u201c[And] investors are now warier of models of care, and types of real estate assets, that are old and unsustainable. Real estate investors are looking at models of care that produce sustainable outcomes\u2014financially and operationally.\u201d<\/p>\n\n\n\n But new models can be challenging, because it \u201crequires new thinking and new people\u201d, Hemming says.<\/p>\n\n\n\n \u201cThe capital required for a new hospital is material so many operators will use existing assets beyond the asset\u2019s typical lifetime,\u201d he says.<\/p>\n\n\n\n \u201cThis can translate into inefficiencies of care for patients, particularly when considering the lengths of stay in a hospital.\u201d<\/p>\n\n\n\n Despite this, robust fundamentals, including ageing populations, increases in chronic diseases and improvements in diagnostics, are counteracting shorter term challenges.<\/p>\n\n\n\n Private hospitals represent 41.2 per cent of hospitalisations in the market, up from 40.3 per cent pre-Covid, and around 70 per cent of elective surgeries.<\/p>\n\n\n\n \u201cThat\u2019s not going anywhere \u2014 it plays an extremely important role in our healthcare system,\u201d Wood says.<\/p>\n\n\n\n But investment is needed in sustainable models of care, according to Hemming.<\/p>\n\n\n\n \u201cInvestors are looking for investments that can outpace inflation and remain sustainable from a cash flow point of view.\u201d<\/p>\n\n\n\n New models, such as Centuria\u2019s Adeney Private Hospital that is 51 per cent owned by 42 doctors and 49 per cent owned by insurers Medibank, are under way, and public-private partnerships are also increasing, Wood says.<\/p>\n\n\n\n \u201cYou will see more public contracts in private settings. The private sector delivers really good, efficient healthcare, and the public sector will require a bit of lifting from the private sector, which, again, means more real estate demand for private healthcare.\u201d<\/p>\n\n\n\n Diversity of offering is also proving key to RAM\u2019s strategy, such as at its Cleveland project which has a 1500sq m day surgery-anchored building with specialists, GPs, radiology and allied health all in the 5000sq m development.<\/p>\n\n\n\n It taps into trends that see 74 per cent of patients in private hospitals stay for less than 24 hours.<\/p>\n\n\n\n \u201cIt\u2019s an end-to-end healthcare solution, and that gives us diversity across the tenant profile and the ability to drive rents,\u201d Wood says.<\/p>\n\n\n\n Preventative and mental health and telehealth are also important to consider in ongoing strategies, Wood says.<\/p>\n\n\n\n \u201cNow we know that the likes of telehealth is very complementary to bricks and mortar.<\/p>\n\n\n\n \u201cBut from a real estate point of view that means more flexible space needs to be built. Patients still need to be in that bricks and mortar setting.<\/p>\n\n\n\n \u201cIt\u2019s about trying to develop, build and adapt real estate solutions to be flexible to what private healthcare delivers and what patients want.\u201d<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Healthscope\u2019s collapse has been labelled a death knell […]<\/p>\n","protected":false},"author":1,"featured_media":26843,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"post-type":[],"class_list":["post-35872","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-in-the-media-zh-hant"],"acf":[],"yoast_head":"\nA buyers\u2019 market<\/strong><\/h2>\n\n\n\n
Headwinds<\/strong><\/h2>\n\n\n\n
Strong fundamentals<\/strong><\/h2>\n\n\n\n