Last Updated on September 25, 2025 by Jason Andrew
Private equity walks into a business.
Promises “synergies.” Murmurs “operational excellence.”
Says they’re here to unlock value.
What actually happens?
- They lever it up 7x EBITDA.
- Sell the real estate.
- Attempt to trim costs by “streamlining operations” — a.k.a. cutting corners.
Then they completely misread the market, margins tank, and the whole thing collapses under the weight of its own debt.
Sound familiar? Of course it does.
That’s the story of Healthscope.
One of Australia’s largest private hospital networks — treating over 650,000 patients a year — is now in financial freefall. The company went from a $5bn pricetag to bankrupt in only 6 years.
So how did Brookfield blow it?
In 2019, the Canadian buyout giant dropped $5.7 billion to acquire Healthscope, slapped a debt bomb on it, sold off the hospitals, and cooked the operations.
Fast-forward to now:
- Revenue barely moved.
- Costs soared.
- Interest payments exploded.
- Patient outcomes worsen
- Declared bankruptcy, with sale process being run
Or, as the ABC put it:
“They’ve trashed the joint and now just dropped the keys and run away.”
So let’s dissect the Healthscope disaster, a masterclass on how not to do private equity.
Brookfield Takeover
Let’s rewind.
Once in a upon a time, Healthscope was a darling Australian business. In fact, in 2018, the Healthscope was actually quite profitable, in a sector viewed as highly defensive.
To get their hands on the business, Brookfield had to beat out rival Aussie PE shop BGH Capital in a 13-month bidding war. They ended up paying $5.7 billion all in, or 21x EBITDA (12x excluding the property assets).
From the outset the thesis was simple. Sell the real estate and run the hospital business. Try to juice margins a little bit. Benefit from an ageing population, which should drive topline revenue growth. What could go wrong?
Well it turns out, lot’s can go wrong – particularly when you overpay and load up on debt
In the words of the SMH “Brookfield appears to have underestimated the structural challenges facing the industry.
And it shows in the numbers.
I knew Healthscope’s financials were going to be bad. But jeez. These are bad!
Strikingly, there doesn’t seem to be one single factor causing this disaster – a lot of stuff has gone wrong here.
Starting with topline numbers – revenue is up ~19% since Brookfield took over the business in 2019, certainly not strong growth, but not disastrous. For context, FY17 to FY18 growth was only 3.7% (likely tied to indexation), so I think this topline growth seems relatively reasonable over a ~5 year period.
Not too bad.
And then you look at costs…
At the cost line, there was only a ~2% margin shift in EBITDA. On a percentage basis, a few of the cost lines were down (occupancy, medical supplies, other), but labour expenses and services costs jumped quite dramatically.
Interestingly, the sale and leaseback doesn’t seem to have done much to the business on a cost basis, only adding ~$10m a year in Opex.
But the huge burden is the massive debt load that Brookfield put on the business, adding ~$160m in interest expenses. That’s enough to break a business struggling with margin compression – and in this case, it did.
The Brookfield debt load at entry was around ~A$1.9bn ($1.4bn US) today. Based on their FY18 EBITDA of $268.7m, implying a 7.0x Debt / EBITDA – aggressive by all estimates.
Leverage almost always makes numbers look better in the models. Some of the PE shops love it. But in reality? Leverage places huge pressure on your business.
Why are Margins Down?
Okay – but why are margins down then?
Something that you can’t see on the financials is that compensation from health insurers (on behalf of patients) is down on a percentage basis, decreasing the profitability of each patient.
The CEO Greg Horan and Health Minister have been going to war with BUPA and the other private health insurers arguing that insurers have been squeezing the hospitals of their margin.
These agreements are negotiated between insurers and hospital operators – it’s not regulated on a national basis. It seems as though Brookfield has had the worse end of the straw here.
This challenge isn’t unique to Healthscope though, across the industry private hospital EBIT margins have fallen from ~8.4% pre-pandemic to -0.4% FY 2023. Over the same period, the gross margins on health insurance in the private hospital sector have expanded from ~11% to ~18%. The insurers are making a motza.
On top of the insurance problem, hospital occupancy rates are down. Nationally, bed occupancy rates are down from ~75% pre pandemic to only ~63% today. Why?
Oversupply is a big problem here. Despite ~70 private hospitals closing since 2019 across Australia, another 66 have reportedly opened.
Ignoring the revenue problem, there have been a number of cost blowouts. Labour expenses across the sector have generally increased due to shortages of nurses and doctors to serve patients.
COVID meant that elective surgeries stopped at the hospital and operating costs ramped dramatically due to the requirements to ensure isolation.
Finally, young people opting out of private-health insurance during a cost of living crisis was one of these factors.
All in all – the combination of these factors have trashed Healthscope margins.
Issues with Service Quality
One of the other major red flags throughout this whole process has been the patient stories of bad service in the Healthscope Hospitals.
There was a 2 year old that died in the Northern Beaches hospital in September 2024.
The hospital briefly started charging patients $50 – $100 fees last October for access to the hospitals in a fight with the insurers.
Was the business struggling financially? Absolutely. But it feels like there would have been a better way to resolve this issue with insurers rather than making customers take the hit.
Conclusion
Buffett has a famous quote:
“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it’s the reputation of the business that remains intact.”
If you want great returns, you need to pick good markets – this story could have panned out very differently if Brookfield bought an insurer, and not a hospital player.
Healthscope on the other hand is a can of worms.
The good news is that the collapse has been handled well. The business isn’t getting bailed out by the government, and other than the hospitals that have already closed over the past few months, nobody else is going to lose their jobs.
The business will continue running as per usual until they find a new owner – with Westpac and Commbank greenlighting a new funding package to keep the lights on.
The rumours are that there are at least 10 parties interested in buying the asset.
Brookfield has had their turn – but now we will get to see another operator try to run Healthscope (hopefully more successfully).
