Crunch time looms for the Hobart Private

It hasn’t always made money, and the new operator will have to pay rent this time, explains Martyn Goddard

AFTER

months of talking, the State Government has failed to reach a deal with the operator of the Hobart Private Hospital to sign a new lease.

So it has been put out to tender. But is anyone sufficiently interested — or sufficiently unwise — to take it on?

Ministers are anxious to keep it in private hands and to earn money from it.

The building, formerly the women’s health section of the Royal Hobart Hospital, was leased off to the private sector by the Rundle government in 1998 to solve a temporary budget problem.

That 20-year lease ends in December this year.

In those two decades, the hospital has had three operators. Despite paying no rent — that was paid up-front in 1998 — none has been able to raise its finances above a marginal level. Sometimes it makes a bit of money; sometimes it does not.

Meanwhile, the whole private hospital industry in Australia is in trouble. For years, individuals have found it hard to meet ever-rising insurance premiums and insurance has been less and less able to meet soaring hospital costs.

But now a tipping point has come. Many private hospitals have started losing serious money.

Healthscope, the current operator of Hobart Private, is being taken over by a private equity outfit. These make their money by taking over companies with low and declining profits, poor use of capital and poorly performing assets.

They cut costs to the bone, ditch the marginal sections of the business, make the books look a lot better and then flog the company back to the stock market at a massively higher price than they paid.

Before any new leaseholder could make money from this run-down hospital, many millions will have to be spent by the government on the building and by the operator on a comprehensive refit.

And this time, the Government will expect rent to be paid, probably about $5 million a year. That would almost wipe out any likely profits — even without the costs of a refit.

It is simply not credible that Healthscope or its probable new Canadian owner will saddle themselves with such a deal.

Nor will the other major private hospital operator, Ramsay Health Care. Its share price has been in decline for over two years. Calvary, already bleeding money from its botched Canberra hospitals, cannot and will not take part.

Unless the Government is prepared to underwrite the profits of a new operator by waiving rent and refitting the building, it is unlikely that any other private company would take it on. Frankly, they’d be nuts.

If a deal is not in place by mid-year, it will be too late for a handover to occur.

The Government will then have to make some serious decisions about the future of the staff and the patients who currently rely on that 146-bed hospital.

As the crunch point approaches the nurses and other staff will wonder whether they should stay or go. Tasmania cannot afford to lose them.

The Health Minister, Michael Ferguson, badly needs a plan B — if he has one.

But it’s far from clear whether he has one or whether, once again, he will blindly drift into yet another hospital crisis.