Newly listed healthcare giant Healthscope has quietly walked away from its struggling Queensland pathology operations, in a move that has left assets for rival Primary Health Care to snap up but also attracted the attention of the competition watchdog.
The Australian Competition and Consumer Commission has said it is “urgently investigating” what it calls a a completed acquisition of pathology assets by Primary Health Care, which were previously operated by Healthscope.
The Australian Competition and Consumer Commission is ‘urgently investigating’ what it calls a a completed acquisition of pathology assets by Primary Health Care, which were previously operated by Healthscope. Photo: Photo: Gabriele Charotte
However, industry sources said there has not been an acquisition in the traditional sense. Instead Healthscope has shut down its main pathology lab at Eight Mile Plains in Brisbane and made 80 staff redundant.
Fairfax Media has learnt that about about four weeks ago Primary began taking over leases of some of Healthscope’s collection centres, which cannot operate profitably without a local laboratory to send samples to for testing. Primary, which will announce its half-year results on Wednesday, has also extended offers of employment to some former Healthscope collection centre staff.
Healthscope declined to comment while the ACCC was investigating. However, the moves by Primary’s Queensland subsidiary, QML, were confirmed by a spokeswoman.
“QML is one of Australia’s oldest and most respected pathology providers,” she said. “We have been serving Queensland and northern NSW for nearly 100 years.”
Smallest of three players
Healthscope needs to exit the Queensland market because it is the smallest of three larger players. Pathology is a “scale” business, meaning a business can operate more profitably when it controls a larger share.
Private equity giants TPG and The Carlyle Group had owned Healthscope for just under four years before selling it in a $3.6 billion float last July. The pathology and private hospital operator’s prospectus shows why it had challenges in Queensland. In 2012-13, Healthscope controlled 10 per cent of the state’s pathology market, compared with shares of 35 per cent for Sonic Healthcare and 51 per cent for Primary Health Care.
Healthscope has tried to offload its Queensland assets in the past. In 2012 the ACCC probed a proposed acquisition of Healthscope’s Queensland, NSW and West Australian pathology operations by Sonic. The regulator approved the WA acquisition but blocked the bid in Queensland citing competition concerns. Sonic withdrew its offer for the NSW business.
In Queensland, Primary trades as QML Pathology. In a letter to interested parties the ACCC said its investigation was focused on whether the completed acquisition would affect community pathology services in the state. It said particular attention would be paid to the degree of bulk-billing services offered in Queensland, and by QML, as well as the quality of community pathology services.
“The ACCC is also assessing the purpose and effect of related agreements entered into by Healthscope and Primary,” the regulator said in the letter.
A source with knowledge of the investigation said although Primary taking over a lease may not lead to Healthscope being paid, it could be considered an acquisition on the basis that Healthscope may avoid contract breakage fees, for example.
The ACCC began its investigation last week and will take submissions until February 20.