The Northern Beaches Hospital, located in Frenchs Forest, Northern Sydney, is a private hospital providing public hospital services, as well as a range of private hospital services. The hospital was built and is now operated by a private operator, Healthscope, in a public-private partnership with the NSW Government.

From October 2018, the Northern Beaches Hospital replaced two smaller public hospitals, Mona Vale and Manly. Healthscope is a private company that is contracted to run the public hospital portion of the Northern Beaches Hospital until at least 2038. Healthscope was granted a concession to run a private hospital on the same site for a period of 40 years until 2058 as part of the same arrangement.

The Northern Sydney Local Health District manages the public-private partnership day-to-day and the Ministry of Health provides support. The Northern Beaches Hospital is currently the only public-private partnership for comprehensive public hospital services operating in NSW.

The objective of this audit was to determine how effectively and efficiently the Northern Beaches Hospital public-private partnership delivers public hospital services. The audit examined this through two lines of inquiry.

• Do NSW Health agencies ensure the effective and efficient delivery of public funded hospital services from the Northern Beaches Hospital?
• Is the operator of the Northern Beaches Hospital effectively delivering public hospital services in selected clinical areas (emergency department and general surgery)?

The main period of focus for this audit was July 2022 to June 2024. However, significant events before and after this date have been considered where relevant to the audit scope. In assessing the effective delivery of hospital services this audit considered the performance of the hospital against contractual requirements and relevant peer hospitals.

The Northern Beaches Hospital public-private partnership is not effectively delivering the best quality integrated health services and clinical outcomes to the Northern Beaches community and the State – the standard required under the arrangement and the key objective of the project deed.

The partnership is at risk of failure, with Healthscope requesting in November 2023, and again in December 2023, that the return of the public portion of the Northern Beaches Hospital be brought forward by 14 years. In its requests, Healthscope noted the risk to the viability of the Northern Beaches Hospital, citing insufficient funding, a lack of integration into the wider health network, and strained stakeholder relationships.

NSW Health effectively manages the contract with Healthscope day-to-day on behalf of the State, ensuring that public hospital activity at the Northern Beaches Hospital is provided at a lower cost than if the State operated the hospital. However, the public-private partnership structure creates tension between commercial imperatives and clinical outcomes. The Northern Beaches Hospital has recorded concerning results for some hospital-acquired complications and has not taken sufficient actions to address some identified clinical safety risks.

The project deed, which governs the partnership, does not support the hospital’s integration into the local health district and broader health network. This has an impact on patient journeys and access to services for patients in the Northern Beaches. Additionally, Healthscope has no obligation or commitment to implement NSW Health initiatives – such as the Safe Staffing Levels initiative.

The Northern Beaches Hospital has achieved accreditation to ensure the hospital meets national quality standards for hospital care but some quality and safety concerns remain.

NSW Health has identified that there is a risk the Northern Beaches Hospital public-private partnership will fail, and is monitoring that risk

There is a risk that the State may need to assume responsibility for public health services at the Northern Beaches Hospital earlier than the expected timeframe of 2038. In November and December 2023, Healthscope wrote to the Ministry of Health with a request to bring forward the return of the public portion of the Northern Beaches Hospital by 14 years, while retaining the private portion until 2058. In these requests, Healthscope noted operational concerns including:

• challenging administrative and integration outlook
• risk to viability of Northern Beaches Hospital due to insufficient funding
• lack of integration into the wider health network
• strained stakeholder relationships.

In January 2024, the Ministry of Health formally declined Healthscope’s requests, noting that Healthscope have no legal or contractual entitlement to withdraw from or vary the project in the manner proposed. The Ministry of Health reaffirmed that Healthscope must continue to provide services under the terms of the project deed. Recent reported financial challenges for Healthscope confirm this is an ongoing risk for NSW Health to manage.

The Northern Sydney Local Health District effectively manages the contract day-to-day to ensure it is cost effective for the State

The Northern Sydney Local Health District is effective in managing the contract with Healthscope to deliver public hospital activity at the Northern Beaches Hospital. The Northern Sydney Local Health District is focused on enforcing the risk allocation set out in the project deed, relying on dialogue in project deed governance forums to resolve issues, rather than on more formal contract mechanisms, such as reviews and performance improvement plans.

The Northern Beaches Hospital public-private partnership delivers public hospital activity at a lower cost to the State than NSW Health public hospitals. This is due to the discounted price paid to Healthscope for delivering units of public hospital activity. The financial benefit to the State remains despite several funding increases provided to Healthscope by NSW Health. In June 2024, the Northern Sydney Local Health District calculated that over $73 million in additional funding had been provided to Healthscope to operate the Northern Beaches Hospital since the hospital opened in October 2018.

The Northern Beaches Hospital has achieved accreditation to ensure the hospital meets national quality standards for hospital care, but some quality and safety concerns remain

The Northern Beaches Hospital has achieved and maintained accreditation and licensing. This level of accreditation ensures that the hospital meets national quality standards for hospital care. The Northern Beaches Hospital meets the same national quality standards as NSW public hospitals.

Notwithstanding accreditation and licensing, the hospital has recorded some concerning results for hospital-acquired complications relative to expectations. Hospital-acquired complication rates at the Northern Beaches Hospital are mostly within the expected range of results. However, the hospital has recorded elevated rates of falls, third- and fourth-degree perineal lacerations, and birth trauma during the review period. The Northern Sydney Local Health District and Healthscope have worked to resolve these issues through project deed governance forums and mechanisms, but repeated patterns of poor results are a cause for concern.

More recently, Healthscope and the Northern Sydney Local Health District have investigated sepsis and deteriorating patient pathways at the Northern Beaches Hospital following several incidents and concern that Healthscope has not adequately embedded appropriate clinical models of care.

The Northern Beaches Hospital has not addressed a known, longstanding clinical risk and has limited visibility over minor harm and near-miss incidents

The Northern Beaches Hospital electronic clinical systems present quality and safety risks that have been known to Healthscope and the Northern Sydney Local Health District since the hospital opened in 2018. In the emergency department, Healthscope’s electronic medical record system is used in tandem with another system that captures patient administrative data. The two systems are not well connected, elevating the risk that clinically relevant information is not fully considered in making clinical decisions. This risk was realised in a serious adverse event in September 2024 as identified in a Serious Adverse Event Review. Neither Healthscope nor the Northern Sydney Local Health District have taken sufficient action to address this risk.

Healthscope complies with requirements to report serious harm incidents to the Ministry of Health and the Northern Sydney Local Health District. The Northern Sydney Local Health District relies on Healthscope to maintain incident response systems equivalent to those at NSW public hospitals. The audit observed gaps in how minor harm or near-miss incidents at the Northern Beaches Hospital are reported and analysed by Healthscope, which is not consistent with practice in NSW public hospitals.

The relatively limited analysis and monitoring of trends for minor harm or near-miss incidents present a risk that emerging trends are not identified and addressed. Additionally, Healthscope is unable to determine the extent to which factors such as insufficient staffing or equipment result in minor harm or near-miss incidents at the Northern Beaches Hospital.

The Northern Beaches Hospital is not well integrated into the District and network

A key objective of the Northern Beaches Hospital public-private partnership is to deliver a hospital integrated into the Northern Sydney Local Health District and the NSW Health network. Characteristics of an integrated facility include: supporting the District’s principal referral hospital, the Royal North Shore Hospital, by absorbing demand; ensuring that patients experience seamless transfer of care between the Northern Beaches Hospital and NSW Health facilities; and supporting the objectives of the Northern Sydney Local Health District in providing health services to the community.

Integration is a challenge for the Northern Beaches Hospital public-private partnership. While some of the expected absorption of demand has occurred, it has not met initial expectations. Additionally, the Northern Beaches Hospital project deed has created barriers to introducing new services at the hospital. The public-private partnership was established as a mechanism to buy admitted patient activity. Opportunities to add new services have been frustrated by technical aspects related to how the Northern Sydney Local Health District purchases activity from Healthscope. This situation will worsen as trends continue for health services to explore more outpatient care, such as Hospital in the Home. The Northern Beaches Hospital public-private partnership structure presents a barrier to flexible and holistic clinical service planning in the District.

Healthscope is not required to implement the Safe Staffing Levels initiative at the Northern Beaches Hospital, which may affect service quality over time

The NSW Government is currently implementing the Safe Staffing Levels initiative in emergency departments at NSW public hospitals. The Safe Staffing Levels initiative introduces minimum staffing levels, which will result in more nurses and midwives in NSW Health public hospitals. However, Healthscope is not required to implement the initiative at the Northern Beaches Hospital.

In the absence of any other action to enhance staffing levels at the Northern Beaches Hospital, there is a risk that patients at the Northern Beaches Hospital will experience a lower level of service over time than at NSW public hospitals. Efforts to match the NSW Government initiative may also make it difficult for Healthscope to make the public portion of the Northern Beaches Hospital work financially, further risking the success of the partnership.

The Northern Beaches Hospital does not meet all performance expectations set out in the project deed but, based on NSW Health data, it often outperforms its NSW public hospital peers

The Northern Beaches Hospital project deed lists the objective of the partnership as providing the best quality care. The project deed operationalises this by requiring Healthscope to perform within the top quartile of performance across many key performance indicators. Failure to achieve that level of performance results in abatements, or financial penalties, being applied to payments from the State to Healthscope.

The audit reviewed NSW Health data related to activity at the Northern Beaches Hospital. The Northern Beaches Hospital generally performs well against output targets for elective surgery. It does not always meet emergency department output targets required under the project deed. Based on NSW Health data, the Northern Beaches Hospital outperforms its NSW public hospital peers for key output indicators in the project deed relating to emergency department and elective surgery.

As a matter of priority, the NSW Government and NSW Health should:

1. note the findings of this report and consider whether the Northern Beaches Hospital public-private partnership is the appropriate model to deliver the best quality integrated health care in the Northern Beaches region.

By December 2025, Healthscope should:

2. resolve safety and quality, system and reporting issues by:
   1. working with NSW Health to sustainably address underperformance on hospital-acquired complications
   2. minimising clinical risk of duplicate and disconnected systems in the emergency department
   3. improving incident management system functional capability, to enable analysis and reporting that better identifies and addresses safety and quality risks.

For any future health service delivery outsourcing arrangements, NSW Health should:

3. consider in developing the contract:
   1. the balance of risk allocation between parties to ensure the sustainability of quality and safe health services over the term of the agreement
   2. the ability to mandate hospital network integration requirements
   3. requiring adoption of NSW Health systems
   4. requiring NSW Health staffing models and clinical models of care
   5. comprehensive key performance indicators to measure and drive performance.

In 2014, the NSW Government commenced a public-private partnership with a private sector operator, Healthscope, to deliver the Northern Beaches Hospital in Frenchs Forest. Healthscope designed, built and now operates the hospital. The Northern Beaches Hospital, a private hospital that provides public hospital services, as well as a range of private hospital services, opened in October 2018. The public concession to deliver public patient services is for an initial period of 20 years to 2038, with a potential 5-year extension. The private patient licence is for a period of 40 years to 2058.

The objectives listed in the Northern Beaches Hospital public-private partnership project deed are to:

The Northern Beaches Hospital has 488 beds across private and public wards, 14 operating theatres, four procedural rooms, a 50-space emergency department and an on-site medical centre. NSW Health uses a six-level scale to define public hospital services. Each level sets out the minimum services, specialisation and other requirements for clinical services to be delivered safely. Level one services are more basic and level six services are highly advanced. The Northern Beaches Hospital provides a range of high-level public hospital surgical services, generally level five, and provides teaching and training for clinical workforces. See Appendix 2 for more details.

The Northern Beaches Hospital replaced two smaller hospitals, Mona Vale and Manly hospitals. The Northern Beaches Hospital is supported within the Northern Beaches catchment by the Brookvale Community Centre and the redeveloped Mona Vale Hospital that delivers sub-acute and community health services. The Royal North Shore Hospital is the principal referral hospital, and largest hospital, within the Northern Sydney Local Health District. Exhibit 1 shows a map of facilities in the Northern Sydney Local Health District including the Northern Beaches Hospital.

The Northern Beaches Hospital public-private partnership is the only such arrangement providing comprehensive public hospital services in NSW.
      
       
 

A project deed governs the Northern Beaches Hospital public-private partnership. The key parties to the project deed are as follows.

• Healthscope: the private operator of the hospital. Healthscope established several subsidiaries and holding corporations to conduct hospital operations including public hospital services and the hospital car park.
• Health Administration Corporation: is a corporation sole, and the Secretary of Health is its single office holder. During the hospital construction Health Infrastructure (part of the Health Administration Corporation) was the main contract manager for NSW Health. The Ministry of Health acts as the Secretary of NSW Health’s representative on Northern Beaches Hospital matters during the operational phase.
• Northern Sydney Local Health District: one of 15 local health districts responsible and accountable for providing public health services in NSW. The Northern Sydney Local Health District is now the main government entity responsible for oversight of the operator’s provision of public hospital services.

Public-private partnerships are long term arrangements that share risk between the public and private sectors. The Northern Beaches Hospital project deed allocates the risk of the operational term of the hospital to Healthscope including volume and demand management, operational costs, responsibility to maintain a hospital licence, responsibility to meet key performance indicators, and responsibility for workforce and industrial relations matters.

The Northern Sydney Local Health District pays Healthscope a discount on the state price for public hospital activity at the Northern Beaches Hospital. The discount in part recognises the efficiencies that Healthscope is expected to achieve in operating the hospital.

The Northern Sydney Local Health District determines and sets an activity volume that it will purchase from Healthscope for a given year. Multiplied by the discounted state price, this establishes the maximum payment amount that can be paid to Healthscope for that year. That is, the project deed imposes volume and demand management obligations on Healthscope to deliver services within an activity cap set by NSW Health. Failure to achieve outcomes on a variety of key performance indicators triggers abatements or financial penalties that are deducted at monthly billing for services.

The project deed specifies a minimum set of governance committees to discuss service and contract issues – set out in Exhibit 2 – as well as a range of reporting and assurance requirements. Reporting is used by the Northern Sydney Local Health District to assess the performance of Healthscope in providing public health services and other project deed requirements.

A redacted version of the project deed is published on the NSW Treasury website consistent with the requirements of the Government Information (Public Access) Act 2009. Redacted details include the value of the maximum payment amount, targets for abatable measures, and failure points that apply when target and performance thresholds are not met by Healthscope. The explanatory table that accompanies the redacted project deed on the NSW Treasury website notes that disclosure of this information is redacted because disclosure might prejudice the State in future negotiations, placing it at a commercial disadvantage.

That argument has been considered in determining what information is in the public interest to disclose in this report. However, the Audit Office is of the opinion that there is public benefit in knowing the standards to which Healthscope is being held in providing public hospital services to citizens of the Northern Beaches and NSW.

On 27 February 2020, the NSW Legislative Council Portfolio Committee Number 2 published its report on the Operation and Management of the Northern Beaches Hospital. The report covered the decision to proceed with a public-private partnership to deliver the hospital, the effect of the hospital on public health services in the Northern Beaches catchment, and the first 16 months of operation at the hospital. This performance audit report does not revisit this early operational period.

The Committee’s report noted that the first 12 months of the Northern Beaches Hospital’s operation were notable for several issues around inadequate medical supplies, short-staffing, poor planning for initial emergency loads, access to public patient records, and time taken to achieve teaching and training accreditation.

The Committee recorded its concern with the public-private partnership model used to deliver public hospital services. It made 23 recommendations to the NSW Government including Recommendation 18 to establish a specific forum, the Clinical Integration Committee, to manage interactions between the privately run Northern Beaches Hospital and publicly run health facilities in the Northern Beaches catchment and the broader NSW Health network. The NSW Government supported most of the committee’s recommendations, including the establishment of the Clinical Integration Committee.

Between August 2024 and April 2025, the Audit Office received over 190 submissions via an online public mailbox and general correspondence. These contributions were voluntary, sometimes anonymous, contributions, sharing people’s experience with the Northern Beaches Hospital. Patients and their families were the main contributors. But the audit also heard from staff who worked at the hospital and the public.

Most of the contributors reflected negatively on their experience with the Northern Beaches Hospital. Many contributors were concerned about the quality of care they experienced or witnessed at the hospital. Other contributors spoke of challenges with how the hospital communicated with them or their family. Staffing issues, such as understaffing and related resourcing issues, were raised by patients and their families, as well as staff at the hospital.

There were also positive reflections on peoples’ experience at the Northern Beaches Hospital. Contributors praised the professionalism of staff and their dedication to delivering health care.

The Audit Office would like to thank the people who took the time to share their experiences with us about the Northern Beaches Hospital.

The Northen Beaches Hospital is accredited to the National Safety and Quality Health Service standards

The Northen Beaches Hospital is accredited to the National Safety and Quality Health Service (NSQHS) standards and has maintained this accreditation from opening. This is the same level of accreditation that applies to NSW public hospitals. In 2023, the Australian Commission on Safety and Quality in Health Care, which publishes the NSQHS standards, introduced a regime of short notice assessments that applies to the Northen Beaches Hospital. This regime replaced the previous system of announced and voluntary short notice assessments. The short notice assessments are notified to a facility up to 48 hours before an assessment. In theory, this element of surprise limits the ability of a facility to stage manage or game the assessment of compliance against the NSQHS standards and encourages facilities to develop longer term strategies rather than fixate on the assessment cycle. The Northern Beaches Hospital was assessed under the short notice assessment in December 2023 and received full accreditation in March 2024. This audit did not seek to reperform the assessment conducted against the NSQHS standards.

Accreditation to the NSQHS standards is complemented by the Northern Beaches Hospital’s accreditation as a private facility under the Private Health Facilities Act 2007. The licensing team undertakes in-person reviews at the hospital when deciding to license a facility. The Ministry of Health Private Health Facilities licensing team does not consider the Northern Beaches Hospital to be a high-risk facility. There is also a range of other accreditation arrangements for specific disciplines and functions in the hospital, such as teaching and training. The Northern Beaches Hospital has received and maintained full accreditation since its opening.

The Northern Beaches Hospital underperformed against expectations on some hospital-acquired complications during the review period

There are 16 nationally agreed hospital-acquired complication indicators that measure outcomes of hospital care for which clinical risk mitigation strategies may reduce, but not necessarily eliminate, the risk of occurrence. The 16 nationally agreed hospital-acquired complications are a subset of possible hospital complications and are important in determining funding for hospital activity between the Australian Government and states and territories. The occurrence of a hospital-acquired complication can lengthen a patient’s stay in a hospital and divert resources from other patients. It is a condition of accreditation that hospitals, including the Northern Beaches Hospital, maintain systems to monitor, act and document unwanted variation in hospital-acquired complications.

NSW Health sets differing targets for hospital-acquired complications across the NSW public hospital network. These targets inform monitoring and oversight of the Northern Beaches Hospital but are not subject to financial penalties. The targets correspond to demographic factors that drive certain complications. For instance, the Northern Sydney Local Health District has an older population than other areas of Sydney and NSW. Consequently, the expected rate of falls and pressure injuries is higher than in other parts of the network that have a younger population. The conditions of patients presenting at hospitals, or case mix, will also affect rates of hospital-acquired complications. Peer results for hospital-acquired complications therefore need to be interpreted carefully. Differences in hospital-acquired complications at peer hospitals often point to opportunities for improvement. Nevertheless, as shown in Exhibit 3, the Northern Beaches Hospital has under-performed against expectations for falls, third- or fourth-degree perineal lacerations, and birth trauma over the review period. Months where zero incidents are recorded for falls are also against expectation and are investigated accordingly.

The Northern Beaches Hospital has also experienced challenges in managing hospital-acquired pressure injuries, hospital-acquired infections and birth trauma during the review period for this audit. Performance of the Northern Beaches Hospital against the remaining 13 hospital-acquired complications is presented in Appendix 3. NSW Health does not publish information on hospital-acquired complications for any of its facilities.

The Northern Beaches Hospital has not met its emergency department targets, but generally outperforms its NSW public hospital peers

The Northern Beaches Hospital is accountable for measuring several emergency department targets under the project deed. Emergency treatment performance measures the number of patients leaving the emergency department within four hours. The Northern Beaches Hospital has performed poorly on this measure over the operating term of the hospital, triggering a corresponding abatement for a six-month performance period. The Northern Sydney Local Health District waived the application of the abatement in the first half of the 2022–23 financial year because of COVID. Results for the audit review period are shown in Exhibit 5. Comparison is made to metropolitan B1 facilities only, as there are expected differences in how regional and metropolitan emergency departments operate. It is important to note that no NSW peer B1 public hospital would have met the Northern Beaches Hospital emergency treatment performance targets for admitted and non-admitted patients over the review period.

The Northern Beaches Hospital performs well on elective surgery measures compared with peers

The Northern Beaches Hospital generally outperforms its NSW public hospital peers on elective surgery access measures and wait list management timeliness. Exhibit 8 shows performance for elective surgery access performance for category three patients. Category three patients are non-urgent elective surgery patients. Category one and two elective surgeries are urgent and semi-urgent respectively. Exhibit 8 shows a minor deviation from the performance target and threshold, for which the Northern Beaches Hospital received an abatement. The Northern Beaches Hospital achieved expected performance for elective surgery access performance for category one and two patients.

Patient experience results at the Northern Beaches Hospital cannot be directly compared with NSW public hospitals, limiting transparency

The project deed requires Healthscope to report on subjective measures of patient experience at the Northern Beaches Hospital annually but does not specify the methodology for the surveys. The Northern Beaches Hospital attempts to collect the feedback of all patients at discharge from the hospital. In contrast, NSW Health uses a sample methodology that is conducted a few months after discharge. Consequently, the results from the surveys to date cannot be compared, limiting the transparency of the Northern Beaches Hospital’s performance relative to NSW public hospitals. The Northern Beaches Hospital is working to adopt the NSW Health methodology that will permit public reporting of patient experience results and comparisons to NSW public hospitals from late 2025.

Repeated themes in complaints about the Northern Beaches Hospital indicate complaints are not being sufficiently addressed

The Health Care Complaints Commission receives complaints about all health services and providers in NSW, including public and private hospitals. In its analysis of complaint trends, the Health Care Complaints Commission noted repeated themes in complaints made to it relating to the quality of communication with patients and, for older patients, communication with families, to ensure elderly patients receive appropriate care and after-care. Healthscope internal analysis of complaints it receives from patients and others about the hospital identify a similar theme. Communication issues were also a significant theme in submissions to this audit.

There is a risk that the State may need to assume responsibility for public health services at the Northern Beaches Hospital earlier than 2038

In November and December 2023, Healthscope wrote to the Ministry of Health requesting to bring forward the return of the public portion of the Northern Beaches Hospital by 14 years while retaining the private portion until 2058. In presenting its offer, Healthscope noted the challenges of operating the hospital including:

• challenging administrative and integration outlook
• risk to viability of Northern Beaches Hospital due to insufficient funding
• lack of integration into the wider health network
• strained stakeholder relationships.

In January 2024, the Ministry of Health formally declined the Healthscope offer, noting that Healthscope has no legal or contractual entitlement to withdraw from or vary the project in the manner proposed. The Ministry of Health reaffirmed that Healthscope must continue to provide services under the terms of the project deed. The Ministry of Health and the Northern Sydney Local Health District have identified and are continuing to monitor this risk to the success of the Northern Beaches Hospital public-private partnership. Recent reported financial challenges for Healthscope confirm this is an ongoing risk for NSW Health to manage.

Limited information about minor harm and near-miss incidents may reduce the Northern Sydney Local Health District’s ability to monitor and respond to some emerging clinical and safety risks

All health facilities in NSW follow a similar incident identification and management policy. This includes all private facilities such as the Northern Beaches Hospital. It is a requirement of the private hospital licence, and Healthscope has fulfilled this obligation since the hospital opened. All public hospitals in the Northern Sydney Local Health District use a common incident management system, which means that the District can see reporting across the network. The Northern Beaches Hospital has a separate incident management system that it uses for both the public and private portion of the hospital. When incidents occur, the Northern Beaches Hospital notifies the District and Ministry of Health as required for major incidents, and the District, in aggregate monthly, for less serious incidents.

The project deed requires that Healthscope notify the Northern Sydney Local Health District of all incidents shortly after they occur and in line with NSW Health reporting requirements. However, before the hospital opened, the Northern Sydney Local Health District and Healthscope agreed to modify the reporting of incidents. Major incidents would continue to be reported on an ad hoc basis as required by the private licence, but minor harm and near-miss incidents – harm score three and four incidents – would be reported in summary every month. The Northern Beaches Hospital records about 40 harm score three and four incidents every day, similar to its peers. The Northern Sydney Local Health District and Healthscope agreed that isolated harm score three and four incident reports are not meaningful data points in forming an assessment of the overall risk and safety landscape. Consequently, the Northern Sydney Local Health District reported that this arrangement is a pragmatic approach to reporting of these risks and consistent with practice in the rest of the district, where these minor harm and near-miss incidents would not be notified to the hospital general manager. Instead, quality and safety managers at the hospitals are expected to conduct regular trend and theme analysis of minor harm and near-miss incidents, which is then reported to hospital and district management.

The Northern Sydney Local Health District relies on the Northern Beaches Hospital undertaking this analysis and reporting any concerning trends. However, the incident management system and related reporting maintained by Healthscope at the Northern Beaches Hospital do not support the expected level of trend and theme analysis. The Northern Beaches Hospital does routinely track minor harm and near-miss incidents related to the 16 nationally agreed hospital-acquired complications. However, due to system reporting limitations, the Northern Beaches Hospital is unable to interrogate its incident management system for emerging themes.

For example, this audit asked Healthscope to consider the effect of fatigue in reported incidents. Healthscope was unable to provide this analysis, citing the significant time required for staff to manually read and code incidents to perform this analysis. Similarly, Healthscope is unable to identify and understand the role of equipment shortages in contributing to incidents. There is a risk that system reporting that is not fit for purpose is obscuring insight into incident patterns at the Northern Beaches Hospital. This in turn exposes the Northern Sydney Local Health District to risk as it assumes a level of thematic reporting and analysis that is not undertaken at the Northern Beaches Hospital.

Healthscope and the Northern Sydney Local Health District reported to this audit that the reporting culture at the Northern Beaches Hospital was good and comparable to NSW public hospitals. However, this assessment is not quantified. Healthscope is currently negotiating with the Northern Sydney Local Health District to participate in the District’s survey of reporting culture, based on a NSW Clinical Excellence Commission tool. Healthscope participation in the Northern Sydney Local Health District survey tool would give greater confidence that staff at the Northern Beaches Hospital are encouraged to report incidents as part of a sound speak up for safety culture, which is vital for the continued safe delivery of quality health services.

NSW Health agreed to Healthscope’s proposal to reduce the penalties attributable to poor performance, in part due to concerns about unintended consequences for patient safety

The Northern Beaches Hospital project deed allows for 48 measures that attract abatements for performance below a given target or performance threshold. The target rate is the higher of the two numbers. Results between the target rate and performance rate attract fewer abatements than performance below the performance threshold. There are no bonus payments for performance above the target rate. Appendix 4 lists the abatable key performance indicators for 2023–24. The original abatement regime, agreed in 2014, set high failure points across many of the measures that attracted abatements. For instance, in the original 2014 project deed, seven measures attracted the highest level of abatements for non-performance – around $900,000 per instance of failure.

In 2019, Healthscope raised concerns with NSW Health that this regime may affect clinical decision- making and result in unintended consequences for patient safety. Healthscope recommended recasting the abatement failure points on a risk basis, corresponding to the severity of outcome for the patient or service. The Northern Sydney Local Health District also reported a concern that high failure points were an impediment to accurate reporting. The Northern Sydney Local Health District received advice from the Ministry of Health in agreeing to formally reduce the failure points attributable to not meeting the performance and target thresholds for many measures. The highest level of abatements under the revised regime are about $800,000 per instance of failure. The value of the new abatement regime compared to the old is incorporated into the Northern Sydney Local Health District estimate of financial enhancements granted to Healthscope noted later in this report.

Over the review period, about $1.5 million in abatements have been applied against service fees for the Northern Beaches Hospital. Some of the measures attracting abatements over this time include:

• patients in emergency department greater than four hours
• unplanned mental health readmissions within 28 days
• transfer of care time between ambulance and the emergency department exceeding 30 minutes.

The unplanned mental health readmissions within 28 days measure is a safety and quality key performance indicator. Healthscope has not triggered or applied abatements for any other safety and quality key performance indicators during the review period.

The Northern Beaches Hospital is not meeting is clinical coding accuracy requirements

The Northern Beaches Hospital project deed provides for a range of assurance reviews at various stages throughout the contract cycle to provide the State with assurance that the hospital is, in fact, performing the purchased services and outcomes that it reports. The annual clinical coding audit and key performance indicator audits are the main reports that purport to demonstrate that Healthscope is performing the agreed public hospital activity. However, the Northern Sydney Local Health District also reviews a range of other data and reporting to ensure that the specified services are delivered.

Hospital activity is expressed in a common activity unit called national weighted activity units or NWAUs. More complex hospital services consume more NWAUs than simpler procedures. It is therefore important that clinical coding is accurate because inaccuracies could lead to over-payment in time. The scope of the clinical coding audits is agreed by subject matter experts from the Northern Sydney Local Health District and Healthscope before endorsement by the governing Operational Services Group. The clinical coding audits are undertaken by experts. The resulting reports are reviewed by the Northern Sydney Local Health District and issues are remedied through the working groups and formal correspondence.

The Northern Beaches Hospital recorded clinical coding inaccuracies slightly above rates achieved by other facilities in the Northern Sydney Local Health District. The value of these inaccuracies was between $3–4 million per annum. NSW public hospitals are afforded a degree of latitude in coding accuracy. However, the Northern Beaches Hospital project deed requires 100% accuracy of clinical coding. Inaccuracies in clinical coding do not receive a direct financial penalty. Instead, Healthscope adjusts the next monthly invoice for public hospital activity for the inaccuracy identified in the clinical coding audit. For the 2023–24 annual notice, the Northern Sydney Local Health District also adjusted the activity profile for coding inaccuracies.

The scope of key performance indicator audits commissioned by Healthscope is limited and our audit identified unexplained patterns in reported activity that is now under investigation

The scope of key performance indicator audits is agreed via correspondence between the Northern Sydney Local Health District and Healthscope. The scope of the Key Performance Indicator audits is:

• a re-calculation of the performance measures set out in Schedule 18 using a raw extract of data
• analysis of current period results with prior periods to identify variances.

The key performance indicator audit reports do not include an assessment of the distribution of results and therefore do not consider unusual groupings of results that might indicate errors. Given that there are significant financial penalties for not achieving certain key performance indicators, this absence is noteworthy.

In evaluating Healthscope’s performance in meeting the abatable key performance indicators relating to the emergency department and general surgery under the Northern Beaches Hospital project deed, the audit assessed the distribution of results over the review period. This review highlighted unusual patterns of activity recorded for one abatable key performance indicator – total time in emergency department less than four hours. Healthscope has never met project deed expectations for this measure and the Northern Sydney Local Health District has applied an abatement for this measure three times during the review period – and granted a waiver in the first half of January 2022 due to the effects of COVID on hospital activity. The distribution analysis in Exhibit 9 shows a significant spike in the total time in emergency department just before the four-hour mark. This pattern is not consistent with results from similar hospitals in NSW – the B1 hospital grouping. This audit identified this anomaly and escalated it to Healthscope and the Northern Sydney Local Health District. The District is now investigating this pattern further.

The project deed restricts the ability of the Northern Sydney Local Health District to deliver new services from the Northern Beaches Hospital

The Northern Beaches Hospital is funded to deliver up to a maximum number of activity units of hospital patient care, set out in the activity profile in the annual notice. This mostly comprises admitted patient care, but the hospital does operate a number of outpatient clinics. This model of delivery and procurement at the hospital is in contrast with a movement away from admitted models of care in the broader NSW Health system that favours outpatient services and Hospital in the Home arrangements where these can be safely delivered.

The project deed contains provisions for NSW Health or Healthscope to propose new services to be provided at the Northern Beaches Hospital. However, in contrast to services already contemplated in the project deed, Healthscope is entitled to make a reasonable estimate of the cost of new services. The price per occasion of service may exceed the discounted price Healthscope receives for existing services. NSW Health can then accept or reject that offer. The project deed provides for the State to compel Healthscope to deliver a new service but Northern Sydney Local Health District reports that to maintain the commercial principles of the project deed it has not used this approach to date.

This mechanism can create challenges for planning new services as set out in Exhibit 10. The thrombolysis example highlights the peculiarities the project deed price mechanism introduces into service planning. The marginal costs of delivering part of a service at a NSW Health facility has mostly been cheaper than the cost of purchasing the proposed new service at the Northern Beaches Hospital, which is the price per activity unit. This is because the marginal cost for part services at NSW Health facilities does not account for the indirect costs that are already expended in operating the unit. Healthscope proposals have generally been at or above the state price, which exceeds the marginal cost at NSW Health facilities. There were other considerations in this example, but this cost issue is a direct artefact of the public-private partnership arrangement based on purchasing units of hospital activity. The paediatric acute mental health beds example in Exhibit 10 highlights tensions between commercial principles and public health service delivery. Interventional cardiology, added before the review period for this audit, is one of the few new services added to the project deed schedule of services since the hospital opened in October 2018.

As new services are developed, there is a risk that the Northern Beaches Hospital becomes out of step with the Northern Sydney Local Health District’s clinical services plan over time and before the end of the public hospital services concession in 2038.

Source: NSW Audit Office research and analysis.

The Northern Beaches Hospital is not well integrated into the NSW Health network

A key objective of the Northern Beaches Hospital public-private partnership is to provide integrated health care to people in the Northern Beaches area of Sydney and the State. The project deed defines integrated health services as health services that:

• operate as part of a broader state-wide health system and state-wide network of services
• help people to stay healthy and gain access to timely, high quality, patient centred care in ways that are user friendly, achieve the desired results and provide value for money
• deliver coordinated high-quality health service to the communities serviced by the district
• support the district’s teaching, training and research roles
• enable the district to outline its roles and responsibilities as a key member organisation of a wider NSW public health network of services and support organisations
• promote accountability to government and the community.

One of the original benefits that NSW Health identified from the operation of the Northern Beaches Hospital was in relieving pressure on the Royal North Shore Hospital by absorbing some of the less serious presentations, which would support the District and NSW Health network of services. The Royal North Shore Hospital, as the principal referral hospital, would still need to accommodate Northern Beaches residents requiring the highest level of treatment. The original benefits realisation plan for the Northern Beaches Hospital assumed the hospital would relieve pressure on the Royal North Shore Hospital from day one. In doing so the Northern Beaches Hospital was expected to reduce unplanned admissions at the Royal North Shore Hospital by 50% and reduce less complicated planned episodes for patients from the Northern Beaches catchment by 90%. However, this did not occur immediately and it took some time to reach expected activity volumes. It took four years to reduce unplanned admissions at the Royal North Shore Hospital. The anticipated reduction in less complicated planned episodes has not occurred to date. The Northern Sydney Local Health District has conducted limited analysis of the presentation at other hospitals in the District, such as the Royal North Shore Hospital, by Northern Beaches catchment residents who could be treated at the Northern Beaches Hospital.

The two abatable key performance indicators in the project deed relating to the integration target are inappropriate transfers from the Northern Beaches Hospital to other hospitals and inappropriate transfers to community allied health services. An inappropriate transfer occurs when a patient with a condition within the Northern Beaches Hospital role delineation is transferred to a public health facility or where a patient is transferred to a facility with a lower role delineation. The Northern Beaches Hospital has not reported any inappropriate transfers during the review period.

Hospital in the Home is an important innovation that allows patients to either receive treatment away from hospitals or reduce their length of stay at hospitals where it is safe. Hospital in the Home saves patients from unnecessary stays in hospital and frees up hospital beds for patients who need to be in hospital for their care. The Northern Beaches Hospital has only marginal involvement in Hospital in the Home. For example, in June 2024, the Northern Beaches Hospital referred 36 patients into the District’s Hospital in the Home service compared with 130 referrals from the Royal North Shore Hospital. Clinicians at the Northern Beaches Hospital report frustration in making referrals into Hospital in the Home services that do not eventuate in alternative care pathways for patients. Subsequently, clinicians report they no longer make referrals because the administrative investment of time goes unrewarded. More recently, the Northern Beaches Hospital has, with the Northern Sydney Local Health District, initiated a new program to increase referrals into Hospital in the Home.

In its November and December 2023 request to hand back the public portion of the Northern Beaches Hospital, Healthscope cited lack of participation in NSW Health’s Leading Better Value Care initiative as indicative of the lack of integration between the facility and the District and health network. The Leading Better Value Care initiative is a multi-agency program to identify and scale-up projects to deliver better outcomes for patients in targeted areas, taking advantage of the experience of the health pillar organisations and experts across local health districts. However, the Northern Sydney Local Health District notes that in its six years of operation, Healthscope has not lodged any proposal to implement additional health initiatives as allowed for under the project deed.

The Clinical Integration Committee has had a limited impact in promoting the integration of the Northern Beaches Hospital into the NSW Health network

In February 2020, the NSW Legislative Council Portfolio Committee Number 2 published its report on the Operation and Management of the Northern Beaches Hospital. In Recommendation 18, the committee recommended that Northern Sydney Local Health District and Healthscope:

In August 2020, the NSW Government accepted the recommendations and announced that the Clinical Integration Committee would be established to strengthen operational links and drive opportunities for collaboration. The Clinical Integration Committee is an officer-level forum that meets monthly to support and monitor the implementation of the key service linkage directory, strengthen operational links between the District and the Northern Beaches Hospital, and identify and resolve issues referred to the group that have not been resolved through day-to-day operations. The key service linkage directory is a document that sets out standardised linkages to promote seamless movement of patients between the Northern Beaches Hospital and other facilities. The Clinical Integration Committee is also supported by other interface committees, such as the Mental Health Interface and the Mona Vale Hospital and Northern Sydney Local Health District Primary and Community Health Care Interface, which focus on mental health and community health issues respectively and also through clinical network meetings. Since its establishment in 2020, the Clinical Integration Committee has been limited in effectively promoting operational links between the Northern Beaches Hospital and NSW Health facilities.

In June 2022, the Northern Sydney Local Health District introduced a form to capture incidents where a district clinician identified issues between the Northern Beaches Hospital and Northern Sydney Local Health District facilities. This has allowed some visibility of integration issues to the District and facilitated resolution at the Clinical Integration Committee. Over the review period, the District received 20 forms on a variety of matters. The Northern Sydney Local Health District received a further five forms related to mental health interface issues, which highlighted issues around discharge planning. This audit spoke with staff from Northern Sydney Local Health District community mental health services and heard similar themes about disrupted patient journeys through the health system from the Northern Beaches Hospital. Staff report that due to increased workload and lack of perceived action, issues are no longer reported as regularly to interface meetings and via forms. Other Northern Sydney Local Health District staff spoken to for this audit also reflected on communications challenges with the Northern Beaches Hospital that have led to inefficient patient journeys across the network.

The Clinical Integration Committee has been less successful in pursuing integration on other fronts, for example, installing vision for life cameras in the Northern Beaches Hospital. The Newborn and Paediatric Emergency Transport Service (NETS) uses a system of cameras in many public hospitals called vision for life. These cameras allow the NETS team to coordinate transfers from hospitals where that is clinically required. The Northern Beaches Hospital does not, and is not permitted to, have a Neonatal Intensive Care Unit, which is instead housed at the Royal North Shore Hospital. In the absence of cameras, the NETS team speaks with hospital clinicians via phone, complemented by notes, but this introduces risks for the coordination and safety of the transfer. The Clinical Integration Committee has listed this item on its agenda for over two years but has not been able to progress the installation of cameras and it has recently been escalated via formal correspondence.

Healthscope participation in Northern Sydney Local Health District clinical network meetings is variable. Clinical network meetings are clinician-led forums to raise district-wide issues and monitor district priorities. This audit focused on two services provided at Northern Beaches Hospital: emergency department and general surgery. The Northern Beaches Hospital is well represented at the emergency department clinical network meeting, and is, in fact, the chair of that meeting, but is not well represented on the general surgery clinical network meeting.

The Northern Sydney Local Health District is yet to formally evaluate the effectiveness of the Clinical Integration Committee.

Differences in electronic medical record systems between the Northern Beaches Hospital and the Northern Sydney Local Health District affect patient continuity of care

Earlier, this report noted that Healthscope is not required to use the same electronic medical record as other facilities in the Northern Sydney Local Health District or NSW Health. Under this current arrangement, clinically relevant information for patients of the hospital is not fully visible to clinicians outside of the Northern Beaches Hospital until discharge. This affects the continuity of care for some patients, notably for mental health patients at the hospital. In other cases, the way the Northern Beaches Hospital electronic medical records connect with the District’s records makes information more difficult to access for District-based clinicians. That is, there are additional screens and selections for Northern Beaches Hospital patients than for other patients, which are different and not always known to all clinicians.

The Northern Sydney Local Health District and Healthscope are discussing the possibility of the hospital using NSW Health’s Single Digital Patient Record. Health privacy and cost considerations are key barriers to the implementation of the Single Digital Patient Record at the Northern Beaches Hospital.

The public-private partnership allows the Northern Sydney Local Health District to acquire public hospital activity at the Northern Beaches Hospital at a lower price than if the District ran the hospital

The Northern Beaches Hospital is predominantly funded by the volume of service activity produced at the hospital up to a capped amount multiplied by a discounted state price: the maximum payment amount. The maximum payment amount set out in the activity notice was $182 million for 2022–23 and $178 million for 2023–24 for the provision of public hospital activity at the Northern Beaches Hospital. Northern Sydney Local Health District paid Healthscope $179 million in 2022–23 and $178 million in 2023–24. The difference is accounted for by Northern Beaches Hospital providing less activity than the maximum payment amount allowed for in some areas, abatements, and adjustments for junior medical officers who are employed by NSW Health and have a rotation at the Northern Beaches Hospital.

The discount that is applied to Northern Beaches Hospital activity purchased from Healthscope does not apply to public hospitals in the Northern Sydney Local Health District. Consequently, the Northern Beaches Hospital, by virtue of the discounted arrangement, costs the Northern Sydney Local Health District and NSW Health less than if this hospital activity was delivered in a public hospital. This is the case notwithstanding financial enhancements to the original project deed through resolution of contract disputes over time and accounting for direct contract management and legal costs.

Resolutions to a series of legal disputes led to financial enhancements for Healthscope, but net financial benefits for the State remain

Healthscope has issued nine legal notices of dispute relating to the operating phase of the Northern Beaches Hospital public-private partnership. A central and recurring tension of the project deed is the construction of the annual notice. The annual notice establishes the maximum amount of public hospital activity, such as emergency department and admitted patient activity, for which the Northern Sydney Local Health District will pay Healthscope each year. The Northern Beaches Hospital has limited means to control demand for its public hospital activity and cannot refuse service to public patients presenting to the hospital. Consequently, Healthscope is responsible for the in-year risk that actual activity differs from the annual notice. To the extent that activity exceeds the maximum payment amount, Healthscope essentially provides public hospital services for free. Healthscope has argued in the nine legal notices and in the request to hand back the public portion of the hospital that this has called into question the viability of the arrangement.

In June 2024, the Northern Sydney Local Health District estimated that the nine dispute processes have resulted in a financial enhancement of about approximately $73 million in cash value to Healthscope and a further $70 million in reductions of liability. However, these financial enhancements do not exceed the expected value to the State of the discount applied to activity purchased under the arrangement.

Legal disputes highlight the inherent tensions of the Northern Beaches Hospital public-private partnership

The central tension of the project deed – the maximum payment amount – drives antagonism between parties to the public-private partnership that can be seen across various interactions noted in this report. In December 2021, the Northern Sydney Local Health District commissioned a consultant to work with NSW Health and Healthscope to address the strained relationship between them following a series of seven legal disputes in 2019 and 2021. The resulting report led to the creation of the Senior Governance Board in March 2023, providing Healthscope access to high-level NSW Government representatives to monitor and resolve issues on the Northern Beaches Hospital public-private partnership.

Both Healthscope and the Northern Sydney Local Health District report that the relationship has improved since 2019 and 2021 but is at times challenging and could be better. The antagonism between parties between 2019 and 2021 highlights the importance of trust for this type of arrangement. The safety concerns recounted in the previous chapters erode that trust and put the Northern Beaches Hospital public-private partnership at further risk.

NSW Health restricts the delivery of certain services to maintain efficiencies within the district and the broader public health system

Under the project deed, NSW Health defines the activity it will purchase. It also defines several restricted services that it does not permit the hospital to undertake. For example, the Northern Beaches Hospital is not permitted to perform neurosurgery (or brain surgery), cardiothoracic surgery and elective interventional cardiology for public patients, despite the hospital performing these procedures for private patients. In these instances, and for other restricted services, the Northern Beaches Hospital is expected to arrange transport to another facility, the Royal North Shore Hospital in this case, for care and treatment. The Northern Sydney Local Health District screens for these procedures and investigates whether there were plausible options to transfer patients. The Northern Sydney Local Health District reports that there are about ten of these instances per year. The results of investigations often result in non-payment for that activity as part of monthly billing.

The Northern Sydney Local Health District argues that this policy of restricting services at the Northern Beaches Hospital supports the overall safe and efficient delivery of services in the District. That is, by concentrating specialists in one location there is sufficient volume to keep required skills current for these types of procedures and to support cost effective delivery of the services. The Northern Sydney Local Health District notes that this way of organising services is similar to that operating in other local health districts.

The Northern Beaches Hospital activity profiling does not align with broader funding and district service agreement processes

The Northern Beaches Hospital activity profile is finalised three months prior to the start of the operating period – March for an operating period commencing in July. However, the State budget is generally delivered in June, a few weeks before a new operating period. The State budget informs the service agreements that establish budgets for local health districts. Consequently, the actual funding approved in the budget is not known with certainty at the time of finalising the activity profile for the Northern Beaches Hospital.

In practice this means that the State must assume a lower growth in volume for the Northern Beaches Hospital year-on-year or accept the funding risk for services purchased over this amount. This means that the activity profile for the hospital lags by one year because the starting point for a new year’s activity profile is the completed activity volume for the prior year plus an adjustment for expected activity for the remainder of the year based on simple phasing. Healthscope is therefore responsible for in-year volume risks and must address this shortfall in the operating year. The calculation of the yearly activity profile is a source of tension between Healthscope and NSW Health.

The Northern Sydney Local Health District does not use the Northern Beaches Hospital to meet district public elective surgery waitlist times

The Northern Beaches Hospital performs better than peer hospitals on elective surgery wait time performance. However, despite this, the Northern Sydney Local Health District does not routinely divert or purchase additional elective surgery from the Northern Beaches Hospital. The Northern Sydney Local Health District reports the decision not to purchase additional elective surgery from the Northern Beaches Hospital is a deliberate one because of the expected effect additional activity might have on emergency department performance at the hospital. That is, increasing elective surgery at the Northern Beaches Hospital reduces the supply of beds available for other patients, in particular beds that could be used for patients requiring admission directly from the emergency department.