Private Equity in American Healthcare: What Each Position Is Protecting

In May 2024, Steward Health Care filed for Chapter 11 bankruptcy — the largest hospital bankruptcy in American history. The company owned 31 hospitals across eight states, including nine in Massachusetts. Patients were transferred mid-care. Surgeries were postponed. Emergency rooms thinned out. Senators Elizabeth Warren and Ed Markey held field hearings in Boston, calling it a case study in "healthcare fraud." The firm that had previously owned Steward — Cerberus Capital Management, which had extracted hundreds of millions of dollars in dividends before selling its stake in 2020 — was not present.

The same month, a Senate Budget Committee investigation was building toward its January 2025 release: a 171-page bipartisan report titled "Profits Over Patients," based on more than one million pages of documents. Its findings on one firm — Leonard Green & Partners, which had acquired Prospect Medical Holdings in 2010 — were specific: the firm paid itself $645 million in dividends before exiting; left eight of Prospect's hospitals ranked in the bottom 17% of CMS quality rankings; and left the company carrying more than $3 billion in liabilities, paying over $100 million a year in rent to a real estate investment trust for hospitals it had once owned outright.

A month earlier, in December 2023, the journal JAMA had published a study examining 662,095 hospitalizations at 51 private equity-acquired hospitals against more than four million at matched control hospitals. The findings were stark: hospital-acquired conditions — infections, falls, surgical complications — increased by 25.4% at private equity hospitals after acquisition. Every one of eight individual quality measures worsened. The most likely mechanism, the authors noted, was workforce reduction.

And in September 2023, the Federal Trade Commission had filed its first-ever antitrust suit targeting a private equity physician practice roll-up, suing Welsh, Carson, Anderson & Stowe and its anesthesiology platform for consolidating the Texas market through serial acquisitions and then "jacking up prices." FTC Chair Lina Khan announced the action with a specific message: "This puts the market on notice that we will scrutinize roll-up schemes."

These four events — a catastrophic collapse, a damning legislative investigation, landmark clinical evidence, and the first federal enforcement action — all compressed into the same eighteen-month window. They did not appear from nowhere. They are the visible surface of a structural transformation in American healthcare that began in the 1980s and accelerated sharply after 2010: the entry of private equity capital at scale into hospitals, nursing homes, physician practices, hospices, behavioral health, and emergency medicine. By 2022, private equity had completed more than 500 healthcare deals in a single year. By 2024, seven of the eight largest healthcare bankruptcies in the country involved companies with private equity ownership histories.

The debate this has generated is not simply about whether a handful of bad actors behaved badly. It is about whether private equity's standard operating model — leveraged buyouts, short investment horizons, financial engineering, and exit through sale or IPO — is compatible with healthcare's obligations to patients, workers, and communities. It is about who bears the cost when a healthcare entity fails. And it is about what, if anything, can be done.

In the healthcare cluster, this is the ownership-side expression of the same market-versus-obligation conflict that appears in the access, mental-health, and financing maps. If medicine is social infrastructure, then ownership is not a morally neutral background detail. It decides who can extract surplus, whose time horizon governs the institution, and whether the system treats a hospital, nursing home, or physician practice primarily as an asset to optimize or as a public obligation that has to remain dependable when people are most vulnerable.

What the value creation argument is protecting

The argument that private equity provides essential capital and operational expertise to a healthcare sector that is chronically fragmented, undercapitalized, and inefficient — that consolidation through PE investment enables economies of scale, technology investment, and administrative rationalization that independent practices and small hospital systems cannot achieve on their own; that the headline failures represent bad actors rather than a structural flaw in the model; and that the alternative — nonprofit or government-owned healthcare delivered without competitive discipline — has its own well-documented failures of quality, cost, and access. This position is most fully articulated by the private equity industry itself — by Bain & Company's annual healthcare PE reports, by the American Investment Council, and by academics studying subsectors where PE outcomes have been less uniformly negative, including certain specialty care settings, outpatient surgery centers, and behavioral health.

The foundational argument is a capital gap. American healthcare is organized around thousands of small, independent practices and community hospitals that lack the balance sheets to invest in electronic health record modernization, care coordination infrastructure, or the personnel systems that attract and retain physicians. In the decade after the Affordable Care Act, hospital margins thinned. Rural hospitals closed at rates that had nothing to do with private equity. PE advocates argue that capital — even capital with a return requirement attached — flows to fragmented sectors because fragmentation is the problem: an ophthalmology practice group with scale can negotiate with insurers, invest in diagnostic technology, and offer surgeons a career path that a solo practice cannot. The consolidation that critics decry is, in this framing, the mechanism of improvement.

The efficiency case is specific in some subsectors. Ambulatory surgery centers, many of them PE-backed, moved procedures out of expensive hospital settings and reduced prices for common surgeries — a genuine cost reduction that the fee-for-service hospital environment resisted. Behavioral health has chronic access problems that PE-backed platforms have, in some cases, expanded capacity to address. The Bain Global Healthcare Private Equity Report 2026 notes that the U.S. led globally in PE healthcare buyouts from 2018 to 2022, with more than $263 billion in deals, in a sector where demand is structurally permanent — demographic aging guarantees it — and supply is structurally constrained.

Industry advocates also point to nonprofit hospital systems as an imperfect counterfactual. American nonprofit hospitals hold more than $300 billion in investment portfolios. Many have operating margins that exceed their for-profit peers. Community benefit spending, the nominal justification for their tax exemption, often amounts to less than the value of the exemption itself. Several major nonprofit systems — Kaiser, Cleveland Clinic, Mass General Brigham — have faced serious federal and state scrutiny for anti-competitive behavior, excessive executive compensation, and poor community benefit delivery. The nonprofit designation, PE advocates argue, is not a guarantee of mission. It is a governance structure with its own incentive problems.

What this position is protecting: the claim that private capital serves a genuine economic function even in sensitive sectors — that the question is not whether private capital should be present in healthcare but whether its incentives are correctly structured. It is protecting the space for continued PE participation against the claim that the model is inherently extractive. Most fundamentally, it is protecting the premise that the failures documented in nursing homes and hospital bankruptcies reflect bad actors operating in poorly regulated markets, not the inevitable outcome of applying financial engineering logic to a sector where patients cannot exercise normal market power.

In cluster terms, this position is saying that healthcare can still be governed through market institutions so long as public obligation is routed through rules: disclosure, staffing floors, antitrust enforcement, payment reform, and stricter oversight of bad owners. The ownership form matters, but it is not decisive. What matters is whether the state can discipline it.

What the financial extraction argument is protecting

The argument that private equity systematically extracts value from healthcare entities through a sequence of standard financial mechanisms — leveraged buyout debt loaded onto the acquired company, sale-leaseback of real property, management fees, dividend recapitalizations — while cutting staff, reducing services, and exiting before the long-term consequences of these decisions become visible; that this is not a failure of specific bad actors but the predictable result of applying an investment model built around three-to-seven-year holding periods and return-on-equity targets to institutions with obligations that extend across decades; and that the empirical evidence of patient harm is now sufficient to require a categorical policy response, not further study. This position is most fully developed by economists Eileen Appelbaum (Center for Economic and Policy Research) and Rosemary Batt (Cornell ILR School), whose Institute for New Economic Thinking working paper "Private Equity Buyouts in Healthcare: Who Wins, Who Loses?" (2020) remains the most comprehensive structural analysis of the extraction mechanisms.

The mechanics are not speculative. A standard PE healthcare buyout proceeds as follows: an acquisition is financed with 60–70% debt, which is placed on the acquired company's balance sheet, not the PE firm's. The target immediately begins servicing that debt from its operating cash flow. Real estate — hospital buildings, nursing home campuses — is sold to a real estate investment trust (REIT) and leased back, generating a one-time cash payment that flows to investors while committing the operating company to annual rent payments that can exceed what it paid in property taxes and maintenance when it owned the asset. Management fees, charged annually to the portfolio company, are additional cash transfers to the GP. Dividend recapitalizations — taking on new debt to pay a dividend to investors before exit — extract cash even before a sale is complete.

The structural flaw, Appelbaum and Batt argue, is temporal. A hospital's obligations run across decades: deferred maintenance, pension liabilities, chronic disease management for a long-term patient population, community service to patients who cannot pay. A PE firm's investment horizon runs three to seven years. What these horizons share — the period during which quality can be quietly degraded while the financial engineering runs its course — is precisely the window during which harm accumulates invisibly.

The evidence of harm is now substantial. Atul Gupta, Sabrina Howell, Constantine Yannelis, and Abhinav Gupta analyzed more than 7 million Medicare patients across 12,400 nursing facilities from 2005 to 2017. Their study, published in the Review of Financial Studies (2024), found short-term mortality 10% higher at PE-owned nursing homes than at comparable non-PE facilities. The authors estimated approximately 21,000 deaths attributable to PE ownership over the sample period. Nursing assistant hours declined 3% post-acquisition. Antipsychotic drug use — a recognized proxy for substituting medication for human care — increased 50%. Medicare spending was 19% higher, the extra cost borne entirely by taxpayers.

Sneha Kannan, Joseph Bruch, and Zirui Song's 2023 JAMA study examined 662,095 hospitalizations across 51 PE-acquired hospitals. Hospital- acquired conditions increased 25.4%. Falls rose 27.3%. Central-line bloodstream infections rose 37.7%. Every one of eight individual quality measures worsened. A 2023 systematic review in The BMJ, examining 55 empirical studies across eight countries, found PE ownership most consistently associated with cost increases up to 32% and quality effects that were, at best, mixed and, at worst, clearly harmful.

The Steward and Hahnemann cases are not anomalies but illustrations of the structural pattern at its endpoint. Hahnemann University Hospital in Philadelphia — a 496-bed safety-net hospital serving low-income patients for 170 years — was acquired in 2018 by a private equity-backed entity that immediately loaded it with $120 million in acquisition debt and sold its real estate in a sale-leaseback. Eighteen months later it was bankrupt. Approximately 2,000 jobs were lost. More than 574 medical residents and fellows were displaced — the largest graduate medical education disruption in U.S. history. The owner retained the Center City real estate for future sale while exiting the bankruptcy.

What this position is protecting: the empirical evidence that patients are dying at measurably higher rates in PE-owned settings — and the demand that this evidence be treated as fact, not contested as a policy preference. It is protecting the principle that healthcare institutions carry obligations to patients and communities that cannot be discharged by a financial exit, and that an investment model whose standard operations include debt-loading, asset-stripping, and time-limited holding is structurally incompatible with those obligations. Most fundamentally, it is protecting the claim that patients receiving care in PE-owned facilities cannot protect themselves — they are sick, they are often cognitively impaired, they are in emergency situations, they cannot comparison-shop — and that this structural powerlessness requires categorical policy protection, not faith in market discipline.

Put differently: this argument treats ownership as part of the care contract itself. If patients cannot refuse the terms under which a hospital is financed, and cannot exit safely when that financing degrades staffing or quality, then the ownership model is not merely upstream finance. It is a direct determinant of whether the system honors or betrays its obligation to care.

What the regulatory reform argument is protecting

The argument that private equity is not the cause of American healthcare's dysfunction but a symptom of a regulatory environment that created the conditions for extraction — poorly enforced antitrust law that permitted monopolistic consolidation, a fee-for-service payment system that rewards volume over outcomes, opacity in hospital ownership and pricing that made extraction invisible until it was catastrophic, and inadequate federal staffing standards that allowed quality degradation without accountability; and that these conditions can be corrected through targeted regulatory reform without requiring the elimination of private capital from healthcare markets. This position is associated with researchers like Zack Cooper at Yale's Tobin Center, whose empirical work on surprise billing directly shaped the No Surprises Act, and with the FTC enforcement agenda under Lina Khan, which identified specific PE practices — roll-up acquisitions, strip-and-flip schemes, minority investments used to coordinate pricing — as the targets of antitrust action.

The regulatory reform case begins with a specific diagnosis of what went wrong. Surprise billing — the practice of sending out-of-network bills to patients at in-network hospitals — was not an inevitable result of private equity ownership. It was the result of a legal and regulatory gap that PE-backed physician staffing firms, notably TeamHealth (owned by Blackstone) and Envision Healthcare (owned by KKR), identified and exploited. When KKR's Envision entered a hospital market, Cooper's research found, out-of-network billing rates increased 81 to 90 percentage points and charges rose 96% relative to predecessor physician groups. The total cost to the system: more than $40 billion per year in inflated health insurance premiums, according to Cooper's estimates. The response — the No Surprises Act, effective January 2022 — eliminated the gap. It worked. Envision filed for bankruptcy shortly after. TeamHealth's business model was severely disrupted.

The FTC's September 2023 suit against Welsh Carson and U.S. Anesthesia Partners represents the analogous regulatory response to physician practice roll-ups. The allegation was not that PE ownership was illegal per se, but that serial acquisitions designed to achieve monopoly control in a geographic market — and then used to set prices across the network — violated the Sherman Act. The revised Merger Guidelines Khan issued in December 2023 included Guideline 8, specifically targeting cumulative acquisitions: the recognition that individual transactions, none of which would trigger merger review, can collectively produce the same anticompetitive harm as a single large merger. By 2024, a single PE firm held more than 30% of physician market share in 28% of U.S. metropolitan areas.

The transparency argument extends the regulatory logic. PE ownership of healthcare entities has historically been opaque: ownership chains running through shell companies, licensing held by entities with names designed to obscure the ultimate beneficial owner. The Senate Budget Committee report "Profits Over Patients" identified this opacity as a foundational enabler — Cerberus's ownership of Steward, Leonard Green's ownership of Prospect, were not secrets but were not required to be prominently disclosed in a way that regulators, creditors, or patients could easily access. Mandatory PE ownership disclosure, alongside adequate state and federal staffing minimums and strengthened change-of-ownership review at the Centers for Medicare and Medicaid Services, would make extraction visible before it becomes catastrophic.

By 2024 and 2025, this logic had started to produce a more coherent federal response. CMS finalized new nursing-home ownership disclosure requirements in November 2023, explicitly requiring reporting about private equity companies, real estate investment trusts, and entities exercising financial control. In April 2024, CMS finalized national minimum staffing standards for long-term care facilities. And in May 2025, the FTC finalized an order with Welsh Carson that limits its involvement with U.S. Anesthesia Partners and requires notice of future acquisitions in anesthesia and other hospital-based physician practices. None of this amounts to a ban on PE ownership. But it does show regulators converging on a view that ownership opacity, staffing depletion, and serial roll-ups are not side issues. They are the mechanism of harm.

What this position is protecting: the practical pathway of reform that does not require dismantling the existing healthcare delivery system. It is protecting the belief that well-designed regulatory frameworks can channel private capital toward productive ends while constraining extraction — as the No Surprises Act demonstrated is possible. It is protecting the argument that nonprofit and government hospitals are not automatically better stewards: they have their own quality and efficiency problems, and the goal is competitive markets with guardrails, not protected incumbents. Most fundamentally, it is protecting the possibility of incremental progress: that the enforcement mechanisms already available — antitrust law, CMS oversight, staffing standards, ownership transparency — are sufficient if applied seriously, and that the framework of private provision with public accountability is repairable rather than structurally broken.

What the structural reform argument is protecting

The argument that private equity in healthcare is not a problem that regulation can solve because it is not a regulatory failure — it is the endpoint of a healthcare system designed around market logic, in which the commodification of care was always going to attract capital seeking returns; that the values healthcare requires — equal access regardless of ability to pay, clinical decision-making insulated from financial pressure, community obligation that persists through financial adversity — are systematically eroded by profit motives that no regulatory calibration can fully correct; and that the solution is structural: single-payer financing, strong public options, democratic governance of hospitals, community benefit mandates with teeth, or direct public provision. This position is associated with healthcare economists and advocates including Steffie Woolhandler and David Himmelstein (co-founders of Physicians for a National Health Program), with the work of the Roosevelt Institute on corporate consolidation in healthcare, and with a growing body of state-level policy that treats hospital ownership as a question of public governance rather than private contract.

The structural argument begins with a critique of the regulatory reform position's diagnosis. The No Surprises Act is real progress — but it was enacted after decades during which PE-backed physician staffing firms inflated health insurance premiums by more than $40 billion a year, lobbied against reform through a $54 million dark-money front group called "Doctor Patient Unity," and used the regulatory window to execute hundreds of acquisitions. The FTC's suit against Welsh Carson is real enforcement — but the judge dismissed the claim against the fund itself on the grounds that a 23% minority stake was insufficient for antitrust liability under prior precedents. The Merger Guidelines are real — but they face years of litigation before they generate reliable precedent, and new PE structures will emerge to navigate whatever rules eventually crystallize.

The deeper problem, in this view, is the underlying payment structure of American healthcare. Fee-for-service reimbursement rewards volume over outcomes, creating incentives that PE ownership amplifies but does not create. A PE-owned dermatology practice group that performs unnecessary procedures is doing what the reimbursement system rewards; a PE-owned urgent care chain that understaff its sites is managing its margin the way any cost-center manager would. The issue is not that PE is uniquely extractive but that healthcare's payment and governance structures are already designed around financial incentives, and PE capital simply applies more systematic pressure to those incentives than physician-owners or community hospital boards typically do.

The structural reform argument draws on international comparisons. Among wealthy democracies, the United States spends roughly twice as much per capita on healthcare as comparable nations and achieves worse outcomes on most population health measures. Most peer nations have either single-payer systems or tightly regulated multi-payer systems with strong public options — systems that set prices administratively rather than through negotiation, that limit the margin available for financial extraction, and that anchor hospital governance in community obligation rather than investor return. The connection between the payment model and the conditions that enable PE extraction is, in this framing, not coincidental. It is the mechanism.

What this position is protecting: the proposition that the costs documented in the empirical literature — the nursing home deaths, the hospital-acquired infections, the Hahnemann closures, the Steward bankruptcies — are not glitches in an otherwise functional system but are the system working as designed, where "as designed" means a healthcare market that treats care as a commodity and capital as the appropriate mechanism for allocating it. It is protecting the claim that regulatory reform, however well-intentioned, defers the harder question of whether a sector with healthcare's specific characteristics — involuntary demand, information asymmetry, life-or-death stakes, inability of patients to exit bad providers in crisis — can be governed safely through market mechanisms at all. Most fundamentally, it is protecting the possibility of asking a question that the American political system has consistently refused to answer: whether healthcare is a right, and what the governance consequences of taking that seriously would be.