The rapid expansion of private equity’s influence in healthcare has impacted competition, affordability, safety and worker welfare in the industry, according to a report published by the Center for American Progress Oct. 30.
According to a February report by Cherry Bekaert, a national accounting and business firm, private equity investments in healthcare have soared over the last decade, from $5 billion in 2000 to an estimated $104 billion in 2024.
While private equity’s presence in healthcare isn’t always negative — as some firms partner with physician practices and other organizations to provide financial and administrative support — it is traditionally associated with a focus on short-term revenue generation and investor profit.
This approach to healthcare transactions often leads to cuts in provider compensation and other cost-reduction efforts, which can in turn affect care quality and patient outcomes.
Here are five other insights into how private equity affects healthcare practices, according to CAP:
1. PE firms can burden acquired practices with ‘unmanageable debt.’ According to CAP, PE firms frequently purchase hospitals or physician practices by leveraging debt and using the value of other acquired entities as collateral, making the acquired healthcare entities responsible for servicing debt repayments.
This “debt loading,” CAP claims, often redirects the cash flow that the acquired organizations typically use to pay staff, purchase supplies, maintain facilities or upgrade equipment.
PE firms also frequently sell an acquired entity’s real estate in a practice known as a “sale-leasback” or “asset stripping.” This forces the acquired facility to pay rent for building and land it once owned, placing an additional financial burden on the facility — increasing the likelihood of negative financial consequences. According to the Private Equity Stakeholder Project, in 2023, at least 21% of the healthcare companies that filed for bankruptcy were owned by private equity. And nearly 90% of the healthcare entities in the U.S. rated as having a high risk of default by Moody’s Investors Services were owned by PE firms.
2. PE ownership can quietly decrease competition in healthcare. Consolidation of fragmented markets is key to PE groups’ acquisition strategies, which often results in firms buying up multiple healthcare practices in a geographic region over a small period of time to reduce competition. These acquisitions are often referred to as “serial” or “roll up” acquisitions, a tactic that allows PE firms to avoid regulatory scrutiny.
According to a 2023 report by the American Antitrust Institute, a single private equity firm controlled more than 30 percent of market share of full-time-equivalent physicians in 28% of all metropolitan statistical areas and 50% of market share in 13% of MSAs. In a study published in July, researchers at the University of Chicago found that one roll-up in anesthesia practices across Texas increased anesthesia prices by 30% over two years within a singular geographic area. The researchers noted that roll-ups accounted for 80% of PE deal volume in 2022, up from 40% in the early 2000s.
These rollups avoid scrutiny by remaining below the FTC premerger reporting threshold set in the Hart-Scott-Rodino Act, according to the CAP report, which is currently $126.4 million. Because many hospital transactions are likely to exceed this limit, PE firms often target physician practices, allowing them to achieve market concentration before regulators notice the anticompetitive effects.
According to a 2022 report by KFF Health News, between 2012 and 2021, as private equity purchases of physician practices increased by 600 percent, fewer than 10 percent of private equity deals met the minimum value required for regulatory review.
3. PE ownership can increase costs for patients and payers. By consolidating fragmented markets and reducing competition, PE firms increase their market power, which then enables them to leverage that power to charge higher prices to patients and negotiate higher reimbursement rates from payers.
A literature review published in 2023 by BMJ analyzed studies between 2000 and 2023, and found that private equity ownership of U.S providers increased health care costs to patients and payers in 9 of 12 cases—and decreased costs in none.
Another study by the Private Equity Stakeholder Project found that PE-owned hospitals represent 8.5% of all private hospitals, including for-profit and nonprofit, and more than 22% of all private, for-profit hospitals in the U.S. According to CAP, other studies have found that negotiated prices between hospitals and insurers increased 32% after PE-investment. This also demonstrates a “spillover effect,” where PE investment in hospitals impacts negotiated prices of local, non-PE-owned hospitals in the same “bargaining network.” When non-PE-owned hospitals shared at least one insurer with a PE-backed hospital in the same region, negotiated insurance rates at the non-PE hospital saw an average 8.1% increase in negotiated insurance prices. Local, non-PE hospitals that did not share an insurer with a PE-backed hospital did not see the same increase in prices.
4. PE ownership can strain patient care. According to a study conducted by researchers at the University of Pittsburgh, Harvard Medical School in Boston, and the University of Chicago and published in September in Annals of Internal Medicine, emergency department mortality rates increased by 13.4% at hospitals acquired by PE firms between 2010 and 2017. The rate decreased at hospitals not acquired by PE firms in the same time period.
This is often connected to cost-cutting efforts often employed by PE firms, according to the CAP report. Payroll is commonly one of a practice’s biggest expenses, and therefore one of the most direct ways to cut costs. Reduced staffing is correlated with increased rates of patient harm, according to a 2021 JAMA study. The study found that residents of nursing homes owned by PE firms were 11% more likely to have an ED visit and almost 9% more likely to experience hospitalization resulting from a health condition that could have been prevented or controlled with adequate outpatient treatment than residents at other for-profit nursing homes.
Similarly, a 2023 evaluation of hospital quality and outcomes found that PE ownership was connected with a 25% increase in hospital-acquired conditions, such as falls and central-line associated infections. These events are easily affected by the ratio of staff to patients and the composition of staff, especially when nurses are replaced with non-RN staff.
5. Medical staff and healthcare workers are also affected by PE ownership. Acquisitions, mergers and consolidation have been found to decrease autonomy and job satisfaction for physicians, according to a 2024 Physicians Foundation survey. This, in addition to compromised access to care for patients, all contribute to moral injury and burnout for physicians. Only 14% of physicians in the survey agreed that PE funding was “good for the future of healthcare.”
Similarly, a study published in March 2024 in JAMA Internal Medicine found that physicians employed by private equity were less likely to report high professional satisfaction than their counterparts (44.8% vs. 74.4%).
