January 6, 2026
Over the last few years, the healthcare industry has witnessed significant acquisitions and investments by large private equity (PE) firms. What is the primary reason that healthcare and private equity became intertwined? Will this business relationship benefit healthcare in the United States, or will the industry fall prey to the financial interests that have taken over other sectors on Wall Street?
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What is private equity? It is a type of investment where a central investor raises capital for a specific fund, which then invests in private companies. Capital is generally provided by investment funds, hedge funds, and wealthy individuals, who then manage and utilize the money to invest in companies, reduce costs and expenses, restructure operations, and subsequently increase revenue. These companies are then sold to other private equity firms after profits are distributed to investors. In some other cases, once revenue is maximized, the company is then listed for bankruptcy.
There are three main components of private equity: "Investment," "Value Creation," and "Exit."
1) The funds are generated to take over or acquire underperforming public companies and, in some cases, convert them into private ones. Most of these companies have been around for quite some time, rather than start-ups, which get funding from venture capital.
2) PE firms then move towards value creation, to raise the valuations for acquired companies through various measures and operational improvements, which include cost-cutting of staff or ending underperforming divisions or departments, restructuring, and moving the company in an entirely different business direction. In some cases, the equity fund brings in new leadership and attempts to expand into new markets.
3) Once a market cap has stabilized, or the PE fund has achieved maximum utilization, typically between 3-7 years, the fund looks to exit the investment and realize profit margin. This process involves selling the canabalized company to another firm (known in the industry as a "trade sale,") taking the company public (or again after privatization, after initial acquisition) with an IPO, or selling to another PE firm (known as a "secondary buyout"). Profits are then distributed to limited partners and investors, as well as management fees (2% of overall assets) and performance fees (20% of improved performance).
Why is private equity more prevalent in finance and capitalism today? What is the allure? From what I have gathered, some of the key features include a "high risk/high reward" ethos. Private equity can potentially provide higher returns than the market, but it also has its challenges, as the acquired assets are often illiquid and carry significant risk. There is also a more active investor management spirit, rather than the traditional passive investor model that is commonly known.
So why do private equity companies want to get involved with the healthcare industry?
1) Investment: The industry has stable revenue streams and, like going to the movies, was "recession resistant" due to consistent demand for services, benefits of profits from pharmaceutical drug sales or technology, regardless of economic conditions.
2) Potential for High Growth: The United States has an aging population and has seen an increase in chronic diseases, with new technological advancements in those fields.
3) Industry Fragmentation: In healthcare, there are varied specialties such as dentistry, oncology, liver disease, heart disease, diabetes, and kidney disease care (dialysis), with many independent health providers. Private equity acquisition requires or encourages consolidation within independently owned, but competing providers, to centralize revenue streams to create profits.
4) Operational Improvements: PE firms tend to seek out or target underperforming or inefficient healthcare companies, to implement their own management, and try to streamline operations for intended profit.
5) Regulatory Rules and Reimbursement Procedures: An appealing aspect of the healthcare industry for PE firms is the intensive, rigid, and regulatory policies (regarding Medicare, private health insurance) in place. It is a benefit for these PE firms to design business practices that maximize profit and investor utilization due to these rules.
6) Exit Opportunities: Private Equity firms look to acquire healthcare companies, improve their value, and sell them within a short time period for a solid profit. There is a consistent demand for healthcare, and the trend of consolidation provides opportunities for PE firms to sell to bigger firms, which in turn brings in more equity firms or funds to buy healthcare companies.
There are several great articles online that highlight the problems that many see with PE firms acquiring struggling healthcare companies. David Blumenthal, with the Commonwealth Fund, explained how, in addition to acquiring healthcare companies, they are also buying specialized physician practices with high margins for profit in the fields of gastroenterology, dermatology, urology, and cardiology. In his opinion study provided data showed that in nearly 13 percent of metropolitan areas, private equity firms account for more than half of the physician market for specialists. The author points out that PE investors have spent $200 billion on acquisitions in 2021 and over $1 trillion over the past decade in the healthcare field.
In the past, physicians and their investors would raise capital to own hospitals and support offices, but now PE firms and fund managers oversee funds that invest in healthcare, despite having no knowledge of the field or understanding which practices would benefit patients. What is damaging is when PE firms or funds use leveraged loans to acquire healthcare companies and use them as collateral, with the loan proceeds being used to pay dividends to investors. The debt is then transferred to the healthcare company. A consequence of this business model, in my opinion, is that the increased costs will most likely be passed to patients. The acquired health provider is under enormous pressure to repay that new debt. Health insurance is already cost-prohibitive for many Americans, so any increases in monthly premiums will result in a drop in those who can afford it without their employer health plans providing coverage.
Private equity firms claim that their goal is to make healthcare more efficient and cost-effective while improving patient care, but a recent Harvard Medical School report suggests the opposite. The article referenced a study in the September 23, 2025, edition of Annals of Medicine (AoM), which presented its data, suggesting that emergency room deaths are higher than at hospital emergency rooms not owned by those funds. These researchers, from Harvard Medical School, the University of Pittsburgh, and the University of Chicago, found that private equity-owned hospitals saw large reductions in staff and salaries. They surmised that those cuts were directly tied to an increase in patient deaths. Emergency rooms are where human-to-human interaction meets life and death, and reduced staffing leads to substandard care.
Chris Hedges, a prominent progressive journalist, provided additional perspective on the merging of healthcare and private equity on The Real News Network, highlighting the negative effects on people's lives. He provided an example with nursing homes that are owned by PE have 10% more deaths due to staffing shortages, similar to hospitals, based on reduced staffing and minimal compliance standards of care. He points out that in 1975, with a population of 216 million people, the United States had approximately 1.5 million hospital beds. As of 2024, with a population of 340 million, the country now only has 925,000 beds. Finally, he points out that even though most Americans have some form of insurance, 56% still have medical debt.
PE firms tout better financial returns when expenses, including personnel cutbacks, are streamlined. One of the researchers in the AoM study, Zirui Song, provided data suggesting that, among Medicare patients, older and the more vulnerable individuals, a desire for returns can lead to "potentially dangerous, even deadly consequences." Additionally, he described how patient transfers from the newly acquired PE hospitals increased, and intensive care stays were shortened as well.
What are other motivations for private equity to target healthcare? David Blumenthal pointed out that there are a few reasons for this. First, the low cost of capital with low interest rates began the acquisition boom in the healthcare industry. This, in turn, brought in a new wave of aggressive investors who wanted immediate returns. Second, the increased commercialization of healthcare, which was traditionally a non-profit industry, allowed investors to treat it like any other market. Lastly, because healthcare doesn't provide value to Americans, keeping them healthy has been a losing battle. Although I would add that we, as citizens of this country, need to do our part, striving to be healthier.
I am concerned that the predatory methods of PE are to seek out distressed companies that are ripe for exploitation for sheer profit, which is wrong in the context of healthcare. Healthcare companies deal with an unhealthy and costly consumer base. Americans are the unhealthiest people among first-world nations. According to the University of North Carolina (UNC) at Chapel Hill's Gillings School of Global Public Health, only 1 in 8 Americans meets the metabolic criteria for optimal health. In the US, nearly 1 in 3 adults is overweight, while 2 in 5 are considered obese. Part of the high cost of healthcare in the United States is the poor state of the average American citizen's health, and additionally affected by the profit motive of the healthcare system.
How can we see improvement in healthcare costs? There are several ideas. Mr. Blumenthal points out that with interest rates rising and all the "low-hanging fruit" already acquired, PE's involvement in the industry may start to wane. Public scrutiny regarding PE ownership of healthcare companies (cost, quality of care, access, and equity) should encourage Congress to require the disclosure of who owns private, for-profit healthcare companies and their goals. PE was simply taking advantage of an industry that failed to deliver and establish quality care, and investors exploited profit from that malady.
In my opinion, PE needs to exit the healthcare sector to return it to a non-profit model, leaving medical decisions to physicians and related providers for patient care, rather than administrators. What the PE oversight for healthcare has shown is that quality of care generally does not improve, and that the cost-benefit medical decisions for patients should surmount quarterly profits and dividends for investors. The current healthcare crisis caused by private equity has violated the Hippocratic tenet of "do no harm." Healthcare must not be for-profit, and PE must divest from this industry.
Finally, Americans need to become healthier, and there are innumerable ways to achieve this, with the primary initiative to be taken by Americans who should invest in their health and participate in activities that work best for them.
We need to mandate better healthcare for American citizens in creative ways to reduce chronic diseases with lifestyle changes earlier in life, nutritional, and safe physical activities that will unequivocally lead to increased longevity and productivity, which will also improve the economy of this country.
That should be the better prescription for America.
