A recent report issued by The NYU Stern Center for Center for Business and Human Rights entitled “Private Equity and Healthcare: Balancing Profit with Wellness” examined the expanding role of private equity in the healthcare sector, concluding that “Private Equity’s combination of legal immunity, public anonymity, and financialized ownership creates a culture that often prioritizes profits over patients.”
We note that the views expressed in the NYU report reflect the views of its author, and not necessarily those of our firm. However, we believe that the report offers valuable research and data that is worthy of consideration.
Background and Trends
The report notes that over the past decade, private equity firms have invested more than $1 trillion in largely debt-financed healthcare transactions, with 93% of healthcare companies with “speculative debt” being private equity-sponsored. The sheer magnitude of these investments has resulted in a growing influence over how care is delivered.
The report identifies several patterns associated with private equity ownership of healthcare providers, including:
- Elevated debt levels relative to non-private equity counterparts.
- Reductions in staffing, particularly among nursing and support personnel.
- Increased rates of in-hospital complications (citing a JAMA 2023 study that showed a 25% increase in complications, such as infections and falls following a private equity investment).
- Pressure to increase prices to meet increased debt obligations.
The NYU report opines that these trends appear to be driven, in part, by the financial structure of private equity investments. High debt service obligations can create pressure to reduce operating costs, with labor often representing the most immediate target – and reduced staffing levels are often closely tied to patient outcomes. The report also suggests that provider billing practices may shift in ways that contribute to higher overall healthcare costs.
The report emphasizes that in certain circumstances, debt-driven financial strategies have become a key defining feature of private equity investment. This includes dividend recapitalizations – where a company incurs additional debt to fund investor payouts – which may not directly support patient care and instead increase financial strain on the provider entity. Likewise, sale-leaseback transactions, in which healthcare facilities sell real estate assets and lease them back, may provide immediate liquidity but impose ongoing rent obligations. While both mechanisms can generate short-term financial benefits, they also reduce long-term operational flexibility and increase the likelihood of cost-cutting measures. And the report points out numerous bankruptcies resulting from highly leveraged private equity acquisitions, exacerbated by dividend recapitalizations and sale-leasebacks. In fact, the report states that there is a 10X increased risk of insolvency in private equity-sponsored healthcare businesses (especially hospitals) accounting for two-thirds of healthcare bankruptcies, including seven of the eight largest bankruptcy cases in 2024.
The NYU report does acknowledge certain positive aspects of private equity healthcare transactions. These include availability of capital to fund expansions and expensive new technology, as well as strategic expertise that can generate operational efficiencies. In fact, the report identifies two examples where private equity investments have significantly increased healthcare jobs and reduced healthcare costs by investing in outpatient providers that provide services at prices that are far lower than competing hospital providers.
Market Dynamics and Community Impact
The report notes that the negative consequences of private equity investments have been most pronounced in rural and underserved communities. Patients in less densely populated areas often have limited access to alternative providers, which reduces competitive pressure on healthcare facilities. As a result, these populations may be disproportionately affected by increased costs or diminished quality of care.
More broadly, healthcare markets do not function like traditional consumer markets. Patients frequently lack meaningful choice, particularly in emergency situations, and must rely on providers without the ability to assess quality or cost in advance. Thus, patients are vulnerable to increased pricing with no meaningful market options.
Potential Solutions
The report concludes by outlining several policy and structural reforms aimed at addressing these concerns, including the following:
Proposals for Private Equity Firms:
- Full public disclosure and accountability of portfolio healthcare companies’ finances (similar to proposed federal legislation such as the “Stop Wall Street Looting Act” and “Corporate Crimes Against Healthcare Act” to increase accountability).
- No sale/leasebacks or debt-funded strategies to fund dividend or profits (citing the $800M sale/leaseback by Steward Healthcare used to pay investor dividends, which led to thousands of job losses, patient deaths, hospital closures and bankruptcy).
- Limit cash flow/debt ratios (the report states that private equity debt leverage in portfolio healthcare companies is far higher than non-private equity transactions).
Proposals for State and Federal Government Actions:
- Empower states to block or condition private equity healthcare transactions. (Several states, including New York, have taken some limited actions to review healthcare transactions, but no such prohibitions currently exist.)
- Make controlling investors liable for healthcare fraud. (The U.S. Department of Justice has pursued enforcement actions in circumstances where private equity firms were sufficiently involved in the operations of their portfolio companies, particularly in cases involving alleged compliance failures. These efforts suggest a shift toward holding investors more directly responsible in appropriate circumstances. Other proposed reforms include revisiting traditional corporate liability frameworks and exploring more flexible approaches to veil piercing in the healthcare context.)
- Impose obligations to report to the Securities and Exchange Commission.
Conclusion
The NYU report highlights that the U.S. continues to outspend other nations on healthcare while facing persistent challenges to access, cost, and quality. Although private equity is not the sole driver of these issues, its investment model can exacerbate existing vulnerabilities if not carefully structured and regulated. At the same time, private capital remains an important source of funding and innovation within the healthcare system. The central challenge, as the report suggests, is to ensure that investment strategies are aligned with the unique demands of healthcare, where financial performance must be balanced against the fundamental objective of delivering safe and effective patient care.
We will continue to monitor government, payer and academic reports regarding the role of private equity in healthcare.
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