Private equity has become the healthcare provider for millions of Americans, spending some $1 trillion over the past decade to buy up hospitals, nursing homes, and medical practices across the country — with little scrutiny. In 2024, the nonprofit The Private Equity Stakeholder Project reported that 460 U.S. hospitals were owned by private equity firms, while the number of private-equity owned physician practices increased from 816 in 2012 to 5,779 in 2021.
But states are starting to push back after the spectacular collapse over the past year of two large PE-owned healthcare systems that left communities and patients without access to care. In addition, there is growing evidence that private equity ownership leads to “mixed to harmful impacts” on the quality of patient care due to lower staff-to-patient ratios and increased use of unnecessary procedures.
In January, a bipartisan report by the Senate Budget Committee, titled “The Harmful Effects of Private Equity on the U.S. Health Care System,” concluded that private equity ownership of hospitals leads to “reduced services, compromised patient care, and even complete hospital closures.” The report called for greater oversight, transparency, and reforms.
As a result, at least 13 states have introduced 26 bills calling for more scrutiny and regulation of private equity takeovers.
June was a particularly active month, with Maine enacting a law that places a moratorium on all such takeovers and Pennsylvania’s state House passing a bill empowering the attorney general to block PE takeovers deemed harmful. Oregon passed the nation’s most restrictive law last month, barring non-physicians from owning medical practices — but not hospitals.
Massachusetts, one of the country’s largest healthcare markets, took a big swing in January. It enacted a law that places stringent disclosure and reporting requirements on private equity firms, real estate investment trusts, and other non-healthcare investors, and severely restricts the financial tactics they can use.
While a few states already had laws on the books regulating private investment in healthcare, experts say the catalyst for the latest wave of legislation was the bankruptcy of Steward Health Care in 2024, the biggest hospital failure in decades. Steward was once the country’s largest private hospital operator, with 37 institutions across the U.S. It was created in 2010 when the private equity firm Cerberus Capital Management spent $830 million to acquire Caritas Christi, a nonprofit chain of six Massachusetts hospitals.
The renamed Steward’s rapid expansion, mostly funded by debt, left it with $9 billion in liabilities by the time it went bust. Cerberus sold the chain to management in 2010, but not before taking out some $800 million in dividends in the decade it owned Steward, despite widely documented understaffing, unpaid bills, and a decline in quality of care. Five of Steward’s hospitals have permanently closed, including two in Massachusetts, while operations at two others are suspended.
There was little oversight of Cerberus’ ownership, because private equity firms are not public. They pool funds from wealthy investors and loans to make deals and typically operate through a complex structure of subsidiaries that make it difficult to determine the true ownership of a hospital. Their goal is a quick return, usually within three to seven years.
Chris Noble, policy director of the Private Equity Stakeholder Project, noted that their fiduciary duty is to their investors, not patients, and said that focus can lead to cost-cutting, asset-stripping, and aggressive billing.
“Private equity tries to get outsized returns in a short period of time,” he said, “and what we’ve seen is that this financialization of healthcare is incompatible with providing quality patient care.”
Not all the legislative efforts to rein in private equity have been successful. Connecticut failed to pass a bill in its just-ended legislative session that would have prohibited private equity companies or real estate investment trusts from outright ownership of hospitals. The legislation was prompted by the bankruptcy in January of Prospect Medical Holdings, controlled by private equity firm Leonard Green & Partners. Prospect owned 16 hospitals in four states, including three in Connecticut.
“Private equity has figured out the model by which to come into a hospital, to come into a physician practice, strip down the services that are consumer facing, degrade the quality of care, and then get out quickly enough to make a profit before you get caught,” Democratic Sen. Chris Murphy of Connecticut said during a roundtable event earlier this year.
Private equity investors are trying to repair their reputation. Earlier this year they formed the Association for Responsible Healthcare Investment, which is “committed to promoting responsible private investment in healthcare that enhances patient care, strengthens the healthcare system, and upholds the highest ethical standards.”
And Drew Maloney, president of the trade group American Investment Council, came to the defense of such investments. “Private equity provides urgently-needed capital infusions which support lifesaving medical innovations and help improve access to care in communities across our country,” he said in a statement.
Eliminating private equity from healthcare may not end the “financialization” of the industry, cautioned Vikas Saini, president of the Lown Institute, a healthcare think tank.
“These laws won’t stop other acquisitions that are very similar,” he said, pointing out that UnitedHealth Group owns more than 2,200 medical practices. “How is corporate ownership any different than private equity? We have a healthcare system in which profit is the driver no matter who the player is.”
