The practice of private equity (PE) in healthcare involves investors making leveraged buyouts, or using pooled funds to acquire a stake in a medical practice, physician group, hospital system, or other healthcare entity. The aim is to boost the acquired organization’s value by restructuring or strengthening its operations or management, then selling it for a substantial profit in a relatively short period of time, about three to seven years. Investors have the benefit of seeing their market share grow through expanding consolidation or “add-on” acquisitions. The potential for business growth and scalability with tax incentives and substantially large payouts can make private equity an attractive option for physicians and new or struggling practices. Improved process efficiencies, newer technologies, and reduced administrative costs are also benefits, as is the promise of greater physician autonomy and the reasonable assurance of economic stability in an uncertain market. There is an increasing demand for healthcare services in the U.S., and the potential for profit grows with that. As such, private equity has made its way into most areas of healthcare, from specialties like gastroenterology and dermatology, to outpatient clinic and home health settings, as well as technological and administrative services like equipment, IT, and medical billing.
By the Numbers
In 2021 the amount invested in the U.S. by private equity investors for healthcare-related acquisitions totaled well over $216 billion according to PitchBook capital market data. The number of PE transactions in that record year was estimated at over 1,400, with total acquisitions for the previous decade close to 8,000 (over $1 trillion in total deal values). Of note, private equity transactions rose across all industries after the pandemic, but the highest growth concentration (one in every three buyouts) was in technology, including financial tech, healthcare, and business services, according to management consulting firm Bain & Company. Significant buyouts in healthcare included health tech company Athenahealth for $17 billion and medical supply company Medline for $30 billion
More stats provide some context for PE’s evolution in the healthcare sphere in recent years.
- According to the American Hospital Association (AHA), the trend has been physicians moving away from private practices and into private equity, hospital-employed, or other, arrangements. From 2019 to 2023, 65% of physician practice acquisitions were by private equity groups or firms (14% were by physician groups, 11% by health insurers, 6% by hospitals and health systems, and 4% by other services).
- The American Medical Association (AMA) reported that the number of physicians in private practice had declined from 60.1% in 2012 to 42.2% in 2024. The number of physicians working in hospital-owned practices increased from 23.4% in 2012 to 34.5% in 2024. About 4.5% of physicians characterized their practice as private equity owned in 2020 and 2022, and this increased to 6.5% in 2024.
The United States led globally in private equity buyouts between 2018 and 2022, with $263 billion in deals compared with Europe at $103 billion and Asian-Pacific countries at $79 billion. And while private equity remained a strong presence globally for the first half of 2022, disclosed buyout values did drop in the second half, particularly in Europe. Stressors in that year included inflation, high labor costs and shortages, and geopolitical tensions due to Russia’s invasion of Ukraine. Still, 2022 was the second highest on record for disclosed deal value, with optimistic growth in the areas of life sciences, public-to-private deals and carve-outs, as well as five buyouts in the Asia-Pacific healthcare space at over $1 billion. According to S&P Global Market Intelligence data, 2023 had the lowest annual deal value ($7.26 billion) in three years for private equity and venture capital investments in healthcare services specifically, a 59% drop from the previous year’s $17.75 billion. Of note, the healthcare services category represents a sizable portion of healthcare platform deals (about 40%). The number of deals in this area fell by about 33% to the lowest levels since 2019. Impacting these deals were high interest rates, rising service costs, and labor availability.
More recently in 2024, there was a surge in global private equity due to large deals, with five transactions in the biopharma space surpassing $5 billion. The U.S., however, was still the largest market, making up 65% of PE deal values for the year. Areas of growth included healthcare IT with providers and PE firms seeking systems to improve efficiency and workflows, and investors focusing on mid-market funds, carve-outs, and exit value maximization to raise values. Also in 2024, S&P Global noted a nearly 50% rise in private equity and venture capital deals for healthcare technology, from $10.37 billion to $15.62 billion. The first quarter of 2025 saw these healthcare tech deals at $2.91 billion, 22% higher than in the same quarter last year.
In January through mid-August of 2025, over $145 billion was invested in private equity-backed “megadeals.” That value is expected, potentially, to hit 2021’s estimated record of $230 billion by the end of the year. The boom is due in part to high levels of uncommitted cash reserves, or “dry powder,” held by top 25 PE firms, and high valuation for what are considered prime target assets. There is also a confidence regarding companies whose cashflows might remain strong through tariffs and a potentially unstable economy.
The Benefits and Criticisms
Opinions on private equity and its place in healthcare continue to be mixed. As mentioned, there is the accumulation of capital, the stability of consolidation in an unpredictable and competitive market, and the reduced operational costs. The tax incentives also allow investors to deduct interest earned on their loans as a deductible business expense, and profits from sales may be taxed as capital gains at 20%. There’s the potential for greater efficiencies with improved work processes and management strategies. Advanced data analytics and newer, more innovative technologies that monitor patient outcomes and compliance can help advance care while easing the workload burdens on clinical staff. Additionally, physicians have an opportunity to forego the administrative, managerial, and other nonclinical duties inherent in a practice and narrow their focus to just medicine. They may have the option to expand care services and even garner a higher salary.
A common ongoing criticism of the private equity arrangement is the patient-care-as-commodity claim. Some argue that the “financialization” of healthcare and a drive for short-term profits on behalf of PE investors often compromises the quality and access of patient care, as well as the long-term stability of the healthcare organization and its care solutions. Critics worry that cost-cutting measures and organizational restructuring will result in fewer and less effective services or equipment, or that those costs will ultimately get passed on to patients. There may be staff cuts, challenging clinical workload quotas, and policy and procedural changes made by those with little knowledge or background in clinical practice management. Additionally, a lack of federal regulation and oversight over this new management can engender a lack of transparency or accountability on behalf of those now running the show and responsible for the majority of operational, financial, and even clinical decision-making. Further, the ability of a healthcare institution to repay the acquisition loan and avoid the threat of bankruptcy depends on its ability to earn consistent and reliable revenues.
Of note, the recent failures of large private equity deals like Steward Health Care in Massachusetts and Hahnemann University Hospital in Philadelphia are likely contributors to a sweeping negative perception surrounding private equity in healthcare. Jared Rhoads, a senior lecturer of health policy at The Dartmouth Institute for Health Policy and Clinical Practice points out that these outcomes can serve as cautionary tales, but that they aren’t the whole picture. “We do not have a full, transparent account of all internal deliberations and financial strategies in either case,” he says. Additionally, Rhoads states that commentaries and opinion pieces denouncing PE significantly outnumber original, evidence-based studies on the subject. He cautions that these pieces cite mainly the same few studies, leading to misconceptions about the amount of actual “evidence” available.
How Do You Measure Quality?
An analysis of studies on the impact of private equity on healthcare service quality found mixed results. One study in JAMA Internal Medicine published in late 2023 revealed that 60.8% of physicians surveyed considered the involvement of private equity in healthcare a negative, with 28.8% calling it “neutral.” About 10% of respondents viewed PE deals in a positive light. Another study in psychiatric medicine, where private equity ownership has increased in recent years, scoring showed lower staff ratios but a higher performance on quality measures including restraint use, follow-ups, and admissions. That study reported no evidence of lower quality among PE-owned psychiatric facilities, although it also indicated that existing measures were limited.
At nursing homes, unfavorable results were found using multiple scoring indicators. These included reduced nursing staff hours, high clinician turnover, and increased mortality rates. Additional studies at nursing homes revealed more favorable results like decreased acute myocardial infarction rates and better appointment availability.
It’s perhaps wise to resist the labeling of PE in healthcare as simply “good” or “bad,” cautions one JAMA article, stating that it’s important to consider the nuances in perception when it comes to defining “quality” and evaluating quality scores. There is some complexity in viewing quality in terms of general measures or indicators, like staffing, turnover, and readmissions (to name just a few) and considering quality in terms of health outcomes. Do poor scores in an indicator mean poor health outcomes? The authors reference a review of studies that analyze PE in healthcare (Alexander Borsa et al.) and state that of 27 studies in the review, only one found that “harmful” quality (here meaning a poor score on an indicator or benchmark) translated to a “harmful outcome” (e.g. mortality). In addition, they state that patients may have a difficult time accurately observing, let alone assessing, the value of their care. Other potential issues include tight observation windows, the potential for biases in quality assessment tools, and limited sample sizes. Borsa’s review found that the available research into the quality of care related to PE-acquired entities was largely limited to studies of nursing homes, hospitals, and dermatology practices. The article notes the potential for misconstrued findings in such a small sampling.
Regulation
There has been legislation proposed by federal and state governments in the last few years in an attempt to regulate PE-related deals in healthcare. These efforts are still in the beginning stages and, it’s suggested, could be better informed once more research is available about PE’s impact on different healthcare settings. There is also a need for research on the impacts of current regulatory interventions including implementation of purchase disclosure policies and the prohibition of PE in certain markets.
The Federal Trade Commission’s threshold for reporting is at $126.4 million for 2025 (an increase from $111.4 million in 2023), meaning transactions under this value are not reportable and thus fly under the radar. PE firms do not have to disclose the details of their acquisitions and are able to keep management practices close to the chest, which can create a lack of transparency and accountability and also compromise the quality of the organization’s care services.
Recent legislation:
- Washington: January 21, 2025: Concerning the corporate practice of medicine (SB 5387) – making it unlawful for “an individual, corporation, partnership, or any other entity without a license to practice medicine, own a medical practice, employ licensed health care providers, or otherwise engage in the practice of medicine.” (This bill has not yet been signed into law and currently sits in the Washington State Senate.)
- Massachusetts: January 8, 2025: An Act Enhancing the Market Review Process (5159) – signed by Massachusetts Governor Maura Healey – strengthens the oversight of major market groups including providers, insurers, pharmaceutical manufacturing companies and private equity firms, among others.
- US Congress: July 26, 2024: Health Over Wealth Act (4804) – introduced by Massachusetts Senator Ed Markey, “to increase transparency and scrutiny of PE and for-profit companies that own healthcare facilities.” (This bill has not yet passed.)
- US Congress: June 11, 2024: Corporate Crimes Against Health Care Act of 2024 (4503) – introduced by Massachusetts Senators Elizabeth Warren and Ed Markey “to prevent exploitative private equity practices,” imposing penalties for PE principals and requiring physicians to disclose PE investments when they apply for federal funding. (This bill remains with the Committee on Finance as of 06/11/2024.)
Areas of Growth
Clinical specialties like otolaryngology, dermatology, and ophthalmology have seen increasing numbers of PE investments, as have orthopedics and gastroenterology, due to roll-up potential, an established patient base, and reimbursements that tend to exceed primary care. Behavioral health is also a target owing to opportunities of consolidation for both outpatient and inpatient providers, scale, shared platforms, and a growing demand for mental health services. Outpatient, ambulatory, and urgent care services are attractive to PE investors as patients are shifting to lower-cost options for treatments. These services offer the convenience of extended hours and outpatient procedures. Telehealth, digital health, and health technologies go beyond traditional care by reaching more patients and complementing the post-COVID trend of spending more time in the home. Home-based healthcare is at the top for healthcare services deals, according to PitchBook, with the highest number of acquisition deals in the first quarter of 2025.
Among U.S. states, California has the highest proportion of PE and venture-capital enterprises with a 6.7% private equity penetration rate. Massachusetts comes in second with a rate of 6.11%, then Utah at 4.98%.