Private equity firms, which invest in other private firms rather than purchase shares of public companies, pose a significant concern in the health care industry. They offer investors the opportunity to profit off of the private market when the public market appears to lack earning potential.

Supporters of private equity have argued that it brings innovative success to every industry it is used within. However, within health care, private equity presents a fee-for-service mentality that jeopardizes patient outcomes and physician satisfaction for the purpose of maximizing revenue.

According to Atul Gupta, an assistant professor of health care management at The Wharton School of the University of Pennsylvania, a key feature of private equity firms is that they engage in leveraged buyouts — acquiring other firms mainly through borrowed funds. This in turn creates a situation where these firms no longer have stakes in the success of the companies they acquire, including health care firms. 

One hallmark of private equity investment is firms’ short-term market exit strategy — staying in the market for roughly five to eight years — following their acquisition of other firms. This strategy allows private equity firms to focus entirely on profits during a certain time period without regard for what happens after the market exit. Private equity firms also often expect about 20% of profit from the acquired firm over the short market lifetime. These characteristics suggest that the top priority of private equity is profit-making.

Given their clear financial intentions, private equity firms have no place in health care, where they cause problems for both health care providers and patients.

Private equity firms have laid off numerous physicians and hospital administrators to reduce wage payments, and those who remain have reduced benefits and harsh working conditions, hampering the provision of high-value care. 

Five studies examined by the British Medical Journal found private equity-owned nursing homes either cut their staff number or shifted the skill balance from nurses to more assistants to lower operating costs. These actions were in turn found to be linked to higher mortality. Nursing homes acquired by private equity firms experienced a 10% increase in mortality rates among Medicare beneficiaries. Moreover, during the COVID-19 pandemic, infection and mortality rates in these nursing homes were over 30% higher than statewide averages.

In addition, the abrupt closure of private equity firms can reduce access to health care in areas that originally had inclusive treatment options for a diverse population. The Atlanta Medical Center (AMC), one of the most prevalent hospitals in Atlanta, is one major case of this. AMC’s 2022 closure marked the end of 120 years of operation, and the exit occurred only eight years after its acquisition by the Wellstar Foundation, a nonprofit in name only which operated much like an official private equity firm.

Since AMC’s closure, neighboring hospitals have struggled to keep up with the health care demand. Several of AMC’s resources for low-income areas, such as safety-net hospitals for communities of color, were erased from the Atlanta health sphere after its closure. Inequity in care provision between lower-income and high-income communities only exacerbated the overcrowding problem. In this case, patients were suddenly redirected to hospitals not designed to provide diverse care.

As far as any argument for the benefits of private equity goes, most studies that claim to show positive impacts of private equity tend to focus solely on cost-cutting rather than patient outcomes. However, even their cost efficiency can be disputed. 

Columbia University Mailman School of Public Health found that insurance payers and patients saw cost increases of up to 32% for care by private equity-acquired firms.

Another one of the few claimed benefits of private equity is that it funnels more advanced technology into health systems, but private equity spending on technology advancements has decreased by almost 60% since 2022.

Currently, the minimum threshold for reporting private equity acquisitions is $111.4 million, which provides transparency for hospital buyouts, but this threshold is not low enough to capture the acquisition of many lower-cost clinics and smaller practices. As a result, cost-cutting transparency is threatened.

Policy efforts to reduce the harmful effects of private equity in health care aim to increase transparency and oversight measures. This includes more frequent investigations, antitrust legislation that restricts information between merging companies and discussions about training physicians to be equipped to stand up against their organizations if their treatment of workers is poor. Lobbyists have also worked to reduce the reporting threshold for acquisitions so that more firms are required to be transparent.

However, to truly prioritize value-based care and patient outcomes, equitable health treatment for patients of varied demographics is the minimum requirement. This goal is severely undermined when firms with profit-maximizing interests take charge of health services and patients become valued solely for their capital.