What Private Equity Is Doing to American Medicine
Private equity has acquired thousands of medical practices, hospitals, and care facilities. The returns have been good. The patient outcomes are a different story.
Signal
Private equity ownership of US physician practices has grown from approximately 4 percent of practices in 2012 to approximately 22 percent in 2023. The growth has been concentrated in specific specialties where the combination of recurring revenue, billing optimization potential, and consolidation arbitrage is most attractive: dermatology, ophthalmology, emergency medicine, gastroenterology, and orthopedics.
Surprise billing — the practice of having out-of-network emergency physicians provide care at in-network hospitals, then billing patients at out-of-network rates — became the dominant business model of private equity-backed emergency medicine groups before it was largely eliminated by the No Surprises Act in 2022. The groups built networks of emergency physicians positioned at hospitals without disclosing their out-of-network status; the resulting billing revenue, at rates sometimes ten to forty times Medicare reimbursement, generated returns that justified the acquisition premiums paid for physician groups.
This is the most visible example of a broader dynamic: the application of financial engineering — billing optimization, cost reduction, consolidation, leverage — to healthcare businesses in ways that generate returns for investors while producing outcomes for patients and the broader healthcare system that range from ambiguous to clearly harmful.
Interpretation
Private equity's entry into healthcare is not inherently problematic from an economic perspective. Capital can improve healthcare businesses by funding technology adoption, enabling operational improvement, and providing the financial stability for long-term investment that founder-owned medical practices often lack.
The empirical evidence on private equity healthcare outcomes is mixed but directionally concerning. A 2023 study in JAMA found that private equity acquisition of hospitals was associated with a 25 percent increase in hospital-acquired conditions (infections, falls, other preventable harms) in the three years following acquisition, relative to matched control hospitals. Studies of private equity-backed nursing homes have found increased mortality rates and reduced staffing levels.
The mechanism is not mysterious: private equity funds have investment horizons of three to five years, target returns of 20-plus percent annually, and fund their acquisitions with leverage that requires cash flow generation to service. These incentives produce pressure to reduce costs, optimize billing, and generate short-term cash flows that are in tension with the longer-term investments in staffing, safety infrastructure, and quality improvement that good healthcare requires.
Scenario
Scenario A — the regulatory response scenario — involves the FTC, DOJ, and CMS developing coordinated oversight of private equity healthcare acquisitions, including pre-merger notification requirements, post-acquisition monitoring, and specific restrictions on practices with documented patient harm (surprise billing, staffing level reductions, facility closures in underserved areas). The No Surprises Act is an example of this model; further regulation is in development.
Scenario B — the market correction scenario — involves the capital markets providing the regulatory pressure that government has not: pension funds and institutional limited partners in private equity funds excluding healthcare investments with documented patient harm, or requiring minimum patient outcome standards as conditions of investment. This scenario is nascent; there are early examples of institutional investors applying ESG criteria to PE healthcare investments, but they are not yet determinative.
Scenario C — the continued extraction scenario — involves continued PE consolidation of healthcare markets, regulatory responses that lag the industry's adaptation to each specific restriction, and the gradual normalization of financial-return-first healthcare ownership as the dominant model.
Probability
Metaculus forecasts a 44 percent probability that Congress will pass legislation specifically restricting private equity acquisition of healthcare facilities — analogous to restrictions on foreign acquisition of healthcare infrastructure — before 2030. Kalshi was trading a contract on whether the FTC will issue a rule specifically requiring pre-merger notification for PE healthcare acquisitions below the current Hart-Scott-Rodino threshold at 38 percent.
The political economy of PE healthcare regulation is complicated by the healthcare industry's general opposition to oversight and by the PE industry's significant lobbying resources, but the documented patient harm evidence is creating political pressure across party lines.
Miles Thornton is a contributing writer at The Auguro covering financial markets, monetary policy, and macroeconomic forecasting.