The typical private equity playbook in healthcare involves first loading up a company with debt in a leveraged buyout, then finding ways to increase revenues and cut costs. This can look like raising prices for healthcare services, pushing expensive procedures, and using less staff or staff with fewer qualifications. Eventually the firm attempts to sell the company and distribute the proceeds from the sale to itself and its investors, which typically include public pension funds, foundations, and other large institutional investors.

Other common tactics include loading the company with debt to pay the private equity funds dividends, also known as a dividend recapitalization. Dividend recapitalizations have long been a tactic of private equity firms to generate quick returns on investments without needing to make substantive operating improvements. The added debt may hurt the long-term value of companies by weakening their credit ratings and diverting money that could be invested in improving operations.


Private equity in healthcare is facing increased scrutiny from policymakers and regulators as evidence mounts that private equity investments are associated with quality issues, increased prices, and consolidation. Recent high-profile stories, such as Steward Health Care’s bankruptcy and associated hospital closures, have also thrust private equity further into the spotlight.

Private equity’s track record in healthcare is troubling, and healthcare executives, regulators, and other stakeholders should remain wary of private equity’s investments in healthcare companies.

About the author: Mary Bugbee is the healthcare director for Private Equity Stakeholder Project.

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