Private Equity's Healthcare Problem Gets Worse

The big picture: Private equity firms are facing mounting evidence that their healthcare investments prioritize profits over patients, with new investigations revealing dangerous practices at hospitals from Massachusetts to Pakistan.

Why it matters: PE firms manage $3 trillion in assets and control thousands of healthcare facilities serving millions of patients. Their strategies increasingly determine who gets care and how much it costs.

The latest casualties

• Hospital closures accelerating: At least eight US hospitals have shuttered in the past 18 months after PE buyouts, including Steward Health's Massachusetts chain that left patients stranded. (Business Insider video)

• International concerns growing: Bloomberg's investigation of TPG-owned hospitals in Kenya and Pakistan found staff pressured to perform unnecessary procedures and inflate bills. Whistleblowers who complained were fired. (Bloomberg investigation)

• The human cost: Medical errors and infections increased when doctors performed up to 17 cardiac procedures daily to meet revenue targets, according to hospital staff. (Bloomberg investigation)

The playbook under scrutiny

PE firms use three key strategies that critics say harm healthcare:

• Leverage loading: Saddle hospitals with debt from their own purchase

• Asset stripping: Sell hospital real estate, forcing facilities to pay rent on buildings they once owned

• Revenue optimization: Pressure staff to order more tests, procedures, and admissions

• Reality check: These tactics are largely legal and generate returns for pension funds investing in PE.

The performance myth

• The claim: PE consistently beats stock market returns, justifying high fees and aggressive tactics. (Business Insider video)

• The reality: Multiple academic studies since 2020 find PE returns have matched or lagged public markets since 2008, once fees are included. (Business Insider video)

• The impact: Pension funds may be paying premium fees for average returns while funding practices that harm patients. (Bloomberg takeaways)

What's next

Regulatory pressure building: Lawmakers are pushing to close PE tax loopholes and hold firms liable for portfolio company debts.

Industry pivot: Major PE firms are rebranding as "alternative asset managers" and seeking retail investors through 401(k)s as institutional money becomes skeptical.

Bottom line: The evidence suggests PE's healthcare model extracts wealth while delivering questionable patient outcomes and investment returns. Yet the industry continues expanding into new medical specialties, backed by pension funds seeking higher yields.

The question isn't whether PE will reform healthcare practices, but whether investors will demand better returns than they can get from boring old index funds.