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11 attorneys general support strengthening oversight over PE in healthcare

July 1, 2024


In June, eleven attorneys general (AG) submitted a letter to the federal government outlining how private equity in U.S. healthcare can harm patients and workers. The signatories were the AGs from California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, Washington, and Washington D.C.

The letter serves as a detailed primer on how private equity works in the healthcare sector, the incentives that private equity investment creates for companies, and harms that these incentives can lead to.

The attorneys general noted the “unique perspectives, experiences, and interests” that states have in healthcare administration, and their role as co-enforcers of federal antitrust laws and enforcers of state consumer protection and antitrust laws.[1]

The AGs’ submission was made in response to a Request for Information published in March by the Department of Justice (DOJ) Antitrust Division, Department of Health and Human Services (HHS), and Federal Trade Commission (FTC). The tri-agency RFI sought comments on the impact of corporate greed in healthcare, including private equity’s increasing control over U.S. healthcare. The agencies received more than 6,000 responses, publishing over 2,000 of the comments.

According to a statement by the three agencies, “The cross-government inquiry seeks to understand how certain health care market transactions may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care, and affordable health care for patients and taxpayers.”

Problems around private equity

The attorneys general begin by identifying general problems with private equity in healthcare:

  • High debts and cost cutting to pursue short-term profits, at patient and worker expense. Private equity firms sometimes force companies they own to incur debts and cut costs to increase the company’s short-term profits. The results “can increase the burdens on medical staff, create equipment or supply shortages, and lead to the elimination of less profitable lines of business.”[2]
    • High amounts of debt can eventually lead to bankruptcy. In 2023, 21% of healthcare bankruptcies were at private equity-owned companies, according to a recent PESP report.
  • Higher tolerance for risk-taking. Private equity firms – which put little of their own funds at stake – have been willing to take risks, exploit market failures, and use legal loopholes in order to secure short-term profits for investors.
  • Consolidation — leading to higher prices, lower quality, and less access. Private equity firms own platform companies that “roll-up” (i.e., acquire and consolidate) other companies to boost revenues and profits. According to the AGs’ letter, research demonstrates that healthcare consolidation leads to higher prices for patients, lower quality of services, and reduced access to care.
  • Anticompetitive vertical integration. As private equity firms consolidate companies into large platforms, the number of potential buyers becomes smaller. The AGs believe that buyers are likely to be other healthcare industry players seeking vertical integration, which can create various concerns related to competition.
  • Loss of doctor autonomy, impacting patient care. Private equity firms exercise a high degree of control over the companies that they own, and their actions “often cross the line” between supporting doctors and engaging in the corporate practice of medicine where it is illegal. Private equity’s willingness to engage in high-risk strategies can put it at odds with doctors and healthcare workers.[3]

Many problems around private equity in healthcare stem from the industry’s unique business model.

Private equity investments are typically structured as a partnership between a private equity firm and its limited partner investors. Limited partners invest money into a fund that is managed by the private equity firm, which takes ownership and control over existing businesses. The private equity firm is compensated through management fees, as well as incentive fees when the fund exits an investment (such as through a sale or IPO).

The private equity model, compared to traditional privately-owned healthcare businesses, encourages firms to load up companies with debt and take more risk in the pursuit of short-term profits.

  • Market concentration is an additional risk. Private equity strategies have led to increased consolidation in several markets, including 50 metropolitan areas where a single private equity firm has more than 50% market share. Increased concentration can lead to higher prices for patients, without increased quality or access to care.

Private equity and nursing homes

The attorneys general then turn their focus to specific healthcare subsectors, beginning with nursing homes. They say that private equity firms “prey on struggling nursing homes to increase their own profits, with little concern for the communities and patients they are serving.”[4]

The letter makes some broad observations about private equity in nursing homes:

  • The organizational structure favors private equity buyouts. Private equity firms can divide nursing home assets into different companies, including real estate, staffing, medications, supplies, and management. Dividing facility operations into different entities allows a private equity firm to charge the nursing for additional costs, including management fees and real estate rents. This fragmentation can make it difficult for regulators to conduct appropriate nursing home oversight.[5]
  • Private equity firms capitalize on the reimbursement structure. Nursing homes have constant patient demand and receive reliable government payments. This encourages private equity owners to cut patient spending costs in order to maximize profits. To maximize gains, private equity firms may lower staffing costs (i.e., reduce wages, benefits, and hours), or selectively admit patients with less complex needs.
  • Private equity ownership negatively impacts patient outcomes. Private equity-owned nursing homes have worse patient outcomes, including increased morality, decreased mobility, and higher pain intensity.[6]

PESP examined private equity owners behind many U.S. nursing homes in a July 2021 report, which noted that academic studies and investigative reporting on private equity investment in nursing homes found higher patient mortality rates, reduced staffing, overreliance on psychiatric medications, and reduced quality of care.

Private equity and hospitals

Private equity ownership of hospitals has led to problems including higher prices, worse health outcomes, less staffing, bankruptcies, and closures. The letter lists several cases in which private equity has extracted wealth from hospitals, primarily through the sale of hospitals’ real estate.

When a hospital sells its real estate, it becomes responsible for paying rent on the same land it once owned. The increased costs have resulted in staff and service reductions, missed tax and vendor payments, and the hospitals’ closure or sale.

  • Leonard Green – Prospect Medical. Prospect Medical owns 16 hospitals in four states, several of which are in poor financial condition after more than a decade under private equity ownership.
    • Prospect’s former private equity owner, Leonard Green & Partners, placed more than $1 billion in debt onto Prospect beginning in 2018, much of which went to Leonard Green and Prospect Medical’s executives in the form of a dividend recapitalization.
    • Leonard Green sold Prospect’s property in three states to a REIT for $1.4 billion, and entered the facilities into long-term real estate leases, meaning Prospect would have to pay rent on property it used to own.
    • The private equity firm sold Prospect in 2021, but its ownership left the hospital system saddled with debt and lease payments, which continue to have negative impacts on patient care and services.
    • The AG letter cites PESP to highlight how Prospect has failed in efforts to sell some of its hospitals, leading to concerns about Prospect’s viability as a going concern.
  • Cerberus Capital – Steward Healthcare. Cerberus Capital Management converted non-profit hospital chain Steward Healthcare to for-profit status in 2010.
    • The private equity firm received regulatory approval to do the conversion after making affirmative promises to invest $400 million in infrastructure and to follow certain restrictions for a number of years.
    • Once most of the restrictions were lifted, beginning in 2016, Cerberus began to monetize Steward’s assets, including a sale of all its hospital properties to a REIT in exchange for $1.2 billion and a 10% ownership stake in Steward. Cerberus used most of the proceeds to pay investors or fund acquisitions, rather than investing in its hospitals.
    • Cerberus reportedly made $800 million in profit from its Steward investment.
    • Steward has continued to struggle since Cerberus’s exit, and in May 2024 filed for bankruptcy.
  • Hahnemann University Hospital. Philadelphia’s Hahnemann University Hospital was closed within a year and a half of being bought by an affiliate company of private equity firm Paladin Healthcare.
    • The company’s president, Joel Freedman, owned another company that held Hahnemann’s real estate, which was not included in the hospital’s 2019 bankruptcy.
    • Freedman has been criticized for prioritizing profits from the real estate ahead of saving the hospital from bankruptcy.

Approximately 460 U.S. hospitals are owned by private equity firms, representing 22% of all proprietary for-profit hospitals. PESP has published detailed reports on many private equity-owned hospital chains, including Prospect Medical, Lifepoint Health, and Pipeline Health.

Private equity and physicians’ practices

The comment letter also raises concern about private equity’s consolidation of physician practices through serial acquisitions, which can lead to increased prices for patients. One study found that private equity acquisitions of physician practices led to price increases up to 14% for gastroenterology, 8.8% for OB/GYN, and 7.1% for orthopedics.[7]

Physician consolidation has become increasingly common. In more than 100 U.S. metropolitan areas, a single private equity firm controls a third of the market share in at least one medical specialty.

  • S. Digestive Health. Private equity-funded gastroenterology practice U.S. Digestive Health has more than doubled its number of doctors since 2020, with 170 doctors, more than 40 offices, and 24 surgery centers as of April 2024. It has grown to become the largest gastroenterology practice in the Philadelphia area.
  • KKR – Envision Healthcare. In 2018, private equity firm KKR used $7 billion in debt to acquire medical group Envision Healthcare. Prior to the KKR acquisition, Envision had previously been owned by three other private equity firms.
    • Prior to KKR’s acquisition, Envision was subject to a study on surprise billing, which found hospitals managed by the company had high rates of out-of-network billing and more expensive services.
    • Envision spent a substantial amount to oppose legislation protecting patients from surprise medical bills, but the legislation passed and was enacted in 2022. The AGs wrote: “Saddled with substantial debt from KKR’s acquisition, and without the benefits of being able to charge higher prices due to surprise billing, Envision was unable to service its debts and filed for bankruptcy protections on May 15, 2023.”[8]
    • See PESP’s 2022 report on Envision here.

Policy recommendations

The attorneys general conclude with the observation that private equity often declares goals which do not match the results. “Instead,” the AGs write, “private equity ownership results in high-risk strategies that often lead to the failure of portfolio companies, leading to less access.” Rather than increased efficiency and more access to care, private equity investment in healthcare leads to increased costs, decreased quality, and reduced services.[9]

The letter proposes a set of policies to address the harms from private equity in healthcare, including:

  • Increased transparency of ownership and payments. Regulators should expand data collection on healthcare provider ownership and improve tracking of federal payments made to healthcare companies and their owners. The U.S. Department of Health and Human Services (HHS), which oversees Medicare and Medicaid, is uniquely positioned to track this information, share it with other regulators, and build on existing HHS transparency efforts around nursing home ownership, hospital pricing, and pharmaceutical rebates.
  • Ban anticompetitive federal contracting. The AGs encourage FTC and HHS to finalize and enforce rules prohibiting non-compete contract provisions in all federal healthcare programs. Private equity firms that consolidate provider practices have increased power to impose anticompetitive contract clauses, which serve no legitimate purpose but to limit access to healthcare services.
  • Joint enforcement against anticompetitive conduct. The states should coordinate with federal agencies including the DOJ, FTC, and HHS, to identify enforcement avenues against private equity consolidation. Regulators should identify enforcement mechanisms beyond traditional competition law, such as laws against corporate practice of medicine that can be enforced by state attorneys general.
    • The AG letter cites PESP’s report to demonstrate enforcement problems related to lack of transparency for private equity-owned nursing homes.

There are already ongoing efforts to regulate private equity in healthcare. Some recent state and federal proposals have included strong provisions:

  • The Corporate Crimes Against Health Care Act of 2024 would provide state attorneys general and the DOJ with the power to claw back compensation to private equity executives, create increased reporting requirements for healthcare providers, and establish a new criminal penalty for executives who loot healthcare companies.
  • In California, AB 3129 would create stronger oversight of private equity and hedge fund acquisitions of healthcare companies, as well as strengthen the bar on corporate practice of medicine.

The Private Equity Stakeholder Project calls on federal authorities to take actions to curb harms from private equity in healthcare. In June, PESP and over 90 organizations and individuals submitted a coalition response to the RFI from DOJ, HHS, and FTC. PESP also submitted an individual comment letter expanding on examples in the coalition’s comments.




[1] Comments of Eleven Attorneys General in Response to the February 29, 2024 Request for Information on Consolidation in Healthcare Markets,, p. 1.

[2]AG Letter, pp. 1-2.

[3]AG Letter, p. 3.

[4]AG Letter, p. 8.

[5] Dee Gill, Ashvin Gandhi, and Andrew Olenski. “Nursing Home Industry Profits Obscured by Related-Party Transactions.” UCLA Anderson Review, April 10, 2024.

[6] Atul Gupta, Sabrina T. Howell, Constantine Yannelis, and Abhinav Gupta. “Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes.” Working Paper. Working Paper Series. National Bureau of Economic Research, February 2021., pp. 3-4.

[7] Richard M. Scheffler, Laura Alexander, Brent D. Fulton, Daniel R. Arnold, and Ola A. Abdelhadi. “Monetizing Medicine: Private Equity and Competition in Physician Practice Markets.” American Antitrust Institute, Petris Center on Health Care Markets, Washington Center for Equitable Growth, July 10, 2023., pp. 28-29.

[8] Comments of Eleven Attorneys General in Response to the February 29, 2024 Request for Information on Consolidation in Healthcare Markets,, p. 23.

[9]AG Letter, p. 24.

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