Private equity’s role in healthcare bankruptcies resurfacing

Private equity’s healthcare bankruptcies are destabilizing care and communities

Private equity played an outsized role in healthcare bankruptcies in 2025, according to an updated Private Equity Bankruptcy Tracker released by PESP. While private equity represents roughly 7 percent of the U.S. economy, private equity owned companies accounted for 44 percent of the largest healthcare bankruptcies last year. That level of overrepresentation has serious consequences for patients, workers, and communities.

Healthcare bankruptcies are not abstract financial events. When hospitals, nursing homes, or other healthcare providers collapse, patients can lose access to essential services, emergency care can be disrupted, and already strained local healthcare systems can be pushed closer to the breaking point. These risks are especially acute in rural and underserved areas, where provider closures often leave communities with few alternatives.

A pattern of debt-driven failure in healthcare

The tracker highlights how private equity’s business model increases the risk of bankruptcy across sectors, but the effects in healthcare are particularly severe. Leveraged buyouts load healthcare providers with large amounts of debt, diverting resources away from patient care, staffing, and long-term stability. Rising interest rates and tighter credit conditions have only intensified these pressures, leaving many private equity owned healthcare companies financially fragile.

In 2024, Moody’s Investors Service found that private equity backed companies defaulted at roughly twice the rate of non private equity backed companies. This finding underscores the structural risks embedded in the private equity ownership model. In healthcare, where margins are often thin and demand is inelastic, aggressive financial engineering can quickly escalate into crisis.

Prospect Medical Holdings shows the stakes for patient care

One of the most consequential healthcare bankruptcies highlighted in the tracker is Prospect Medical Holdings, a safety net hospital system that operated 16 hospitals across California, Connecticut, Pennsylvania, and Rhode Island. Prospect filed for bankruptcy with more than $1 billion in liabilities following a decade of private equity ownership that prioritized value extraction over long term sustainability.

During its ownership period, Prospect’s private equity owner and minority investors extracted approximately $658 million in fees and dividends, even as the hospital system accumulated losses and faced deteriorating financial conditions. The fallout is now playing out at the community level. In Delaware County, Pennsylvania, the closure of two Prospect owned hospitals is leaving one of the state’s most populous counties with sharply reduced access to emergency care.

Genesis Healthcare and the long tail of financial distress

The tracker also documents the bankruptcy of Genesis Healthcare, once the largest skilled nursing operator in the United States. Genesis filed for Chapter 11 bankruptcy in July 2025 with more than $1 billion in debt after years of financial decline shaped by asset sales, sale leaseback transactions, and layered borrowing under private equity ownership.

The Genesis case illustrates how financial distress in healthcare can have long term repercussions beyond balance sheets. The bankruptcy paused more than 200 pending lawsuits alleging malpractice, wrongful death, or other harms, raising concerns that the bankruptcy system can be used to limit accountability rather than protect patients and workers.

Why we are watching Walgreens closely

The tracker’s findings are especially concerning in light of the highly leveraged private equity buyout of Walgreens by Sycamore Partners. Two of the sectors most overrepresented in large bankruptcies last year were healthcare and consumer discretionary, both of which are central to Walgreens’ business model.

Private equity owned companies accounted for 44 percent of the largest healthcare bankruptcies in 2025, bankruptcies that can leave communities with fewer options for care and destabilize local health systems. At the same time, private equity backed firms made up more than 71 percent of the largest consumer discretionary bankruptcies, reflecting how debt heavy ownership structures can undermine companies that provide everyday goods and services.

Walgreens sits at the intersection of these risks. The Sycamore deal loaded the company with significant debt, and since the buyout Walgreens has announced layoffs and store closures, early warning signs of financial strain. Given Walgreens’ role as a major provider of pharmacy services and basic healthcare access, particularly in underserved areas, this combination of heavy leverage and operational pullbacks raises serious concerns about the company’s long term financial stability and its ability to reliably serve patients and communities.

Bankruptcies that reverberate beyond the courtroom

Across healthcare, private equity linked bankruptcies threaten access to care, destabilize workforces, and shift risks onto patients and communities that had no role in the underlying financial decisions. These failures often follow years of missed debt payments or other warning signs that allow owners to delay bankruptcy while extracting value, leaving providers weaker when collapse finally comes.

The updated Bankruptcy Tracker shows that healthcare is not an isolated problem. It is one of the clearest examples of how private equity’s approach to ownership can undermine essential services. Without stronger oversight, transparency, and accountability, the financial strategies driving these bankruptcies will continue to put patient care at risk.