Private Equity’s Failed Bet on Value-Based Care

A new report from the Private Equity Stakeholder Project exposes the risks of private equity investments in value-based care (VBC) providers, detailing how debt-based financial strategies have led to bankruptcies, clinic closures, and healthcare consolidation, impacting vulnerable patient populations.

To download the report click here.

The report, titled “Private Equity’s Failed Bet on Value-Based Care,” includes three case studies of private equity-backed VBC providers that declared bankruptcy in 2024, demonstrating the incompatibility of private equity’s extractive financial strategies with value-based care.

These companies are Cano Health, CareMax, and Miami Beach Medical Group (dba Clinical Care Medical Centers), which all specialized in value-based primary care and served patient populations that were disproportionately dual eligible for Medicare and Medicaid. All three companies were burdened by substantial debt loads stemming from private equity financial strategies such as leveraged buyouts, debt-funded shareholder dividends, and debt-financed growth.

Value-based care models have been touted as solutions to improve care and reduce costs. However, in the current regulatory landscape that allows for aggressive financial strategies, VBC models are vulnerable to extraction from private equity investors and other groups who can drive companies into bankruptcy with little consequence to themselves.

Key points

• Government payers and private insurers have been pushing for a shift to value-base care payment arrangements, and private equity firms see opportunity to capitalize on the trend.
• Participation in value-based care arrangement takes resources – especially financial resources – which may be a barrier for independent physicians to participate. The high barrier to entry serves as a driver for consolidation among healthcare providers. 
• While private equity may offer capital and resources to physician groups looking to participate in value-based care arrangements, the private equity business model that relies on high levels of debt to generate outsized returns on its investments can actually generate financial risks for VBC providers, as the case studies in this report show. 
• In 2024, at least three private equity-backed value-based care (VBC) companies filed for Chapter 11 bankruptcy: Cano Health, CareMax, and Miami Beach Medical Group (dba Clinical Care Medical Centers [CCMC]). These companies specialized in value-based primary care, and served patient populations that were disproportionately dual eligible for Medicare and Medicaid. Because dual eligible patients receive higher reimbursements for their care under capitated VBC payment models,this population may be especially vulnerable to private equity extraction.
• The bankruptcies of CareMax, Cano Health, and CCMC have further contributed to consolidation in the VBC landscape, as vertically integrated insurers and private equity-owned platform companies were able to buy many of the companies’ assets out of bankruptcy. 
• In the case of Cano Health, its financial decline led to layoffs of at least 400 workers and the closures of multiple clinics.CareMax is also closing clinics in relation to its bankruptcy. 
  • During the period it was an investor in Cano Health, InTandem extracted at least  $575.7 million from the company through debt-funded dividends, annual management fees, and a payout from the reverse merger.
• Value-based care models have been touted as solutions to improve care and reduce costs. However, in the current regulatory landscape that allows aggressive, debt-based financial strategies, VBC models are vulnerable to extraction from private equity investors and other groups who can drive companies into bankruptcy with little consequence to themselves. 
• The case studies in this report highlight the larger issues with the financialization of healthcare. Investors and their debt-based financial strategies operate in ways that are far removed from the goals and ideals of value-based care. Intensely focused on market growth and share price, their debt-based strategies have led to layoffs, clinic closures, and complicated bankruptcy proceedings that funnel millions of dollars to the law firms representing them. 
• Policy solutions that may address private equity’s debt-based and extractive strategies include placing limits on the debt that private equity firms and other investors can use to finance leveraged buyouts and expansion of healthcare companies, limiting or prohibiting dividend recapitalizations at healthcare provider companies, limiting management fees, and requiring joint liability for private equity firms and their investments. 
• A growing body of research suggests that the transition to value-based care may be a driver of healthcare consolidation. Policymakers that are designing, implementing, and evaluating VBC and other forms of payment programs must consider this possibility and take it seriously. If one of the goals of transitioning to value-based care is to reduce healthcare costs, consolidation driven by such a transition is counterproductive. Antitrust enforcement is needed at the federal and state levels can help address the growing issue of consolidation in the VBC landscape.