NYU Stern suggests oversight for Private Equity in healthcare

A new report from the NYU Stern Center for Business and Human Rights has raised concerns about the impact of private equity (PE) investments in the healthcare sector, urging the need for regulatory oversight. The report, published in March, highlights how the private equity model may not align with the life-and-death stakes of healthcare, leading to systemic issues such as hospital closures, staffing reductions, and compromised patient care.

The Impact of Private Equity Investments

The report reveals that private equity firms have poured over $1 trillion into debt-financed healthcare acquisitions over the last decade. However, this influx of capital has often been accompanied by troubling outcomes. Studies cited in the report indicate that private equity ownership correlates with a 25% increase in in-hospital complications and a 4.4% reduction in nursing staff. Additionally, private equity-owned nursing homes saw an 11% higher patient mortality rate.

Financial instability is another consequence of PE involvement. Private equity-backed healthcare businesses are 10 times more likely to face bankruptcy. In 2023 alone, 34 such businesses declared bankruptcy, with low-income and rural communities suffering disproportionately as a result.

Specific examples include Steward Health Care and Prospect Medical Holdings, which both faced financial ruin after private equity ownership. Steward Health, owned by Cerberus Capital Management from 2010 to 2021, went bankrupt in 2024. Similarly, Prospect Medical Holdings, under the ownership of Leonard Green & Company from 2010 to 2021, declared bankruptcy in 2025.

Recommendations for Reform

Michael Goldhaber, the author of the report, emphasized that while private equity can provide benefits such as capital and operational efficiencies, its current model requires significant adaptation for the healthcare sector. "The private equity model needs to be adapted for the healthcare sector, because otherwise, they're an unhealthy fit. Here, on the one side, you have a business model that is based on public anonymity, legal immunity, remote and financialized ownership and a lack of self-restraining norms. On the other side, you have a sector where all the stakes are life and death", said Goldhaber.

The report advocates for both self-regulation within the private equity industry and regulatory action by state and federal governments. Key recommendations for private equity firms include:

• Providing transparent public reporting on finances, ownership, workforce details, patient outcomes, and customer satisfaction.
• Avoiding financial practices such as sale-leaseback deals or debt-funded dividends that could jeopardize the stability of healthcare businesses.
• Maintaining a maximum debt-to-cash flow ratio to prevent cost-cutting measures that harm care quality.
• Refraining from cutting essential services, reducing staff, or closing facilities except in emergencies, and only with regulatory approval.

On the legislative side, the report suggests measures to improve oversight of healthcare acquisitions and deter harmful financial practices. These include:

• Empowering state health regulators to block or impose conditions on healthcare acquisitions.
• Using acquisition reviews to enforce specific operational requirements.
• Making companies that engage in sale-leaseback deals or debt-funded dividends ineligible for government healthcare payments.
• Holding parent or controlling entities accountable for fraud committed by portfolio companies if investors were aware of the misconduct and failed to report it.
• Requiring detailed financial disclosures from private equity firms to the Securities and Exchange Commission (SEC) and restricting access to 401(k) investments for noncompliant firms.

A Call for Balance

While the report stops short of advocating for a complete ban on private equity in healthcare, it underlines the urgency of reform to ensure that financial interests do not undermine patient care. According to Goldhaber, self-regulation could serve as a proactive step to avoid stricter government intervention.

As private equity continues to play a significant role in the healthcare sector, the findings and recommendations of the NYU Stern report provide a roadmap for balancing financial innovation with the vital need to safeguard public health.

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