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States Take the Lead in Reining in Private Equity’s Investment in Health Care [1]
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Date: 2025-07-31
This story was originally published in The Progressive magazine.
The 2010 purchase of Prospect Medical Holdings by the private equity firm Leonard Green and Partners has proven to be a sweet deal—for the firm. In the ten years that followed, it was able to extract $400 million from the hospital chain in dividends and fees for itself and its investors.
But for patients and staff at this hospital chain, the deal has been a disaster. In March 2020, a Prospect hospital in East Orange, New Jersey, became the first in the nation to have an emergency room doctor die of COVID-19. Before his death, the physician told a friend he became sick after being forced to reuse a single mask for four days, due to the hospital's shortage of personal protective equipment.
Meanwhile, at a Prospect Hospital in Rhode Island, a locked ward for elderly patients had to be evacuated after poor infection control spread the virus to nineteen of its twenty-one residents, six of whom died. Workers at Prospect facilities in California have also reported bedbugs in patient rooms, rampant water leaks from ceilings, and feces on walls.
A 2024 study by the National Institutes of Health directly linked the increasing investment by private equity in health care facilities to bad outcomes for health care patients and staff. This destructive impact has spurred action at the state level to either slow down or outright block private equity investment in that sector.
Private equity is an investment class described as “house flippers for companies.” Private equity firms raise capital to acquire and manage private companies or make public companies private that are not on the public market (i.e., the New York Stock Exchange) with the goal of ultimately selling them for a profit. Typically, private equity firms use investors’ money to buy private hospitals, then make changes in the hospitals’ operations to improve their efficiency and value before selling them.
Because private markets rely on privately owned companies to raise capital and trade ownership stakes, there are few public disclosure requirements. Private markets historically involve larger investments of capital than those of smaller investors, who are usually shut out in these cases. Health care facilities operating in the red often turn to private equity investments to get their finances in order.
“Sometimes, with safety-net hospitals or rural hospitals, the private equity firm may be the only game in town willing to take on the risk of acquiring that hospital to keep it afloat,” Chris Noble, policy director of the Private Equity Stakeholder Project, tells The Progressive. “And that hospital may be the only one for many, many, miles in that community.”
Noble’s organization describes itself as a nonprofit watchdog focused on the growing private equity and broader private funds industry. Rather than leaving the fate of hospitals to private entities, he says the states “also need to be able to offer investment alternatives to selling a hospital to a private equity firm.”
Under the “Big, Beautiful, Bill,” it is estimated that rural hospitals will lose twenty-one cents out of every dollar they receive in Medicaid. Total cuts in Medicaid funding to rural hospitals are estimated to be $70 billion over a ten-year period. This will no doubt weaken the finances of those facilities and make them potentially more receptive to purchase by private equity firms.
Critics of private equity often see these firms more as pillagers rather than investors. The typical actions for private equity firms, after purchase, include cutting operating costs by slashing medical staff, cutting back on services (especially those with low or no profit margins), and raising prices. The goal is always to maximize profits and the dividends of shareholders.
“It’s not an investment, but an extraction,” says Aditi Sen, managing director of research and campaigns for the Americans for Financial Reform, a coalition of groups advocating for a strong, stable, and ethical financial system. “The profit-seeking that is built into this model is really going to go after cost-cutting as the primary strategy for generating those profits.” And that is a recipe for “increased mortality [and] lower quality care.”
Prospect Medical was not the only major health care chain to fall victim to private equity purchases. The 2024 bankruptcy of Steward Health Care, a thirty-one-hospital system operating in ten states, employing nearly 30,000 workers and serving more than two million patients each year, is traced to the cost-cutting and asset-stripping by the private equity firm that bought it.
Private equity-backed companies accounted for seven of the eight largest health care bankruptcies in 2024. And yet, despite this sorry record, private equity’s foothold in health care has continued to grow. In 2021, 5,779 physician practices were owned by private equity firms, up from 816 in 2012. Roughly one in five of all for-profit hospitals are now owned by private equity firms.
In response to the negative effect of private equity acquisitions on patients, workers, and communities, states have taken the lead in reining in private equity’s reach in the health care sector.
As of June 2025, at least fifteen states have passed some form of transaction review laws, which require advance notice of any proposed private equity purchase of a medical organization. After notice is given, a state attorney general has the right to review the potential purchase to determine if it is in the public interest.
And these reforms aren’t limited to blue states. Last year, similar legislation passed in the deep red state of Indiana, with support from its Republican-led legislature and Republican former governor, Eric Holcomb. “I do see bipartisan concern about [the] financialization of health care at least in terms of public sentiment and laws,” Noble says.
In Oregon, Democratic Governor Tina Kotek signed into law a bill that prevents private equity firms from exercising ultimate decision-making authority over hiring, compensation, work schedules, staffing levels, and other management areas at the hospitals they acquire. Sen says this addresses the problem that sometimes occurs in cases where “you end up having people that have no interest or orientation in providing health care running the day-to-day management of these institutions.”
The state of Maine has gone further still: It recently passed a law temporarily banning private equity from purchasing hospitals, through a bipartisan effort. Connecticut is also considering legislation to block private equity companies from acquiring or increasing any direct or indirect ownership interest in, or financial or operational control over, a group practice, hospital, or health system.
The impact of this legislation—or its absence—may soon be felt nationally, as well as at the local level. California Governor Gavin Newsom, who is seen as a likely candidate for the Democratic presidential primary in 2028, recently vetoed legislation that would have required increased oversight of health care transactions involving private equity and hedge funds.
In Pennsylvania, attention has focused on the issue of private equity investments after state-based nursing home giant Genesis HealthCare declared bankruptcy. Brandon Cwalina, press secretary for the Pennsylvania Department of Human Services, calls the firm “another private equity organization that has been bled dry by greed and mismanagement.” Cwalina says Governor Josh Shapiro, another possible Democratic contender for the presidency in 2028, “strongly believes that private equity should get out of the nursing facility business in Pennsylvania.”
If, after three more years of Donald Trump’s second presidency, voters are more inclined toward an anti-establishment, anti-corporate policy agenda, the candidates’ positions on private equity acquisitions could make a difference in the election.
“In general,” says Sen, “people are really cognizant of how big corporations and the financial sector are distorting not only our economy, but our society as a whole.”
Noble echoes her views: “I do think that this issue may be on the radar again, given the talk about Medicaid cuts and what they might do to rural hospitals.”
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