The increasing involvement of private equity in the healthcare sector has sparked a lot of talk. People want to know how it impacts patient care and hospital operations. Some argue that private equity acquisitions bring financial stability — but it’s also essential to examine the potential hidden costs of private equity in healthcare.
Below, we’ll take an in-depth look at this debate so that you can understand how private equity can affect hospital systems.
The Debate on Private Equity in Healthcare
It’s no secret that private equity has a growing influence in the healthcare industry. Private equity firms have acquired more hospital systems and healthcare facilities to enhance profitability through strategic management. This has largely been fueled by a study published in JAMA Internal Medicine by Massachusetts General Hospital and Harvard Medical School researchers. The study examined more than 200 acute care private equity hospitals and 870 non-investment hospitals between 2005 and 2018. Findings revealed that private equity hospitals were more financially stable — or at least, they tended to display lower levels of debt and better financial performance before private equity acquisition.
More recent research into this debate paints an entirely different picture. While private sector hospitals may report better financials, some of these gains are illusory — and others come at the steep cost of declining patient care.
The Hidden Costs of Private Equity Ownership
Private equity firms focus primarily on profitability above all else. As such, they’re notable for implementing strategies that favor profits over patient care, which generally leads to cost-cutting measures that drastically degrade the quality of patient care a hospital system can offer. Many of these strategies include:
- Reducing staff numbers
- Limiting hospital resources
- Prioritizing high-margin services instead of essential (but less profitable) services
These measures impact patient outcomes and contribute to increased burnout among healthcare professionals. The pressure to deliver quick financial returns can also lead to underinvestment in critical areas like infrastructure and technology, jeopardizing long-term sustainability.
The Myths of Financial Stability Under Private Equity
While private equity acquisitions may offer the appearance of financial stability, this typically comes at the expense of long-term investments in patient care and hospital infrastructure. Private equity firms emphasize short-term financial gains, which can result in deferred maintenance, outdated equipment and a lack of essential services, all of which can compromise a hospital’s ability to serve its community effectively.
That happened when Cerberus Capital Management purchased Caritas Christi Health Care of Massachusetts in 2010. Cerberus rebranded the hospital as Steward Health Care, signed a sale-leaseback agreement to sell the land and buildings to a real estate investment trust, then sold the hospital to a group of physicians in 2020 after raking $800 million in profits. This led to years of cost-cutting measures designed to free up funds to pay inflated rents. By January 2024, the hospital announced that due to the inflated rents due to the leaseback agreement, Steward was $50 million behind on payments — and cost-cutting measures had led to a significant decline in the quality of care that the hospital could offer.
NexGen’s Approach: Prioritizing Patient Care Over Profit Margins
In contrast to the private equity model, NexGen Surgical offers solutions designed to help hospital systems improve financial stability while taking a patient-centered approach that focuses on high-quality care. We use data and analytics to improve operational efficiency while emphasizing sustainable growth and reinvestment in essential hospital services.
Healthcare systems that work with NexGen Surgical maintain high standards of care and retain community-focused leadership. This model allows surgical departments to provide superior care while optimizing resources and reducing costs. It ensures that financial considerations don’t overshadow the primary mission of delivering exceptional patient outcomes.
Why Hospitals Should Avoid the Private Equity Trap
Hospitals considering private equity partnerships should be aware of the potential risks: loss of clinical independence, increased financial pressures and declining care quality. Before making this move, consider partnering with NexGen Surgical. We offer a sustainable alternative that prioritizes patient outcomes and community health. Our integrated management models focus on operational excellence and patient-centric care, fostering environments where healthcare professionals can thrive without compromising service quality.
While private equity may present an enticing solution for financial stability, the hidden costs and negative impacts are too high. To learn more about how you can align your healthcare system’s financial health with the overarching goal of delivering quality care, reach out to our NexGen Surgical team.
