In 2024, Steward Health Care did not file for bankruptcy in a quiet manner. Mid-shift, hospitals close their doors. Patients were diverted to locations that were sometimes more than an hour away. Though few outside the industry saw it coming at the time, the collapse seemed almost inevitable in retrospect for a company that once claimed to be the largest physician-owned, for-profit hospital system in the nation.
Since Steward’s journey is not unique, it is worthwhile to comprehend how he arrived. It has evolved into a sort of template.
The basic idea behind private equity firms’ operations is to purchase a business, restructure it, and then sell it for a healthy profit in five to seven years. On its face, that isn’t scandalous; it’s just the way the retail, manufacturing, and technology sectors operate. The financing of healthcare acquisitions is the first area of concern. The majority of PE buyouts are leveraged, which means that the company only contributes a small portion of the purchase price and borrows the remaining amount, typically between 60 and 70 percent. The PE firm is not responsible for that debt. It is loaded onto the hospital or assisted living facility, which is the same establishment that is in charge of both patient care and payroll.
According to a 2026 NYU Stern analysis, PE-owned healthcare firms have debt-to-cash-flow ratios that are on average more than seven times higher than those of public healthcare firms, which is more than twice as high as what regulators deem dangerous. According to the same report, over a ten-year period, these buyouts increase bankruptcy odds tenfold. It isn’t a footnote. That is the business model operating as intended, but not in the way that patients were instructed.
What follows usually follows a pattern that has been repeatedly noted by researchers. The majority of the 55 studies included in a 2023 systematic review reported price increases after PE acquisition. In that review, not a single study reported decreasing costs. The difference between what hospitals charge and the actual cost of care is known as the charge-to-cost ratio, and it increases significantly following a buyout.
Reading the research gives the impression that this isn’t really a healthcare strategy disguised in terms of finance. It’s a financial tactic used in the healthcare industry. The difference counts. Underperforming stores can be closed by a chain of stores without any fatalities. The data on nursing homes supports this; several studies link PE ownership to fewer RN hours per resident and a shift toward less expensive aide staffing. Cutting registered nurse staffing hours to meet margin targets is a completely different kind of risk.
A more nuanced version of this tale is presented by rural hospitals. Some people really needed the money. PE funding can address serious issues in the short term, such as staff shortages, outdated equipment, and narrow profit margins. Supporters are correct that consolidation can occasionally keep a failing clinic afloat. However, once the initial investors are looking to sell, small-town facilities are rarely favored in the long run. The hospital is leased back at a new monthly cost after assets, including occasionally the building itself, are sold. Sale-leaseback is a financing technique that quietly increases fixed costs for years to come while freeing up cash today.
It’s remarkable how anonymous the entire procedure is. Seldom do patients know that their hospital has changed ownership. Workers frequently learn about it through a memo or an abrupt round of layoffs that are justified by “operational efficiency.” The phrase “a culture built on legal distance and public anonymity, prioritizing returns over the people actually walking through the emergency room doors” was used by an industry critic, and it has stuck with people.
It would be unjust to act as though every PE transaction is a failure. Certain practices actually required funding that they couldn’t find elsewhere. However, the pattern is so consistent across dozens of studies that it is no longer easy to label it as coincidental. The question of whether regulators intervene by imposing actual debt limits on these transactions is still unanswered and likely the most important one moving forward.
