Private Equity Investments In Health Care: An Overview Of Hospital And Health System Leveraged Buyouts, 2003–17

Health Affairs

Anaeze C. Offodile II; Marcelo Cerullo; Mohini Bindal; Jose Alejandro Rauh-Hain; and Vivian Ho



Private equity firms have increased their participation in the US health care system, raising questions about incentive alignment and downstream effects on patients. However, there is a lack of systematic characterization of private equity acquisition of short-term acute care hospitals.

We present an overview of the scope of private equity–backed hospital acquisitions over the course of 2003–17, comparing the financial and operational differences between those hospitals and hospitals that remained unacquired through 2017.

A total of 42 private equity deals occurred, involving 282 unique hospitals across 36 states.

In unadjusted analyses, hospitals that were acquired had

  • larger bed sizes,
  • more discharges, and
  • more full-time-equivalent staff positions in 2003 relative to nonacquired hospitals;

private equity–acquired hospitals also

  • had higher charge-to-cost ratios and
  • higher operating margins, and this gap widened during our study period.

These findings motivate evaluations by policy makers and researchers on the impact, if any, of private equity acquisition on health care access, spending, and risk-adjusted outcomes.



Private equity firms have drawn considerable policy interest and scrutiny amid recent reports of surprise billing, rising out-of-pocket expenses for patients, and increased health care spending overall in the US.1,2

This activity is emblematic of a sustained investment in US health care delivery by private equity firms during the past decade.3

In 2018 the valuation of private equity deals in the US health care sector surpassed $100 billion—a twentyfold increase from 2000 (when it was less than $5 billion).4

These acquisitions spanned all subsectors, from physician practices to retail health and mobile application companies.5,6

Possible explanations for this level of interest include a perception that

  • health care is recession resistant,
  • prevailing operational inefficiencies, and
  • a projected increase in demand for health care consumption because of an aging population.3,7

Private equity firms rose to prominence in the 1980s after changes in the regulation of US labor and financial markets.8

These firms often rely on leveraged buyouts to acquire ownership of a target company.79

This mechanism, in which borrowed money or capital is used to procure an asset, is inherently risky but offers the potential for significant returns.8

Furthermore, US tax policy increases the attractiveness of this approach because businesses can treat the interest paid on the loan as a deductible business expense. Investors in private equity firms (“limited partners”) accept higher periods of capital illiquidity and greater financial risks in exchange for outsize returns (annualized 20–30 percent) on the sale of the acquisition after between three and seven years (the “exit”).7

Taken together, these features (that is, reliance on leveraged buyout or debt financing to acquire assets, short time horizon before exit, and the primacy of the incentive to maximize returns to limited partners) separate private equity firms from other for-profit actors in health care and often motivate decisions made between acquisition and exit.

During this period, private equity firms often introduce structural changes to the operational and business model of acquired companies to enhance or extract value, increase revenue growth potential, and engineer a higher sale price.10

Despite the growing recognition of private equity involvement in health care,3,1113 there has been little systematic examination of its scope, impact on access and spending, and unintended consequences.

Furthermore, the bulk of the extant literature has been limited to nursing homes9,14,15 and physician practices.1013,16 Recently, Joseph Bruch and colleagues published the first examination of changes in process measures and aggregated clinical outcomes for private equity–acquired short-term acute care hospitals.17

These hospitals’ large size, stable cash-flow environment, and prevalence of valuable fixed assets (that is, properties) make them highly desirable targets for acquisition.7

Broadly speaking, private equity acquisition of hospitals invites questions about the alignment of the financial incentives necessary to achieve high-quality clinical outcomes.



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Study Results

Private Equity Firms And Number Of Transactions

A total of 42 private equity acquisitions involving 282 unique hospitals occurred during the period 2003–17.


Of these, data on deal valuation were determined for all but 7.

The acquisitions occurred in 106 of 306 unique HRRs in thirty-six states, with higher activity in the Mid-Atlantic and Southern states (online appendix exhibit A-1).28

At least one private equity deal and as many as six occurred in every year except 2013 (appendix exhibit A-2).28

Each deal involved anywhere from 1 to 161 hospitals. Fifty-seven percent of hospital acquisitions (161 hospitals) transpired in 2006 with the acquisition of HCA by Bain Capital and Kohlberg Kravis & Roberts.

Bain Capital, Cerberus Capital Management, and GTCR LLC were identified as the top three private equity firms based on the number of hospitals acquired and according to total deal valuation (exhibit 1).

Private equity–acquired hospitals accounted for 7.5 percent (n = 237) of all nongovernmental hospitals and 11 percent (n = 2,687,805) of all discharges from nongovernmental hospitals in all HRRs in 2017 (data not shown).

Hospital Characteristics In 2003 And 2017

Of the 282 unique general medical and surgical hospitals acquired by private equity in our study period, 233 had HCRIS and AHA Annual Survey data in both 2003 and 2017; the remaining forty-nine were facilities that opened after 2003 or closed before 2017, changed primary service types altogether (for example, became urgent care centers), or had indeterminate staffing information.

In 2003, of these 233 hospitals, 73.4 percent (n = 171) had a for-profit status designation before private equity acquisition, 29.2 percent (n = 68) had a Medicare teaching status designation, and 95.3 percent (n = 222) were part of a multihospital system. In contrast, of the 1,158 nonacquired hospitals, 24.6 percent (n = 285) had a for-profit designation, 31.2 percent (n = 361) had a teaching-status designation, and 71.6 percent (n = 829) were members of a multihospital system (data not shown).

At the close of our study period in 2017, 92.3 percent (n = 215) of the 233 acquired hospitals were still for profit, 43.8 percent (n = 102) had a teaching status designation, and 96.6 percent (n = 225) were members of a multihospital system. Conversely, among the 1,168 nonacquired hospitals in 2017, 25.3 percent (n = 296) were for profit, 30.1 percent (n = 352) retained a teaching status designation, and 76.4 percent (n = 892) were members of a multihospital system (data not shown).

In 2003, 12.9 percent (n = 30) of the 233 acquired hospitals were in rural counties, whereas 31.3 percent (n = 362) of 1,158 nonacquired hospitals were in rural counties; these numbers decreased slightly in 2017 to 12.0 percent and 28.8 percent, respectively (data not shown).

Exhibit 2 provides comparisons of private equity–acquired versus nonacquired hospitals in 2003, before any acquisitions in our study period occurred, and in 2017, after the completion of any acquisitions.

  • Acquired hospitals were significantly larger than nonacquired hospitals in terms of number of beds and discharges in both 2003 and 2017, with a slight increase in both metrics within acquired hospitals and a slight decrease among nonacquired hospitals over the period.
  • In 2003 nurse staffing ratios were comparable between acquired and nonacquired hospitals, although all-staff ratios were lower in the former than the latter.
  • At the end of our study period, nurse staffing ratios increased in both acquired and nonacquired hospitals (by 20.8 percent and 31.1 percent, respectively), whereas all-staff ratios decreased slightly in acquired hospitals (−0.4 percent) and increased slightly in nonacquired hospitals (+5.6 percent).

Net revenue per adjusted discharge was similar for private equity–acquired and nonacquired hospitals in 2003 but was slightly lower for acquired hospitals in 2017. Net patient revenues increased in both acquired (+7.4 percent) and nonacquired (+21.6 percent) hospitals.

Similarly, total operating expenses were comparable in acquired and nonacquired hospitals ($9,596 versus $9,655) in 2003, although by 2017 total operating expenses only grew by 4.39 percent among acquired hospitals (to $10,018) while growing 21.1 percent (to $11,690) in nonacquired hospitals.

Of note, the percentage of discharges covered by Medicaid also was not significantly different for acquired and nonacquired hospitals in 2003 (14.1 percent versus 15.6 percent) or in 2017 (20.3 percent versus 18.6 percent).

These differentials led to higher operating margins for private equity–acquired versus nonacquired hospitals in both 2003 (4.4 percent versus −1.2 percent) and 2017 (7.4 percent versus −1.2 percent).

Similarly, charge-to-cost ratios were higher in 2003 for acquired than for nonacquired hospitals (3.8 versus 3.1). By 2017 charge-to-cost ratios had risen for both hospital types, but the ratio remained higher for acquired hospitals (7.7 versus 4.8).

Subgroup Analyses

In 2003 the 135 hospitals that were acquired by HCA had higher margins (8.2 percent versus −0.8 percent) and higher charge-to-cost ratios (4.0 versus 3.5) than other private equity–acquired hospitals.

This gap widened in 2017 for margins (13.4 percent versus −1.0 percent) and charge-to-cost ratios (9.1 versus 5.8) (appendix exhibit A-3a).28

Non-HCA private equity–acquired hospitals had comparable nurse staffing but higher all-personnel staffing ratios in 2003, and this gap widened in 2017, as did the gap in Medicaid discharge percentage (23.3 percent versus 18.6 percent in 2017).

When non-HCA private equity–acquired hospitals (n = 98) were compared with nonacquired hospitals in 2003, they had a lower all-personnel staffing ratio in 2003.

Though this gap narrowed slightly in 2017, it was no longer statistically significantly different. They had comparable net revenue, operating expenses, and operating margins in both 2003 and 2017, but both HCA and non-HCA private equity–acquired hospitals had higher cost-to-charge ratios than nonacquired hospitals in both years (appendix exhibit A-3b).28

Regional Demographic And Economic Characteristics

Averaged at the hospital level, per capita income, county-level population, and county uninsurance rate were comparable between private equity–acquired and nonacquired hospitals in 2003.

However, by 2017 acquired hospitals were in counties with a higher uninsurance rate compared with nonacquired hospitals (12.7 percent versus 11.8 percent).

Finally, the Herfindahl-Hirschman Index in HRRs where private equity firms acquired hospitals, averaged at the hospital level, was higher among private equity–acquired hospitals than among nonacquired hospitals in both 2003 and 2017, although the differential was small in magnitude for both years.

Operational Strategy

A review of publicly available operational commitments made by private equity firms at the time of deal closure, collated by target hospitals or health systems, is in appendix exhibit A-4.28

  • Overall, the majority of announcements include commitments to current employees to maintain existing salary levels or benefits. 
  • Moreover, there are enumerations of expected capital infusions, some of which are tied to the expansion of clinical services.
  • Firms also detailed plans to maintain the mission of charity care in nonprofit or faith-based hospitals. 
  • Finally, only 13 percent (n = 38) of hospitals in this convenience sample were noted to be financially distressed at the time of private equity acquisition, mostly because of factors related to cash flow or revenue streams.


Private equity–acquired hospitals accounted for almost 7.5 percent of all non-government-operated general acute care hospitals and 11 percent of all patient discharges in 2017.

Our results reveal that during the period 2003–17, private equity acquisitions occurred predominantly in the Mid-Atlantic and Southern US and were of hospitals more likely to be for profit and in urban areas.

Private equity firms acquired hospitals in slightly more competitive HRRs, but the slight difference in the mean Herfindahl-Hirschman Index was not large enough to be economically meaningful.

Private equity–acquired hospitals during this period were also noted to have better financial performance (that is, mean operating margins) than nonacquired hospitals, on average, and the magnitude of the difference in operating margins rose 3 percentage points (from 5.6 to 8.6) between 2003 and 2017.

In this period, operating expenses per adjusted discharge from private equity–acquired hospitals declined relative to those of nonacquired hospitals.

These findings likely characterize salient preacquisition differences between for-profit and not-for-profit target hospitals.

For example, when we compared HCA hospitals (which were for profit before acquisition) with non-HCA private equity–acquired hospitals, the former had higher operating margins and higher charge-to-cost ratios in both years we studied (appendix exhibits A-3a and A-3b).28

Our main findings highlight the overall solvency of private equity–acquired facilities, with strong baseline financial performance and evidence of moderate, but not outsize, local market power.

Although isolated examples of financially distressed hospitals were identified (appendix table A-4d),28 our results challenge the prevailing narrative of financially distressed institutions seeking infusion of outside private equity capital.

In fact, hospitals that were acquired by private equity entities (HCA and non-HCA) during the study period had higher charge-to-cost ratios in 2003 relative to nonacquired hospitals, and this differential widened in 2017.

As previous studies have shown, hospitals with higher charge-to-cost ratios can induce higher payments from patients and insurers.29

This finding may point to commonalities in the strategies for profit maximization across all types of hospitals (for example, nonprofit, for profit, and faith based) targeted by private equity.29,30

The net effect of changes in revenues and expenses is best understood alongside changes in the nursing and all-personnel staffing ratios in private equity–acquired and nonacquired hospitals.

Acquired and nonacquired hospitals had comparable registered nurse staffing ratios in 2003, although acquired hospitals had lower all-personnel staffing ratios.

Although registered nurse staffing ratios in both acquired and nonacquired hospitals increased moderately, all-personnel staffing ratios decreased in acquired hospitals and increased in nonacquired hospitals.

Together with data presented by Bruch and colleagues, which demonstrated that private equity acquisition was associated with moderate increases in income and charge-to-cost ratios,17 these findings suggest how investors may affect operational decisions.

Indeed, we highlight measures that investors might consider when deciding whether to acquire a hospital and cost areas that might be targeted for reduction after acquisition.

Our analysis of detailed financial measures suggests that private equity investors acquired

  • larger hospitals with
  • healthier operating margins. 

Postacquisition, these hospitals appeared to continue to boost profits

  • by restraining growth in cost per patient,
  • in part by limiting staffing growth. 

With the framework supplied by Bruch and colleagues,17 these findings should be investigated further in a regression-adjusted difference-in-differences analysis.

Despite the massive shocks to credit markets worldwide in 2008 (which occurred after the majority of private equity hospital acquisitions),31 private equity–backed deals in health care have continued to rise and amounted to $79 billion in 2019, or 18 percent of private equity deals worldwide, even excluding add-ons.

Global investment firms have posited that despite the COVID-19 pandemic, available profit pools will continue to grow at 5 percent per year for the next five years.32,33

Private equity firms have long touted the profit motive

  • as a means to achieve efficiency via operational engineering,
  • management discipline,
  • and innovation.34

This might address stark inefficiencies in care delivery30 and uneven clinical outcomes across hospitals and regions in the US.

However, the use of leveraged buyouts, limited federal regulatory oversight, and a short-term orientation (three to seven years) are features that distinguish private equity from other forms of for-profit ownership.35

The “social contract” of health care—that is, an expectation that safe, effective, and equitable services will be made available to a community36—contrasts sharply with private equity profit-making strategies.

Does the abbreviated time horizon disincentivize private equity firms from making longer-term investments in infrastructure, personnel, and quality improvement initiatives in target hospitals? This is plausible and might explain why market consolidation via regional expansion and asset sales are the dominant operational strategies of private equity.37

Regional differences may account for the variable footprint of private equity in hospital markets in different states. Although such conclusions are beyond the scope of this study, these findings certainly invite further examination of differences between hospital markets (those that have been subject to private equity activity as well as those that have been spared) and the extent to which hospital operations are affected by the anticipation of private equity acquisition. Our results are likely affected by aspects of deals that cannot be readily distilled (including their debt structure, regulatory oversight, and components that act as incentives to executors), but they motivate further research that delves into these specifics.

About the authors

Anaeze C. Offodile II  is an assistant professor in the Department of Plastic and Reconstructive Surgery, University of Texas MD Anderson Cancer Center, in Austin, Texas, and a nonresident fellow in Domestic Health Policy at the Baker Institute for Public Policy, Rice University, in Houston, Texas. He is the current Gilbert Omenn Fellow of the National Academy of Medicine.

Marcelo Cerullo is a resident in the General Surgery Residency Program, Duke University Hospital, in Durham, North Carolina.

Mohini Bindal is a research assistant in the Baker Institute for Public Policy, Rice University, and a medical student at Baylor College of Medicine, in Houston, Texas.

Jose Alejandro Rauh-Hain is an assistant professor in the Department of Gynecologic Oncology and Reproductive Medicine, University of Texas MD Anderson Cancer Center.

Vivian Ho is the James A. Baker III Institute Chair in Health Economics at Rice University and a professor in the Department of Medicine at Baylor College of Medicine.


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