Private Equity, Public Risk: Why Federal Agencies Are Sounding the Alarm on Healthcare Consolidation

In a sweeping and unprecedented report released on April 2, 2025, three of the most powerful federal agencies—the Federal Trade Commission (FTC), Department of Justice (DOJ), and Department of Health and Human Services (HHS)—issued a joint warning: private equity (PE) investment in healthcare presents systemic and escalating risks to patient safety, care quality, and provider stability. Their nearly year-long investigation marks a turning point in the national conversation around who controls our healthcare system—and at what cost.

Drawing on more than 2,000 public comments and dozens of peer-reviewed studies, the agencies describe a dangerous trend: financial engineering and short-term profit motives have crept into critical care environments, destabilizing operations at hospitals, nursing homes, and emergency departments across the country. The report singles out tactics like dividend recapitalizations, sale-leaseback transactions, and serial acquisitions—common across PE portfolios—as structural threats to the long-term viability of health systems.

Decoding the PE Playbook

Unlike traditional healthcare operators, private equity firms aim to maximize returns over a short horizon, typically 3–7 years. In healthcare, this has translated into aggressive cost-cutting, debt-leveraged acquisitions, and asset stripping strategies. As the agencies write, these models may generate shareholder returns, but often do so at the expense of care quality, clinical staffing, and infrastructure investment (FTC-HHS-DOJ Report, April 2025).

For example, sale-leaseback agreements—where a hospital sells its real estate to a third party and then leases it back—can provide an upfront infusion of cash, but often leave the facility saddled with high, inflexible rent obligations. Prospect Medical Holdings, once owned by Leonard Green & Partners, paid more than $100 million annually in rent to its real estate partner, Medical Properties Trust (MPT), before ultimately defaulting and ceding control of three hospitals to MPT in late 2024 (Senate Budget Committee Report, April 1, 2025).

Meanwhile, dividend recapitalizations—where PE firms load companies with debt to pay themselves cash payouts—have siphoned hundreds of millions from health systems without improving operations. Prospect distributed $645 million to investors during Leonard Green’s tenure, including $424 million in direct payments to the firm itself. During that same period, staffing levels dropped, CMS quality rankings plummeted, and patient safety violations multiplied.

Data-Driven Warning Signs

The joint report synthesizes recent peer-reviewed studies to underscore its claims:

• A 2023 study in JAMA found that PE-acquired hospitals saw a 25% increase in hospital-acquired conditions and 20% higher costs per inpatient stay compared to non-PE hospitals (JAMA, 2023).
• A 2021 BMJ study concluded that PE ownership was associated with increased falls, higher patient charges, and lower nurse-to-patient ratios in nursing homes (BMJ, 2021).
• A 2024 analysis from the Private Equity Stakeholder Project reported that 7 of the 8 largest healthcare bankruptcies last year involved PE-backed firms (PESP, 2024).

Most damningly, emergency departments—perhaps the most acute interface between patients and providers—are now managed by PE-owned staffing firms in over 40% of U.S. hospitals. Under Apollo Global Management’s ownership, Lifepoint Health allegedly failed to provide adequate emergency staffing at Ottumwa Regional Health Center in Iowa, where delayed care contributed to a patient death in 2024.

Clinical Voices, Real Consequences

In addition to economic data, the report centers clinician and patient voices—an unusual but pointed move by federal regulators. One Pennsylvania-based ICU nurse wrote that “after the acquisition, we had more metrics to meet and fewer staff to meet them with.” Another provider said, “My ER had one doctor covering 30 beds overnight. That’s not medicine. That’s triage roulette.”

Patients, too, reported higher out-of-pocket costs, fewer available services, and a perceived decline in care quality. Multiple submissions referenced being “rushed,” “misdiagnosed,” or “neglected” after their community hospital changed hands.

Regulatory Tools Under Consideration

The FTC and DOJ are now considering several enforcement pathways:

• Lowering the Hart-Scott-Rodino (HSR) pre-merger reporting threshold—currently raised to $126.4 million in March 2025
• Expanding CMS’s 2023 nursing home ownership disclosure rule to all provider types
• Developing new frameworks to assess serial acquisitions and non-traditional joint ventures that circumvent antitrust review

While no new federal rules have yet been finalized, state lawmakers are also getting involved. Massachusetts recently passed a law requiring enhanced review of PE healthcare transactions, and at least six other states are evaluating similar legislation in 2025.

Why This Matters for Healthcare IT

The direct impacts on care are clear, but the implications for healthcare IT and digital transformation are equally significant. PE-backed rollups are rapidly targeting IT infrastructure sectors—revenue cycle management (RCM), electronic health record (EHR) add-ons, telehealth services, and clinical analytics platforms.

Consider the high-profile collapse of Olive AI in October 2023. Once valued at $4 billion and fueled by nearly $900 million in VC and PE funding, Olive failed to deliver scalable solutions, underwent mass layoffs, and ultimately sold off assets piecemeal. The financial engineering model was simply too top-heavy for the operational realities of healthcare tech (Becker’s Health IT, 2023).

With digital infrastructure now underpinning everything from patient access to chronic care management, any instability created by short-term financial maneuvers could ripple outward—creating IT outages, vendor lock-in risks, and revenue cycle disruptions for health systems already operating on thin margins.

The Era of Oversight Has Begun

Healthcare is not a traditional market, and patients are not traditional consumers. What the FTC, DOJ, and HHS have acknowledged in their joint report is that the consequences of unchecked financial experimentation extend far beyond balance sheets—they reach into emergency rooms, nursing homes, and exam tables.

As scrutiny intensifies, private equity firms, health systems, and digital health vendors alike must brace for a new era of transparency, accountability, and regulatory intervention. The capital might still flow, but the terms are changing—and fast.