Eileen Appelbaum on Private Equity in Healthcare

The Appelbaum Framework

Eileen Appelbaum and Rosemary Batt's Private Equity at Work (2014) and Appelbaum's subsequent work at the Center for Economic and Policy Research have produced the most systematic empirical analysis of private equity's effects in US healthcare. The framework: PE ownership tends to extract value through specific mechanisms (real estate sale-leasebacks, dividend recapitalizations, increased leverage, reduced staffing) that have measurable effects on care quality and labor outcomes that the standard market-equilibrium framework does not capture.

Nursing Homes

Atul Gupta and colleagues' 2021 NBER paper documented that PE ownership of nursing homes was associated with substantially higher mortality among long-stay residents. The effect size was roughly 10% increased mortality, controlling for facility characteristics and patient mix. The mechanism appeared to be reduced staffing levels rather than other operational changes.

The follow-up work has refined the finding. The effect varies by PE owner — some operators produce worse outcomes than others. The effect is concentrated in long-stay residents who have less ability to choose providers. The cost-savings achieved by reduced staffing flow primarily to the PE owners rather than to residents through lower prices.

The aggregate effect is substantial. With roughly 11% of US nursing homes under PE ownership, the mortality differential implies thousands of additional deaths per year attributable to the ownership pattern. The political-economy framing — that this is the market working as designed — collapses under empirical scrutiny when the deaths are this measurable.

Hospitals

The Steward Health Care collapse in 2024 became the most visible hospital PE failure in US history. Steward, owned by Cerberus Capital, operated 30 hospitals across multiple states. The company filed for bankruptcy in May 2024 after operations that included substantial real estate sale-leasebacks (the hospital land was sold to Medical Properties Trust for hundreds of millions of dollars, then leased back at rates that contributed to the operating shortfall) and substantial dividend distributions to the PE owners during years when the operating performance was deteriorating.

The bankruptcy threatened community hospital access in multiple states. Massachusetts, Pennsylvania, Ohio, and Texas all faced potential hospital closures that would have created substantial care-access gaps. The state-level responses involved combinations of emergency funding, forced sales to non-PE operators, and litigation against the prior owners.

The Steward case is the most visible but not unique. The Appelbaum framework documents similar patterns at other PE hospital operators — Prospect Medical Holdings, ApolloMD, U.S. Renal Care. The structural model — extract value through real-estate transactions and dividends, leverage the operating company, exit before the bills come due — is common across PE healthcare investments.

Physician Practices

PE acquisition of physician practices has grown rapidly. Roughly 30% of US physicians work for organizations owned in part or whole by private equity. The largest categories: dermatology, ophthalmology, gastroenterology, orthopedics, oncology.

The empirical evidence on physician practice acquisitions is more mixed than for nursing homes. Some PE-owned practices have produced operational improvements (better scheduling, more efficient billing). Others have produced quality concerns (high physician turnover, pressure to perform higher-margin procedures, reduced patient time per visit).

The aggregate effect is harder to measure than for nursing homes because the outcomes are more diverse and the data infrastructure is weaker. The 2024 FTC study of healthcare consolidation, including PE practice acquisitions, raised concerns about both price and quality effects without producing definitive aggregate findings.

The Mechanism: How Value Gets Extracted

Several PE-specific value-extraction mechanisms have been documented:

Real estate sale-leasebacks: the operating company sells its real estate to a separate entity (often the same PE fund), then leases it back. The sale produces cash for the PE owner; the lease payments come out of operating cash flow forever. The operating company is structurally weakened to enrich the owners.

Dividend recapitalizations: the operating company borrows money and uses the proceeds to pay a dividend to its PE owners. The operating company has more debt; the owners have more cash. If the operating company subsequently fails, the debt holders absorb the loss, and the PE owners keep the dividend.

Increased leverage generally: PE-owned companies typically carry debt levels that public companies would not. The higher debt service constrains operational flexibility and increases failure risk. The PE owners benefit from the leverage when the operating results are good and pass the cost of failure to creditors when they are not.

Reduced staffing: in labor-intensive businesses, the largest cost is labor. Reducing staffing — through layoffs, increased patient-to-staff ratios, or substitution of lower-credentialed workers — produces immediate operating savings that flow to the owners. The quality consequences are not borne by the owners.

The Policy Response

Several policy responses have been proposed or implemented:

The Stop Wall Street Looting Act (multiple versions): would impose joint liability on PE owners for portfolio company debts, restrict dividend recapitalizations, and require disclosure of PE ownership structures. Has not passed Congress.

CMS minimum staffing standards (2024 final rule): requires nursing homes to meet specific RN and aide staffing levels. The rule is being challenged in litigation. If sustained, would force many PE-owned nursing homes to increase staffing or exit the business.

State-level disclosure requirements: several states have passed laws requiring more transparent disclosure of nursing home and hospital ownership. Massachusetts, Connecticut, California, and others have framework provisions, but enforcement has been limited.

FTC and DOJ scrutiny: the 2024 merger guidelines incorporate PE ownership patterns more explicitly. The agencies have signaled willingness to challenge PE-led roll-ups in concentrated local markets.

The Honest Reading

Private equity ownership of US healthcare assets has produced measurable effects on care quality, labor outcomes, and patient mortality that the standard market-equilibrium framework does not predict. The specific mechanisms — sale-leasebacks, dividend recapitalizations, reduced staffing — are not exotic financial engineering but standard PE operating practices applied in a sector where the costs of failure fall disproportionately on patients and workers who did not consent to the ownership structure. The empirical case for stronger regulation is strong; the political case has been weaker. The 2030s will probably produce a forcing event large enough to mobilize the political coalition — the Steward bankruptcy may have been the first major one — or the pattern will continue until the cumulative damage produces broader backlash. Either way, the framework that has produced these outcomes for two decades is unlikely to continue unchanged.

Reading List

• Eileen Appelbaum and Rosemary Batt, Private Equity at Work (2014)
• Brendan Ballou, Plunder (2023)
• Atul Gupta et al., NBER w28474 on PE nursing home mortality (2021)
• Center for Economic and Policy Research's ongoing PE healthcare work
• Massachusetts Attorney General's Steward Health Care investigations