By ADAM LEE
Reflecting on a Private Equity (PE) internship in New York City reveals a major takeaway: financial engineering can be incredibly empowering, but applying it to public infrastructure often catches vulnerable communities in the crossfire.
The PE industry typically views the world through balance sheets, debt structures, cash flow optimization, and lucrative acquisitions. While these principles generate immense profit on paper, applying them to local healthcare—specifically safety-net hospitals—creates severe real-world tradeoffs.
Here are the major takeaways regarding the intersection of healthcare and business.
1. How Hospitals Get Saddled with an LBO
In the PE world, a Leveraged Buyout (LBO) is the primary acquisition method. An LBO pushes the debt onto the acquired asset, similar to convincing a bank that a newly purchased home will pay off its own mortgage.
For hospitals, this process typically follows a specific pattern:
- The PE firm borrows huge sums to purchase a hospital and its infrastructure.
- That borrowed debt lands directly on the hospital’s balance sheet.
- The firm sells the hospital’s land and buildings to a real estate company for quick cash.
- The hospital is left paying rent (with built-in escalators) just to operate inside its own building via a sale-leaseback arrangement.
The clearest example is Steward Health Care.
In 2010, Cerberus Capital Management bought the struggling Caritas Christi Catholic hospital system outside Boston and rebranded it as Steward. Six years later, Steward sold its hospital real estate to Medical Properties Trust for $1.25 billion. Cerberus exited with roughly $800 million in profit, leaving the hospitals to cover the rent, as documented by the Harvard T.H. Chan School of Public Health. Interest and rent are paid first, leaving whatever remains for patient care and equipment upgrades.
2. “Optimization” Means Cutting Unprofitable Care
When financial pressure mounts, hospitals must find money quickly through “operational efficiency.” In healthcare, this means evaluating the earnings of each service line. Emergency departments and maternity wards often lose money due to 24/7 staffing and lower Medicaid reimbursement rates, whereas specialty procedures like orthopedics and cardiac care reimburse at a premium.
Cuts are driven by margin rather than community need:
- Maternal and pediatric care: Consolidated or shut down due to limited profitability.
- ER staffing: Thinned out to save payroll, resulting in longer public wait times.
- Specialty surgery: Protected and expanded because it generates cash.
These financial sorting criteria actively impact patient outcomes. A 2023 JAMA study summarized by the NIH found that hospital-acquired conditions—driven mostly by falls and bloodstream infections—rose about 25% after private equity acquisition compared to non-acquired hospitals, despite the acquired hospitals placing fewer central lines.
3. Bankruptcies and Community Impact
PE-owned companies accounted for nearly half of the largest healthcare bankruptcies in 2025, according to the Private Equity Stakeholder Project (PESP) bankruptcy tracker.
Steward filed for Chapter 11 in May 2024. While most of its hospitals found buyers, Carney Hospital in Dorchester (serving low-income, majority Black and Hispanic neighborhoods) and Nashoba Valley Medical Center in Ayer (serving 17 towns in central Massachusetts) closed permanently due to a lack of qualified bids, creating medical deserts.
These closures disproportionately impact at-risk populations:
- Marginalized and minority communities: Residents must travel further for basic or life-saving emergency care, increasing critical ambulance transit times.
- Economic collateral damage: Hospitals are major local employers; their closures eliminate local jobs and devastate surrounding micro-economies.
The Complicating Factor
The narrative that “PE is inherently bad” overlooks critical context. Systems like Caritas Christi were already failing due to underfunded pensions, aging infrastructure, and a total lack of capital. PE firms provide capital when no one else will, keeping hospitals open for years.
The core issue is the misalignment of risk and return. In the Steward case, Cerberus profited and exited in 2016, but the 15-year rent obligation and ultimate failure in 2024 were borne by local patients and healthcare staff, not the investors who had already cashed out.
The Takeaway
These outcomes result from executing rules that reward yield optimization, not inherent cruelty. Every step of the Steward deal was legal, disclosed, and financially rational. The model works on paper but fails to price in the destruction of community assets, like local emergency rooms, which were never on the balance sheet to begin with.
This highlights a policy gap rather than a moral failing. Healthcare requires oversight as a public necessity rather than a standard asset. Potential fixes include:
- State review of hospital sale-leasebacks before closure.
- Transparent disclosure of dividends paid to PE firms out of a provider.
- Financial exposure for sponsors if a facility collapses shortly after their exit.
In January 2025, Massachusetts implemented a version of this by banning new acute care hospitals from operating on main campuses leased from REITs and adding PE deals to the state’s review process, as noted by Georgetown CHIR. Until other states implement similar policies, local neighborhoods will continue bearing the cost of Wall Street’s bottom line.
Adam Lee is an undergraduate student at UVA focusing on health policy. His newsletter is adamnalysis
