Nearly a quarter of the healthcare companies that declared bankruptcy in 2023, a record year for healthcare bankruptcies, were owned by private equity firms, according to a new report from a nonprofit financial watchdog group.

The report by the Private Equity Stakeholder Project (PESP) looked at 80 healthcare companies that filed for bankruptcy last year and found that 17 — including Envision Healthcare, a physician staffing firm, and YesCare, which provides healthcare services in prisons and jails — had private equity ownership.

In addition, another 12 bankruptcies involved companies with venture capital backing.

The number of healthcare bankruptcies affecting PE-backed companies has increase over 112% since 2019, according to the report.

Private equity firms have an “excessive” reliance on debt and use aggressive financial strategies that, when combined with rising interest rates, high labor costs, and changing regulatory burdens, put healthcare companies at risk, according to the report.

Healthcare bankruptcies affect the overall healthcare landscape, as the remaining providers are stretched thin.

“The private equity industry has positioned itself as beneficial to the broader health care industry, providing stability, good jobs and good care,” Eileen O'Grady, the lead author of the report, told HCB News. “On the whole, that really hasn't been the case.”

Private equity firms own approximately 460, or 8%, of private hospitals in the U.S., according to another recent study from the PESP.

There has been a drive to create more transparency around private equity. Senator Ed Markey (D-Mass.) recently introduced the Health Over Wealth Act, which would require greater transparency in for-profit ownership of healthcare entities, with annual reporting requirements on debt, dividends, real estate payments and staffing, among other things.

States including California, Connecticut, Minnesota and New Mexico are currently considering legislation to rein in private equity in healthcare.

Another wave of healthcare company bankruptcies is expected this year, with companies facing credit rating downgrades and potential defaults, according to the report. Most of the companies at the highest risk are owned by private equity firms.

“What I hope this report does is shed some light on this notoriously opaque industry and raise questions for healthcare providers who may be considering selling to a PE firm, and for regulators and legislators to start to look at the private equity industry with some skepticism,” O'Grady said.

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