As private equity (PE) investment continues expanding across the U.S. healthcare system a growing number of states are moving to increase oversight or restrict investment activity. The trend is gaining momentum, particularly as regulators debate how PE ownership of healthcare providers affects care delivery. Supporters of enhanced regulation argue that PE involvement can, at times, prioritize profitability over patient care—an issue especially sensitive in a sector where clinical outcomes and human wellbeing are paramount. Conversely, critics of these restrictions warn that limiting investment could reduce access to capital at a time when providers increasingly rely on modernization, technology upgrades, and clinician recruitment. As always, the challenge is determining how to balance the need for oversight with the realities of a capital-intensive industry.
Recent Legislative Initiatives
During 2025, 16 states proposed legislation restricting private equity investment in healthcare, with 10 of the states passing new laws that enhanced oversight or restricted private equity investments in healthcare providers. Among the states passing new laws were CA, CT, IL, IN, ME, MA, MN, NV, NM, NY, OR, WA, These legislative initiatives have in part, been driven by the high-profile bankruptcies of Steward Healthcare and Prospect Medical Group, two private equity-backed operators of both hospitals and physician groups who failures caused widespread disruption in care in communities across the country and illustrated the dangers of high leverage in healthcare providers.
Most of these new laws are focused on expanding the regulatory scrutiny of transactions involving PE investments, typically requiring expanded review periods of 90+ days with enhanced disclosures on impact to care delivery, competition and preserving community control. Other laws have sought to expand restrictions on the Corporate Practice of Management, further limiting the ability of MSOs to have control over the ownership, distributions, or other operations of physician-owned PCs, or prohibit certain types of financing transactions, such as the sale-leaseback of a hospital facility to a REIT.
Pros for Tighter Restrictions
Recent legislative actions reflect several overlapping motivations:
Protecting Patient Care and Safety
Policymakers argue that some PE-backed models may emphasize short-term margin improvement over long-term quality outcomes. Reports of aggressive cost reductions—such as reduced staffing levels, service rationalization, or increased provider productivity demand have raised concerns about whether financial pressures could interfere with clinical judgment.
Increasing Transparency and Oversight
PE transactions and their capital structures are often viewed as complex or opaque, leading to increased scrutiny from legislators. In response, states are implementing requirements for advance notice on acquisitions, public reporting of ownership structures, and state-level reviews that assess the potential impacts on access, pricing, and quality.
Curbing Market Consolidation and Price Increases
Growing consolidation is another driver. Research has associated PE-led roll-ups with reduced competition and increased pricing leverage. For instance, a recent Health Affairs study found that PE-affiliated physicians negotiated rates that were roughly six percent higher in cardiology and 10 percent higher in gastroenterology compared to independent groups.
In short, the states passing these new initiatives view tougher PE restrictions as a safeguard, aimed at forcibly maintaining transparency, quality of care, clinical independence, and affordability in an increasingly financialized healthcare system.
Cons for Increased Governmental Influence:
PE investing plays a constructive role in healthcare when done responsibly, providing capital, operational expertise, and discipline that many providers need to survive and grow in a rapidly changing industry that requires vast amounts of investment. Key reasons why PE investments can be positive for healthcare include:
Reduced Capital for Growth and Modernization
Many hospitals, physician groups, and post-acute providers operate on thin margins and struggle to fund essential modernization efforts. PE firms can supply the financial resources and strategic support needed to upgrade technology, expand outpatient capabilities, and adopt advanced diagnostic or digital tools, investments traditional systems may delay or forgo.
Reduced Operational Efficiency and Professional Management –
PE involvement often brings management expertise, operational discipline, and analytics-driven performance improvement. These capabilities can streamline workflows, reduce administrative inefficiencies, and strengthen financial stability; ultimately supporting clinicians in delivering high-quality care.
Reduced Support for Physician Independence
PE investment can also help physician practices remain independent in markets dominated by large health systems. With added scale and resources, these groups may enhance their negotiating leverage with payers and suppliers while maintaining clinical autonomy.
Limited Rescue Capital for Distressed Providers
In distressed sectors, such as rural hospitals, home health, and long-term care, PE capital often serves as a lifeline that keeps essential services open. Restricting this type of investment could inadvertently accelerate provider closures, particularly in underserved markets where access is already fragile.
Blanket restrictions can penalize responsible investors who improve efficiency and expand access through strategic management and infrastructure upgrades. When thoughtfully governed with transparency and aligned incentives, PE can help stabilize, modernize, and expand healthcare access, bridging the gap between mission-driven care and financial sustainability.
Conditions-based Approval is Necessary
Ultimately, this debate reflects a broader challenge: how to balance patient-centered care with the operational and financial realities of running a modern healthcare organization. As more states consider policy changes, the key question is how to preserve the benefits of private investment while curbing its excesses. Conditions-based approval such as reasonable reporting requirements, transparency around responsible ownership structures, and limits on appropriate leverage, offer a practical framework. These tools can protect clinical independence and community interests without cutting off the capital essential for innovation, modernization, and long-term sustainability.
Matthew M. Caine
Matthew M. Caine serves as Managing Director and Practice Leader-Healthcare at SOLIC. With more than 30 years of industry experience, he is responsible for originating and structuring client engagements involving mergers, acquisitions and divestitures, management buyouts, capital restructurings, and recapitalizations on behalf of corporations, creditors, private equity firms, and other financial institution investors. Caine received a Masters of Business Administration from The University of Chicago and a Bachelor of Arts in Mathematics and a minor in Business Administration from Vanderbilt University.
Gregory F. Hagood
Gregory F. Hagood serves as Senior Managing Director and Head of Investment Banking at SOLIC where he oversees the advisory firm’s Investment Banking practice including its merger & acquisition advisory services, as well as private placements of debt and equity. He has more than 25 years of M&A and capital placement experience across a variety of industries including healthcare, financial services, business services and energy. Hagood received his Masters of Management from the J.L. Kellogg School of Management at Northwestern University and earned a Bachelor of Science degree from the McIntire School of Commerce at the University of Virginia.
