Private equity in healthcare: India’s medical sector is undergoing a transformation as private equity firms increasingly dominate the sector. Recent reports reveal that PE firms have invested billions into acquiring stakes in major hospital chains, promising rapid expansion and modernisation. However, this surge in private investment raises critical questions about affordability, quality, and access to healthcare. While PE capital might plug infrastructure gaps, the model’s focus on profitability could undermine patient interests, echoing global cautionary tales.
PE firms operate with a straightforward objective: generate high returns for investors within a short timeframe, typically 4-6 years. This involves acquiring underperforming or high-growth potential assets, restructuring them for profitability, and exiting through lucrative sales or public offerings. In India, PE-backed hospital chains like Max Healthcare, Manipal Hospitals, and Aster DM Healthcare have benefited from this infusion of capital, enabling rapid expansions and technological upgrades.
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However, the inherent short-termism of the PE model can conflict with the long-term priorities of patient care. The relentless pursuit of profitability often manifests in increased treatment costs, staff reductions, and a focus on high-margin specialties like oncology and orthopaedics, at the expense of essential services such as primary and emergency care.
Private equity in healthcare: The US and Europe experiences
India’s healthcare stakeholders can draw cautionary lessons from the US and European healthcare sectors, where PE investments have left mixed legacies. In the US, PE-owned hospitals such as Hahnemann University Hospital and ManorCare faced financial distress, resulting in closures that disrupted community healthcare. A 2020 report by the National Institute of Health highlighted how PE ownership in US healthcare often led to reduced staffing, increased patient costs, and financial instability. Moreover, these firms frequently focused their investments on high-cost therapies while neglecting primary care services, a trend that had far-reaching negative implications for public health.
Europe’s experience, particularly in countries like the UK, demonstrates similar pitfalls. A 2019 study in The BMJ found that private operators managing NHS-funded services prioritised revenue streams over patient outcomes, leading to healthcare inequities. These cautionary tales serve as a warning for India to prioritise regulation and oversight as PE investments grow.
Potential risks of PE takeover of hospitals
India’s healthcare sector is already characterised by significant inequities. The country’s 0.6 hospital beds per 1,000 people—well below the recommended 3 per 1,000—illustrates the acute infrastructure shortfall. While PE investments seek to address this gap, the profit-driven model could exacerbate affordability challenges. For instance, the relentless push for higher profitability could lead to an increase in treatment costs, making healthcare inaccessible for many. Private healthcare already accounts for 66% of total healthcare expenditure in India, with 55% of this borne directly by patients. Such figures highlight the disproportionate financial burden on ordinary citizens.
The quality of care may also suffer. To meet aggressive profitability targets, PE-owned hospitals could reduce staffing levels or compromise operational quality. Reports indicate that PE firms often prioritise urban centres for their investments, where profit margins are higher, leaving rural and underserved areas further marginalised. This urban-rural divide in healthcare access could deepen, worsening the inequities in the system.
Unique challenges for India
The challenges posed by PE ownership in India are compounded by the healthcare sector’s structural issues. The country’s heavy reliance on imported medical technology, which accounts for 95% of the market, drives up costs. Additionally, real estate expenses and rising demand for specialised care create a high-cost environment that PE firms may navigate by cutting corners elsewhere, potentially compromising patient outcomes. The capital-intensive nature of the healthcare sector—with an average 250-bed hospital requiring investments of Rs 250-350 crore—highlights the need for careful financial planning. PE investments can alleviate this burden, but not without potential trade-offs in quality and affordability.
While private equity can play a transformative role in bridging infrastructure gaps, robust regulatory frameworks are essential to balance profitability with public health priorities. One approach is to introduce caps on treatment costs to prevent exploitative pricing practices. Additionally, mandating that PE-owned hospitals report patient outcomes, quality benchmarks, and cost data can ensure greater transparency and accountability. Financial incentives could be provided to encourage investments in underserved regions, addressing the persistent urban-rural divide.
Another crucial measure would be to require PE firms to reinvest a portion of their profits into operational improvements, community health initiatives, and staff welfare. This reinvestment could help mitigate some of the negative impacts of profit-driven models and ensure that patient welfare remains a central focus.
PE investments offer a chance to modernise infrastructure and expand capacity, but at what cost? As demonstrated globally, unchecked commercialisation can erode the core values of healthcare—accessibility, affordability, and quality. The Indian healthcare sector must craft innovative policies to ensure that private equity serves as a catalyst for sustainable development rather than a vehicle for unchecked profit extraction.
The lessons from the US and Europe show the importance of balancing private investment with public health priorities. Aligning private interests with public health goals through innovative policies can ensure that the growth benefits not just investors but also the millions who rely on the services. As India’s healthcare sector continues to evolve, stakeholders must work together to build a model that prioritises patient well-being while leveraging the financial resources and expertise of private equity. The true potential of private equity lies in transforming healthcare not just as a business but as a service that delivers sustainable, equitable value.