Navigating Private Equity Transactions in Healthcare - Opportunities & Dangers

This post is part of Mooradian Law’s Healthcare Transactions Series—a collection of insights designed for healthcare entrepreneurs navigating high-stakes deals in a complex regulatory environment. Whether you’re exploring growth through acquisition, preparing for a sale, or managing post-close integration, our series covers the legal, operational, and compliance factors that are necessary for success. In this installment, we examine the evolving role of private equity in healthcare and what providers need to know before partnering with private-equity-backed investors.

Private equity (PE) continues to make significant inroads into healthcare, fueling everything from large-scale physician practice rollups to real estate acquisitions and joint ventures with health systems. For other providers — including physician practices, ambulatory facilities and skilled nursing facilities (SNFs) — partnering with PE can offer critical growth capital, expanded patient reach, and better leverage in value-based care arrangements. But these partnerships can also carry real regulatory and operational risks, including patient care concerns, antitrust pressures, and heightened regulatory scrutiny.

Why Private Equity Looks at Smaller Healthcare Providers

PE’s investment thesis is generally centered on consolidating and scaling operations to increase efficiency and profitability. This can involve access to capital and management expertise, but can also result in operational shifts that prioritize short-term gains over long-term stability.

Smaller providers often serve niche geographies or patient populations that larger systems overlook. PE firms see these gaps as opportunities to refine services and gain market share.

Common Transaction Structures in PE Deals

• Majority Acquisition: PE firms acquire a controlling or full ownership stake, giving them broad authority to implement operational changes, pursue growth strategies, or initiate roll-up acquisitions. However, majority deals may raise corporate practice of medicine (CPOM) concerns and trigger regulatory scrutiny.
• Minority Investments: These allow providers to retain a degree of autonomy while leveraging PE capital for expansion. But minority status doesn’t always mean low risk—PE firms may negotiate for veto rights or influence over strategic decisions.
• Joint Ventures: Joint ventures enable shared operational control and risk with a PE-backed partner. These structures are especially useful for scaling specialty services or adopting advanced technologies. However, JV agreements can be complex, and misaligned priorities or weak governance can result in operational deadlock.
• Practice Management Models: Delegating non-clinical functions to a PE-backed management services organization (MSO) can reduce administrative burden and streamline operations. But if poorly structured, these models can raise CPOM issues or limit clinical independence (See our prior post on MSOs for more guidance).

Upsides and Risks of Private Equity in Healthcare

Upsides

• Capital for Strategic Growth: PE capital can fund information technology upgrades, expand geographic reach, and support infrastructure needed for value-based care models.
• Operational & Technological Enhancements: PE-backed organizations often modernize revenue cycle management, expand telehealth capabilities, and implement advanced technology that improves both workflow and patient care.
• Managerial Expertise: In addition to capital, PE firms often bring strategic and operational discipline, which can enhance efficiency and introduce best practices across business units.

Risks

• Quality of Care Trade-Offs: Cost-cutting measures may affect frontline care, which can trigger scrutiny from CMS, payors, and patients—particularly in SNFs and certain other areas of healthcare.
• Antitrust Risk: Even smaller acquisitions can raise concerns if they reduce local competition or impact patient care.
• Cultural and Clinical Disruption: Rapid integration, changes in daily operations, or shifts in organizational priorities can impact staff morale, community relationships, and the continuity of care.

Legal & Compliance Essentials

• Due Diligence on Potential PE Partners. Evaluate the partner’s history, particularly around quality of care, billing practices, and regulatory compliance.
• Document FMV and Commercial Reasonableness. Stark Law, the Anti-Kickback Statute (AKS), and other fraud and abuse laws often hinge on whether financial arrangements reflect fair market value (FMV) and commercial reasonableness. Independent valuations are especially important when PE firms invest in or manage clinical entities.
• Strong Governance Structures. Ensure operating agreements clearly allocate decision-making authority and require supermajority approval for key decisions, such as expanding services or selling clinical assets.
• Non-Compete and Antitrust Considerations. Avoid overly broad territory restrictions or exclusivity provisions that could draw regulatory scrutiny.

Final Thoughts

Private equity can be a powerful engine for growth, innovation, and improved patient outcomes—if the relationship is carefully structured. Healthcare providers should approach PE opportunities with a focus on:

• Regulatory compliance
• Clear governance
• Alignment of mission and business objectives

As the healthcare M&A landscape continues to shift, healthcare providers face both new opportunities and mounting compliance pressures. Our Healthcare Transactions Series is built to help you stay ahead—offering practical, legally grounded guidance at each stage of the deal lifecycle. Be sure to check out our other posts to support a well-rounded transaction strategy.

At Mooradian Law, our team helps healthcare clients evaluate PE opportunities, build compliant deal structures, and protect clinical integrity through every phase of a transaction.

Contact Us: 

Email: info@mooradian.law 

Phone: (734) 219-4890