Oregon's Bold Stand Against Private Equity In Healthcare: What's Next?

Forbes

a day ago

Private Equity Has Skyrocketed In Healthcare
Complex economic forces shape the U.S. healthcare landscape, with private equity (PE) firms promising efficiency and growth in the medical sector while simultaneously sparking debate. On June 9, 2025, Oregon Governor Tina Kotek signed Senate Bill 951 (SB 951) into law, representing the most recent and stringent legislative effort to restrict private equity investment in healthcare.
What does the rise of private equity mean for healthcare? What will be the impact of Oregon's new law? What are the perspectives of investors and physicians regarding private equity in healthcare?
The Rise Of Private Equity In U.S. Healthcare
PE refers to investments made by firms or individuals in private companies with the goal of enhancing their value and selling them for a profit. These investments often involve significant control over the company's operations and strategic decisions, typically funded through a combination of investor capital and borrowed funds. In healthcare, the funding structure tends to rely more heavily on borrowed funds.
In essence and in broad generalization, PE firms identify a business, believe they can operate it more efficiently, and aim to sell it for a profit. This trend reflects the increasing financialization of medical care.
In healthcare, PE investments span a wide range of entities, including hospitals, physician groups, medical practices, fertility clinics, cosmetic clinics, imaging centers and ambulatory surgical centers. PE firms now own 460 hospitals, a 25-fold increase over the past twenty years. From 2010 to 2020, private equity deals in healthcare surged by over 250%.
This growth is understandable. Healthcare processes often suffer from significant inefficiencies, and investors view the sector as an attractive opportunity due to its size, valuable fixed assets, and stable demand, which is largely independent of traditional market dynamics.
"Private equity has revolutionized the engineering space, and it's clear what's been happening in healthcare isn't working. Private equity rewards high performing entities. Why wouldn't medicine want to lean into that?" says Michael Tobias, Founder Principal New York Engineers and shareholder Eaglestone Private Equity when interviewed for this article.
This surge aligns with PE's standard approach: acquiring potentially undervalued assets, streamlining operations for short-term profits, and exiting within 3–7 years through sales or initial public offerings (IPOs). This strategy involves taking on immediate financial risk in pursuit of high returns. In healthcare, PE firms have traditionally focused on consolidating high-margin specialties such as dermatology, ophthalmology, and emergency medicine but are now expanding into more diverse areas of care delivery, including neurosurgery.
Why Are Physicians Turning To Private Equity?
In certain medical circles, surgeons in the latter half of their careers—typically with 15–20 years of practice—view private equity (PE) as an attractive exit strategy. The costs of operating a medical practice continue to rise steadily, driven by expenses such as staffing, equipment, and regulatory compliance. Meanwhile, reimbursement rates to physicians from insurers, including Medicare and private payers, are consistently declining.
Private equity offers a way to mitigate these financial risks and exit the market with significant compensation for the assets built over years of practice. This approach can be highly lucrative for senior shareholders within a group practice. However, it may pose challenges for younger partners, who might face exclusion from the deal or diminished roles post-acquisition.
What Are The Risk Of Private Equity In Healthcare?
Private equity (PE) firms traditionally target high-margin specialties and procedures in healthcare. A leading article in JAMA reported that, following PE acquisition of hospitals, patient safety incidents increased significantly: a 27.3% rise in falls, a 37.7% increase in central line-associated bloodstream infections, and a doubling of surgical site infections. These outcomes occurred despite hospitals treating younger and more financially secure patients.
Concerns arise that these issues stem from PE strategies, such as cost-cutting, staff reductions, and deferred investments, which are often implemented to manage debt.
How Is Oregon Limiting Private Equity In Healthcare
Senate Bill 951 (SB 951) establishes the most comprehensive state-level barriers to private equity (PE) in healthcare, strengthening the corporate practice of medicine (CPOM) doctrine, which prohibits non-physicians from owning or controlling medical practices. Historically, this doctrine was underenforced.
The law targets the common structure used by PE for investment, focusing on management service organizations (MSOs) rather than direct PE ownership. MSOs typically handle administrative tasks such as billing and IT, but their contracts often enable indirect operational control. SB 951 closes these loopholes by prohibiting MSOs from interfering in clinical decisions, capping their fees at fair market value, and banning non-compete, nondisclosure, and nondisparagement agreements that restrict physicians or their interactions with patients.
SB 951 prohibits PE participation in clinical operations, including hiring, firing, work schedules, compensation, coding decisions, clinical policies, billing collections, pricing, contract negotiations, and, most critically, setting clinical staffing levels and patient interaction time.
This legislation essentially undermines the operational influence of PE investments in healthcare.
Nationwide Ramifications of Oregon's New Law
Oregon's Senate Bill 951 (SB 951) establishes the most stringent state-level restrictions on private equity (PE) in healthcare. Investors must comply with new regulations in a phased approach, with full compliance required by January 2029.
Other states may follow Oregon's lead and adopt similar legislation. Recent high-profile health system bankruptcies, some of which involve PE-backed entities, have fueled momentum to strengthen regulations on the corporate practice of medicine in states like California.
'We're at an inflection point in this country when it comes to the corporatization of healthcare,' said House Majority Leader Ben Bowman (D-Tigard, Metzger, S Beaverton), who introduced the bill. 'With the passage of this bill, every Oregonian will know that decisions in exam rooms are being made by doctors, not corporate executives.'
What Do Surgeons Have to Say About Private Equity In Healthcare?
Brian Gantwerker, MD, a private-practice neurosurgeon in Santa Monica, CA, offers a nuanced perspective on PE in healthcare.
"I believe private equity is a good thing in terms of commerce and goods and services outside of the medical field. The main issue is of course that private equity job is to purchase assets load them up with a lot of debt and then sell them off the commoditization of healthcare. Private equity as it is now represents a pump and dump scheme. I think it is possible to have private equity involved in a responsible way where the assets are purchased as part of an agreement with healthcare leaders in their community, and there are certain guidelines that they have to abide by such as keeping it open up to a minimum of five years and knowing and announcing when sale of assets will occur at least 6 to 12 months in advance of that transaction occurring. That way, if things fall through or if the clinic or entity fail, the community will be deprived of that service, but in a way that other services might be set up in advance to help catch those critical patients that may fall through the cracks. Responsible capitalism is possible. When it comes to patients, that must be our north star."
John Abrahams, MD, a neurosurgeon at New York Brain & Spine, authored the leading paper on private equity in neurosurgery, published in The Journal of Neurosurgery. He expresses a more pessimistic view when quoted for this article: 'I don't see any benefit in the short or long term.' Dr. Abrahams argues that expected benefits, such as economies of scale, fail to materialize. Private equity (PE) firms often struggle to negotiate better insurance rates due to insufficient outcome data, and growth through acquisitions tends to diminish practice valuation. The risks are clear to practicing surgeons: PE firms impose management fees and may require surgeons to assume debt.
In his defining article, Dr. Abrahams writes, 'Private practice neurosurgery is in serious trouble. Recent reports do not support its survival, and as costs increase while reimbursements decrease, new solutions and business models need to be developed. Successful business models need to be shared at a national level so we can all learn the difficult lessons at once and grow with the new knowledge gained. Private equity is not the solution for healthcare, and if you want to learn more about its perils, read the book These Are the Plunderers: How Private Equity Runs—and Wrecks—America by Gretchen Morgenson and Joshua Rosner. It describes in detail how private equity ruins companies in general, as well as gives some examples of failure in healthcare.'
What's Next for Private Equity in Healthcare? The Deeper Question
Oregon's SB 951, by reinforcing the corporate practice of medicine doctrine, establishes regulatory guardrails to protect the patient-physician trust, potentially curbing excesses while sparking broader debates about the limits of state oversight in complex systems. Caution is always warranted with government intervention, as overly prescriptive laws risk unintended consequences, stifling the entrepreneurial spirit that could address healthcare's inefficiencies and echoing Hayek's warnings against the hubris of centrally planned economies.
At its core, the fundamental question persists: Are we content to entrust the stewardship of healthcare—our vital guardian of life and dignity—to entities such as government bureaucracies or distant investors chasing the scraps of crony capitalism, whose contributions and ownership may be mere abstractions.
Or, perhaps more appropriately, we should steer reform toward those directly providing and receiving care.