Private equity is the very worst of capitalism. It has no long-term interest in companies, their employees, clients or the communities where they are based. Private equity operates only to make as much money as possible in as short a time as possible. Across the US, UK, Europe and elsewhere, it has already left a trail of destruction in many sectors, including retail and accountancy. In the UK, social care and education is already being destroyed by private equity for profit and now private equity is moving into the NHS via a push for private companies to do more and more NHS work.
Private equity has seen how healthcare companies were funded during the Covid-19 pandemic, the recent moves by the government to reduce waiting lists using the private sector, and that despite underfunding being rampant in the NHS, the whole sector is underpinned by guaranteed public funding. Private equity sees the potential to make a lot of money out of NHS healthcare.
Private equity has been investing in the care, education and mental health sector for several years and evidence has shown that it has made large profits, but at the expense of safety and quality of care. Now the sector is branching out and investments are being made across the spectrum of healthcare services, including ambulance fleets, diagnostics, home care, and ophthalmology.
What is private equity?
Private companies, either privately owned or publicly-traded on a stock exchange, have been involved with the NHS for years and the issues surrounding their involvement have been well-documented. So what is different about private equity owned companies?
To understand this, you need to look at the way private equity works and what it aims to do for its investors.
Private equity companies are investment partnerships that buy and manage companies on behalf of investors, such as pension funds, sovereign wealth funds, insurance companies, hedge funds, banks and individual investors.
Private equity funds acquire private companies or those on the public markets, in their entirety, or buy companies as part of consortiums with other funds or investors. As private equity funds do not hold stakes in companies that remain listed on a stock exchange, i.e., publicly traded companies, any public company is delisted when acquired by private equity.
In contrast to venture capital which invests in new or very small companies, private equity typically acquires small to medium-sized companies that have assets. The target companies are often, but not always, struggling, or have seen little major growth for a few years, or are in an area of high growth where the private equity funds see that quick profits can be made.
Because that is what private equity is all about – quick profits. The funds aim to see a return on investment in three to five years and at a maximum seven years. Private equity rarely holds an investment for ten years or more - the approach is all about a quick turnaround of investment.
Investing in private equity funds is not for small investors as significant capital needs to be committed, which is why access to such investments is limited to institutions (such as pension funds) and individuals with high net worth.
Another important aspect of private equity funds is that they often buy companies using a mixture of investor money and borrowing. The result is that the companies that are acquired are often saddled with huge amounts of debt that has to be paid back at some point and this can make the company’s finances very precarious.
What happens to a company acquired by PE?
With such a short time-span to make money for investors (3-5 years), private equity companies often take drastic action to increase company value once the acquisition has been made.
This usually includes dramatic cost cuts and/or restructuring, including: a reduction in head-count; transfer of production overseas to a low-cost economy; renegotiation of supplier contracts; a merger with a company they already own; use of lower-skilled workers on lower wages; selling of company subsidiaries; and selling of valuable assets, such as property, which often they lease back.
Private equity funds have a large amount of leeway with what they can do with a company as they do not have to report to shareholders in the same way publicly-traded companies do. However, this also means there is little transparency over what they are doing.
The private equity strategy of making an acquisition using a high level of debt means that bankruptcy is more likely. Firms acquired by private equity funds are ten times more likely to go bankrupt—which can be disastrous for employees and their communities, though not the fund managers themselves, who often come out ahead.
The Private Equity Stakeholder Project (PESP), a US-based investigative blog set up "to bring transparency and accountability to the private equity industry and empower impacted communities" found that during the first half of 2024, nine private equity-owned healthcare companies filed for bankruptcy, or 23% of all large US healthcare bankruptcies so far this year. At least six other private equity-owned healthcare companies had defaulted on their debt but avoided bankruptcy court through distressed debt exchanges. The blog reports that many more private equity-owned healthcare companies are highly leveraged and considered at high risk for bankruptcy. For 2023, PESP found that at least 17 (21%) of the 80 large healthcare companies that filed for bankruptcy were owned by private equity firms.
The entire aim of private equity companies is to make themselves and their investors richer. However, in 2020 an analysis published by Ludovic Phalippou, professor of finance at Oxford Saïd Business School found that private equity has resulted in a handful of super wealthy multibillionaires that have accumulated vast riches from running private equity funds, but the funds had performed no better on average than basic US stock market tracker funds since 2006.
He told the FT that “This wealth transfer from several hundred million pension scheme members to a few thousand people working in private equity might be one of the largest in the history of modern finance.”
Private equity and the public sector
Private equity is attracted to companies that work in the public sector, such as health, care or education, as their income from the NHS or local authorities is seen as virtually guaranteed.
The social care sector, for vulnerable adults and children, is now almost exclusively privately owned with heavy involvement of PE companies.
The NHS is not at the same stage as social care, but the lack of increased investment in NHS capacity and government encouragement of the use of private companies to reduce NHS waiting lists, means that this sector must now be seen as offering attractive opportunities for PE.
Healthcare companies in the UK that have contracts with the NHS can predict a steady dependable demand and with it a recurring profit. Companies that do primarily private work can also predict steady income due to people on the NHS waiting list turning in desperation to private companies. Hundreds of companies are now listed on several framework contracts to provide capacity to the NHS or set up Community Diagnostic Hubs. Among them will be some targets for private equity.
The table below (Companies) gives a selection of companies that benefit from contracts with the NHS that have private equity involvement. This is not an exhaustive list, private equity deals are often not publicised widely, and often carried out through a series of shell companies, making them difficult to track, although details of changes in ownership will eventually appear on Companies House.
Private equity in care and education
The way private equity works has been criticised for many years. Its negative impact on the UK care home sector has been well documented. The downfall of Southern Cross in 2011 and more recently Four Seasons in 2019 are examples of the impact that PE can have upon businesses; both companies were saddled with enormous debts by PE investors.
Despite this, private equity is still heavily involved with the care home sector making vast profits.
More recently the involvement of PE in children’s social care, which includes fostering, children’s homes and other services such as residential school places, has been the subject of damming investigations by the Competition and Markets Authority, the Local Government Authorities (LGA) and the Observer.
According to a March 2022 report by the Competition and Markets Authority (CMA), the UK has “sleepwalked” into a dysfunctional market for children’s social care with local authorities forced to pay excessive fees for privately run services that often fail to meet the needs of vulnerable children.
In March 2022 analysis by the Local Government Authorities (LGA), compiled by Revolution Consulting, found that eight of the 10 largest providers of children’s social care now have some kind of private equity involvement.
The report also highlighted concerns over the level of debt taken on by some of the groups. Nine of the top 20 providers had more debts and liabilities than tangible assets.
The LGA report noted that many private companies were often failing to provide the right services in the right places with children frequently placed in homes miles from where they live, often separated from their siblings, and unable to access care and therapies they need.
An Observer investigation found more than 100 privately run children’s homes in England with serious failings have been branded inadequate by inspectors, with several found to have links to private equity firms.
But the companies, themselves, are making huge profits with the profit margins “higher than expected”, according to the competition regulator. The profit was not being invested in the staff at the companies as the report noted that despite the high levels of profit, wages had not risen nor had there been more investment in training.
Private equity in healthcare
Now private equity is branching out to other healthcare sectors in the UK, according to the data on deal-making. Here there is evidence from outside the UK, on its negative effect on healthcare.
A recent BMJ paper, which derived most of its data from the US market, showed that the takeover of healthcare services by private equity funds is associated with a worse quality of care and higher costs.
The systematic review in the BMJ – Evaluating trends in private equity ownership and impacts on health outcomes, costs, and quality – considered 1,778 studies and evaluated 55 studies with the correct inclusion criteria across eight countries, although with a heavy bias on the US market (47 studies). The researchers looked at studies in a range of healthcare settings, with nursing homes the most commonly studied, followed by hospitals, dermatology, and ophthalmology. The impact of private equity takeovers on costs, quality of care and health outcomes was assessed.
The researchers found that private equity ownership was “most consistently associated with increases in costs to patients or payers” and was “associated with mixed to harmful impacts on quality.” Furthermore, the review identified “no consistently beneficial impacts of PE ownership.”
Nine of 12 studies revealed higher costs to patients or the funders of healthcare at services owned by such firms, three found no differences, and none showed lower costs.
When quality of care was assessed, of 27 studies, 12 found harmful effects, three found beneficial, nine found mixed, where some measures declined and some improved, and three were neutral.
The researchers note that in some cases private equity ownership was associated with reduced nurse staffing levels or a shift towards lower nursing skill mix.
The review was heavily biased to the US, but private equity is a global phenomenon, and the researchers note that there is a need for rigorous research on such ownership in healthcare, in other non-US settings, such as Europe.
Earlier in the year, in April, an article in the European Journal of Public Health also called for such research into private equity.
The article – Private equity investment in Europe’s primary care sector—a call for research and policy action, noted that such investment in Europe’s primary care sector seems to be increasing in many countries, but that there is no information on its impact, such as on access to care, competition, data protection and health care costs.
In the UK, private equity is invested in some notable healthcare companies that receive millions from NHS contracts. Yet, the researchers of the systematic review in the BMJ found only one paper they could include that looked at the effect of these companies in the UK – Effects of chain ownership and private equity financing on quality in the English care home sector: retrospective observational study – published in Age and Ageing in December 2022.
This study concluded that private equity financing and independent for-profit ownership is associated with lower quality in care homes and called for quality to be monitored as the care homes market structure was changing due to the influx of private equity.
An article from late 2022, on the website of RSM a leading audit, tax and administration company for the private equity industry, noted that the UK healthcare industry offers “rich pickings for PE investors large and small” and that “political pressure to relieve NHS backlogs will benefit businesses that can bring down waiting lists,” and these are attracting private equity investment.
There is evidence of the negative effect of private equity involvement from Germany, where more than 500 ophthalmology practices and hundreds of dental practices have been bought by private equity companies in recent years. A programme similar to Panorama reported on the pressure that can be put on employees to make a profit by selling additional services. This included reports of dentists drilling into perfectly healthy teeth.
One of the first targets in UK healthcare for private equity was the mental health sector. As NHS capacity in mental health is not sufficient after years of underinvestment. The result is that the private sector supplies over 30% of NHS mental health hospital capacity, including over half the NHS inpatient beds for children and teenagers with mental health problems, and almost all of the secure beds for adults.
In October 2022, a Sky News investigation highlighted repeated allegations of over-restraint, abuse and inadequate staffing, stretching back over a decade at hospitals run by the Huntercombe group, which at the time was a subsidiary of private equity-owned and debt-laden Four Seasons.
When the Four Seasons care group went into administration in 2019, the Huntercombe Group, was sold on to another private equity firm, Montreux Healthcare based in the Isle of Man, which merged it with its Active Care Group. As well as the Sky News investigation, previous years have been peppered with complaints and reports of issues at the Huntercombe hospitals.
In May 2024, Active Care Group very narrowly avoided going out of business. As is common practice in private equity, Active Care Group's owners made several company acquisitions funded largely by debt, which increased the group’s total debt from £36mn in March 2018 to £175mn by April 2024. This led to major financial difficulties by late 2022 soon after the acquisition of Huntercombe. Administrators were appointed in May 2024 and ACG was very quickly sold to another private equity fund, Sequoia Economic Infrastructure Income Fund.
In December 2020 The Priory Group was acquired by private equity group Waterland. Despite its reputation for treating celebrities, The Priory’s main business is funded by the tax-payer; the company received £440 million from the NHS and £179.8 million from UK social services in 2021.
In an interview for the BBC, former members of senior management at the Priory Group, said that when they were working for the company, they found it difficult to recruit or retain staff, due to poor pay and conditions. They believe this resulted in patients being placed on wards that did not have staff equipped with the right skills to handle their conditions.
The two whistleblowers told the BBC they felt the Priory Group wanted savings to be made, with the main priority of the group’s central senior management being keeping bed occupancy as high as possible to maximise income, despite not having enough staff to ensure good practice.
In January 2023, the BBC reported that three women had died at the Priory Hospital Cheadle Royal near Stockport in a three month period in early 2022, Beth Matthews, Lauren Bridges and Deseree Fitzpatrick, with the coroner citing neglect and failings by the hospital. This was just the latest in a long list of issues in recent years.
The Priory was fined more than £650,000 in March 2024 over the death of a 23-year-old patient who was hit by a train after absconding from one of its hospitals. The patient was able to leave Birmingham’s Priory hospital Woodbourne by scaling a wall after being “inappropriately unattended” for several minutes in September 2020.
In March 2024, the Guardian published the results of a joint investigation with the CHPI, which found that more than half of the people seen in the NHS-funded Sexual Assault Referral Centres (SARCs) are treated by two companies owned by private equity investors. Just under a third of the total NHS SARCs budget now goes to these companies. These are services for people who have been raped or sexually assaulted, including children.
The two companies G4S and Mountain Healthcare Ltd, both of which are ultimately owned by private equity, run 26 of the 50 NHS- and police-funded centres in England. The investigation found that in the last financial year, the two companies collected £16m in payments between them for running SARCs.
Mountain was acquired in September 2018 by Literacy Capital, a private equity group, and G4S’s ultimate owner is private equity-backed Allied Universal, a multinational that is the world’s largest provider of security guards.
Company accounts show Mountain paid £15.1m in dividends between 2018 and 2022. In 2019, the dividend paid was £5.5m – a third of its total income that year. On average, it has paid more than £3m every year in dividends since 2018, 10 times the £296,000 paid in 2016 and 2017 under its previous owner.
Yet other SARCs run by not-for-profit and the police are struggling, on the brink of collapse and in need of more financial support. Money paid out in dividends would be far better spent on the centres and the people that need help.
David Rowland, the director of the Centre for Health and the Public Interest, told the Guardian: “It is difficult to understand how a private equity investor could envisage making a profit out of providing services to people who have suffered sexual assault. Any money taken out of these services in the form of dividends is money which cannot be used to pay staff or to look after those affected.”
Can private equity be kept out of the NHS?
Private equity has been criticised for many years over the way it operates. In March 2023, Wes Streeting, mooted that private equity-run care homes will be stripped of public sector contracts by a Labour government if they fail to meet quality and value-for-money standards. Streeting told the FT that care providers would need to demonstrate they paid “their fair share” of tax in the UK. With the Care Quality Commission given powers to require state-funded providers to maintain a “safe” level of reserves to ensure financial stability, Streeting said.
Labour has also suggested a change in the tax position for private equity investors. A recent analysis by the Treasury found that the UK's top private equity dealmakers earned £5bn in carried interest in 2022, that’s just 3,000 people.
Carried interest is the cut of gains private equity investors make on successful deals and it has come under increasing scrutiny in the UK. The Labour party has pledged to increase taxation of the incentive fee from 28% to the marginal income tax rate of 45%.
The authors of a BMJ article called for regulation, but this was primarily referring to the USA. Yes tax changes could take place in the UK for private equity, but for the NHS the only surefire way private equity can be kept from draining money out of the NHS into the hands of a few rich people is to not award contracts for NHS work to private companies in the first place.
Companies
| Company Name | Private equity company | Area |
| The Priory | Waterland | Mental Health |
| Active Care Group | Sequoia Economic Infrastructure Income Fund | Mental Health |
| Care UK | Bridgepoint | Care Homes |
| Practice Plus | Bridgepoint | GP /diagnostics |
| HCRG Care | Twenty20 Capital Ltd | Community Care |
| 18 Week Support | Summit Partners | Insourcing/Elective surgery |
| Cornerstone Healthcare | Ignite Growth | Specialist care homes |
| E-zec Medical | Cairngorm Capital | Ambulance services |
| EMED | Cairngorm Capital | Ambulance services |
| Veonet (SpaMedica) | PAI Partners | Ophthalmology |
| Optegra | MidEuropa | Ophthalmology |
| Diagnostic Healthcare | G Square | Diagnostics |
| Community Health & Eyecare | G Square | Ophthalmology |
| Connected Health | G Square | Home care |
| Together Dental | G Square | Dentistry |
| Accomplish | G Square | Complex needs/mental health/learning and physical disabilities |
| Medacs | Twenty20 Capital Ltd | Staff recruitment |
| Connect Health | LDC | Community MSK services/Mental Health |
| Medical Imaging Partnership (Imaging Holdings) | Apposite | Diagnostics |
| Riverdale Healthcare | Apposite | Dentistry |
| Swanton Care & Community | Apposite | Mental Health |
| Medinet Clinical Services Ltd | Fremman | Recruitment/Insourcing |
| Sciensus | Vitruvian Partners | Clinical and pharmaceutical home care |
| Sonderwell | August Equity | Complex care |
| The Dermatology Partnership | August Equity | Dermatology |
| Exemplar Healthcare | Ares Management | Complex care |
| Agile Recruitment | Owned by nGAGE and Partially owned by Graphite Capital | Insourcing |
| HomeLink Healthcare | Foresight Group | Hospital at home |
| Zero Three Care | Montreux Healthcare Fund | Complex needs/mental health/learning and physical disabilities |
| Diaverum | Bridgepoint | Kidney dialysis |
| Hunter Healthcare | Agathos Management LLP | Recruitment |
| BN Care | BGF | Nursing in care homes |
| Care Sourcer | BGF | Social/home care sector |
| Healthshare | BGF | NHS Community Care |
| Primary Care Physio | BGF | Physiotherapy |
| Scottish Dental Group | BGF | Dentistry |
| Springfield Healthcare Group | BGF | Care homes |
| Aspirations Care | Elysian Capital | Complex care |
| EMS Group Solutions | LDC | Ambulance Fleet |
| Connect Health | LDC | Integrated MSK Services |
| RCI Group (Mountain Healthcare) | Literacy Capital | Healthcare services to police, custodial and judicial services |
| Everlight Radiology | LivingBridge | Diagnostics |
| Todays Dental | Lonsdale Capital Partners | Dentistry |
| Routes Healthcare | Palatine Private Equity | Complex care/home care |
| Alliance Health | iCON Infrastructure | Diagnostics |
| Choice Care | iCON Infrastructure | Specialist residential care |
