Leveraged Healing: The Role of Private Credit in the Healthcare Sector

What do hedge fund managers and heart surgeons have in common? Increasingly, they’re working on the same patient - our healthcare system. Once the domain of doctors, nurses, and policymakers, healthcare is now being stitched together with the invisible threads of private capital. Private equity (PE), supported by the rise of private credit as a financing mechanism, has shown growing interest in the healthcare sector, transforming the landscape of Australia’s hospital system. 

This article explores how these financial forces are not just funding healthcare, but fundamentally redesigning it. From financing acquisitions to reshaping service delivery, private capital is playing a growing role in both the structure and function of modern healthcare systems. The analysis dives into how private credit enables PE investments, the strategic placement of PE in healthcare, the effects on infrastructure and service delivery, and the pivotal role of government policy in managing this complex evolution. 

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Private Credit and Its Role in Healthcare Financing 

Private credit, also referred to as private debt or private lending, is a form of non-bank financing. It involves loans, bonds, and notes extended to privately held companies, often by entities like credit managers, insurance companies, asset managers, and superannuation funds. Unlike public debt, private credit is not traded on open markets and is typically used when traditional bank lending is inaccessible due to complex structures or the need for flexible capital (Australian Investment Council, 2023). 

In the wake of the Global Financial Crisis, tighter bank regulations created a demand for alternative finance. Private equity firms confided in private credit as a strategic partner, which provided swift, bespoke lending solutions for leveraged buyouts, recapitalisations, and mergers (Australian Investment Council, 2023). These transactions often underlie PE strategies and have enabled extensive acquisition activity in the healthcare sector. 

Healthcare is particularly attractive to private capital due to its resilient characteristics. It offers stable, long-term cash flows driven by demographic trends such as an ageing population and increasing demand for chronic disease management. Due to Australia’s ageing population, this has attracted a multitude of international investors in the country’s healthcare sector. According to the Australian Investment Council, 54% of Australian-based investors have expressed a preference for the healthcare sector. This is echoed globally, with healthcare assets viewed as defensive growth opportunities with low correlation to macroeconomic volatility (Macquarie Insights, 2024). 

Private credit enables PE firms to acquire hospitals, aged care facilities, and specialist clinics. COVID-19 highlighted the sector's defensive attributes (Medical Journal of Australia, 2024), and stressed the need for capital among practices and hospitals to ensure the financial viability of healthcare providers (Bruch, et al., 2021).  

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Private Equity in Healthcare 

Private equity firms have established a strong presence across various healthcare sub-sectors, including aged care, mental health services, and specialist medical practices. PE strategies often focus on acquiring high-turnover entities, such as ophthalmology and radiology clinics (Griffith University, 2024). 

These acquisitions are typically funded through leveraged structures, where PE firms contribute as little as 2–10% of the total purchase price. The remainder is debt-financed, with the healthcare entity bearing the financial risk. PE firms aim to generate value through efficiency-driven restructuring, consolidation, and rapid growth (Griffith University, 2024). 

While these operational practices can bring scale and standardisation, they may also shift priorities toward profitability. Research indicates that cost restructuring often affects staffing levels and service delivery models, which can impact patient outcomes and continuity of care (Harvard Medical School, 2023).

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Impacts on Healthcare Infrastructure 

The influx of private capital has facilitated investments in infrastructure, technology, and digital systems within the healthcare sector. However, it has also altered investment priorities. For-profit hospitals tend to “target more lucrative sectors such as elective surgeries for less complex patients” (Kruse & Jeurissen, 2020), potentially widening the gap in access to higher cost, yet essential medical procedures. 

A study by Harvard Medical School found that hospitals acquired by PE firms saw an increase in patient harm indicators, including higher rates of infection and patient falls. This suggests that capital prioritisation post-acquisition may compromise clinical care in favour of operational efficiency (Harvard Medical School, 2023).  

In Australia, private equity-driven consolidation has reconfigured healthcare service networks. While some facilities benefit from capital injections and technological upgrades, others, particularly those in less lucrative areas, are face downsizing or outright closure. A recent manifestation of this is Healthscope, the nation’s second-largest private hospital operator, currently grappling with circa $1.6 billion in debt (AFR, 2025) and falling behind in rent due to funds that own their hospital properties. Formerly owned by Canadian alternative asset manager Brookfield Asset Management before its ownership was transferred back to lenders, Healthscope now faces the challenge of securing new owners whose priorities balance debt recovery with the long-term sustainability of its hospitals. Although initially considered a sound and strategic acquisition for Brookfield, the combined impact of COVID-19, rising inflation, and the substantial debt structure, channelled through Real Estate Investment Trusts (REITs) and a 31-lender syndicate, has brought the firm close to breaching its debt covenants. Should Healthscope falter, the potential shutdown of its 38 hospitals would not merely be a private capital misstep, it would ripple across the broader healthcare landscape, placing significant strain on Australia’s public system. 

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The Role of Government Policy 

Government policy plays a pivotal role in shaping the relationship between private capital and healthcare infrastructure. In numerous instances, factors such as deregulation, tax incentives, and gaps in public funding have not only encouraged private sector participation but rendered it, in some cases, indispensable. In fact, many Australians are indirectly invested in private equity through their superannuation funds, underscoring the importance of its growth and stability for the long-term financial security of everyday citizens. Without the support of private healthcare providers, Australia’s public system risks becoming overstretched, particularly in rural and regional areas, where hospital access is already limited and healthcare vulnerability is high. 

Whilst the government performs regular private hospital sector financial health checks, the rapid growth of private capital in healthcare has sometimes outpaced policy responses. Regulatory frameworks, including licensing requirements, quality benchmarks, and transparency mandates, are essential for ensuring that private investment aligns with public health goals. The government, which also oversees private health insurance premiums, must navigate inflationary pressures to ensure that rising hospital operating costs are balanced with health insurance pricing that remains accessible and sustainable. The challenge lies in determining where to draw the line between private hospital operations and government intervention. 

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Conclusion 

Private credit has become an essential enabler of private equity investment, particularly in sectors like healthcare that promise resilient returns. As Uyi Ighodaro of Macquarie Capital aptly notes, "Ultimately, what PE does is provide capital solutions for businesses and their management teams to create value. As such, the only limitation is human imagination." (Macquarie Insights, 2024). 

Government policy must keep pace, ensuring that the benefits of private investment are balanced against the imperatives of equity, access, and public accountability. Understanding these financial dynamics is crucial for informed discourse about the future of healthcare - not as a matter of ideology, but sometimes, literally a matter of life and death (AFR, 2024). 

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References 

Berquist, V. L. (2024). Private equity investment in health care delivery, Australia, 2008–2022. Medical Journal of Australia, 220(7). https://www.mja.com.au/journal/2024/220/7/private-equity-investment-health-care-delivery-australia-2008-2022 

Broadening horizons: The changing face of Australian private equity | Macquarie Group. (2022). Macquarie. http://macquarie.com/au/en/insights/the-changing-face-of-australian-private-equity 

Bruch, J., Gondi, S., & Song, Z. (2021). COVID-19 and Private Equity Investment in Health Care Delivery. JAMA Health Forum, 2(3), e210182. https://doi.org/10.1001/jamahealthforum.2021.0182 

Hensher, M. (2024). The rise of private equity investment in Australian health care. Medical Journal of Australia, 220(7), 366–367. https://doi.org/10.5694/mja2.52271 

Kruse, F. M., & Jeurissen, P. P. T. (2020). For-Profit Hospitals Out of Business? Financial Sustainability During the COVID-19 Epidemic Emergency Response. International Journal of Health Policy and Management, 9(10). https://doi.org/10.34172/ijhpm.2020.67 

McInerney, M., Hinchcliff, R., Fitzgerald, G., & King, R. (2023). Private Equity Investment in Private For-Profit Healthcare in Australia and New Zealand: a Scoping Review. Asia Pacific Journal of Health Management, 18(2). https://doi.org/10.24083/apjhm.v18i2.2347 

Miller, J. (2023, December 26). What Happens When Private Equity Takes Over a Hospital | Harvard Medical School. Hms.harvard.edu; Harvard Medical School. https://hms.harvard.edu/news/what-happens-when-private-equity-takes-over-hospital 

Smith, M. (2024, September 22). Is private equity unhealthy for our hospitals? Australian Financial Review. https://www.afr.com/companies/healthcare-and-fitness/is-private-equity-unhealthy-for-our-hospitals-20240917-p5kb9w 

Thompson, S. (2025a, March 9). HSO ASX: Healthscope lenders to trade debt as David Di Pilla’s HMC Capital marshalls troops. Australian Financial Review. https://www.afr.com/street-talk/renegade-healhscope-lenders-to-auction-debt-di-pilla-marshalls-troops-20250309-p5li5u 

Thompson, S. (2025, May 11). ASX HSO: HMC Capital sells Healthscope debt as forbearance vote 2.0 drags. Australian Financial Review. https://www.afr.com/street-talk/hmc-capital-sells-healthscope-debt-as-forbearance-vote-2-0-drags-20250511-p5ly89 

VISIT AIC.CO PRIVATE CAPITAL SERIES PRIVATE CREDIT. (n.d.). https://investmentcouncil.com.au/Common/Uploaded%20files/SmartLibrary/45e35c8e-bc50-42aa-bd7f-9563c52389e7/AIC_Private%20Credit%20Fact%20Sheet.pdf