This week, Blaine Saito (Ohio State) reviews a new work by James R. Repetti (Boston College), Private Equity, Health Calamity: How Our Tax Laws Aid Private Equity Investment in Hospitals and Nursing Homes (Dec. 15, 2025):

The reach of private equity (PE) continues to expand into nearly every sector of the American economy. For example, the Trump Administration seeks to open retirement accounts like 401(k)s to PE investments. But one of the most lucrative and alarming targets remains the health sector. In James R. Repetti’s recent piece, Private Equity, Health Calamity: How Our Tax Laws Aid Private Equity Investment in Hospitals and Nursing Homes, he reveals how tax policy unintentionally spurs this “imperial expansion” into the medical field, often with devastating consequences for patients.

Repetti begins by documenting the massive scale of this shift. Between 2018 and 2023, PE funds spent over $505 billion on healthcare acquisitions. As of early 2025, PE firms owned approximately 8.5% of all non-government hospitals and between 5% and 13% of nursing homes across the country. The stakes of this investment are not merely financial; Repetti points to empirical studies showing a 25% increase in hospital-acquired complications at PE-acquired facilities and an 11% higher probability of death in PE-owned nursing homes.

To understand why these outcomes occur, one must understand the PE business model. PE funds are typically limited partnerships where a general partner manages capital provided by limited partners, such as wealthy investors, university endowments, and pension funds. These funds often use “leveraged buyouts” (LBOs) to acquire target companies, using the target’s own assets as security for the loans used to purchase it. On average, a target company’s debt load doubles post-acquisition.

This high leverage creates a “discipline” that forces management to focus relentlessly on the bottom line, often through aggressive cost-cutting. Compounding this pressure is the short investment horizon of PE funds, which typically seek to exit an investment within three to seven years. This mismatch between short-term profit motives and long-term healthcare needs can lead to financial engineering, such as issuing new debt to fund dividend payments to the PE owners, rather than investing in patient care.

The human cost of these incentives is illustrated vividly through the case of St. Elizabeth’s Medical Center and the broader collapse of Steward Health Care. Cerberus Capital Management acquired the hospital system and quickly sold the underlying real estate to a real estate investment trust (REIT) for $1.25 billion. Cerberus walked away with nearly $484 million in profit, more than double its initial investment, while the hospitals were left with crushing rent payments.

This financial strain may have contributed to a tragic 2024 incident at St. Elizabeth’s where a new mother died because the hospital lacked a $350 embolization coil. The supplier had reportedly stopped deliveries due to the hospital’s failure to make payments. When Steward eventually filed for bankruptcy, it reported $6.6 billion in long-term lease obligations owed to the REIT that owned its buildings.

Repetti then shows that our tax system facilitates this trend through two primary mechanisms. First, it exempts the gain realized by charitable organizations when they sell hospitals to for-profit PE purchasers. Under § 501(c)(3), a tax-exempt seller does not pay tax on the gain from the sale of its assets. Because the seller is exempt, it can accept a lower purchase price than a taxable seller would require, effectively providing a “seller’s subsidy” that aids the PE takeover.

Second, and perhaps more technically insidious, are the rules surrounding debt-financed income. Section 514 generally taxes “unrelated debt-financed income” (UDFI) to prevent tax-exempt organizations from using their status to engage in leveraged business ventures. However, PE funds are structured to bypass these protections. In a typical LBO, the debt is incurred by the target company rather than the tax-exempt investor or the PE fund itself. Since the debt is not “acquisition indebtedness” of the tax-exempt organization under I.R.C. § 514(c), the resulting profits remain untaxed. Furthermore, tax-exempt investors often use “blocker corporations” to transform debt-financed income into non-taxable dividends under I.R.C. § 512(b)(1).

Repetti suggests a few solutions. For the acquisition price problem, he argues that there should be taxable gain on the sale of a nonprofit health care entity to a for-profit PE fund. While there are implementation questions of basis, he notes that the key point is some part of it should be taxable, because otherwise we are subsidizing the PE funds’ purchase of a nonprofit asset. Instead the government could take the funds and deploy them democratically.

For the second problem, he argues for tightening the I.R.C. § 514 rules and “look through” blocker corporations to tax leveraged investments. While he acknowledges this might increase a nonprofit’s appetite for risk, he argues that the current “uneasy compromise” is failing. He proposes restricting the carryback of losses to mitigate these risks and ensuring the tax code remains neutral rather than actively subsidizing the “plunder” of essential social institutions.

Repetti’s piece forces us to think about how tax operates through multiple mechanisms to create or solve problems. In this instance, the tax laws are not directly targeting the healthcare space. They are simply applying “normal” nonprofit and partnership rules. But because of the tax system’s immense reach, these generalized rules can have dangerous effects in specific sectors. When it comes to the quality of healthcare, those effects can be fatal.

We often discuss PE in tax circles through the lens of the carried interest loophole or the low tax rates enjoyed by fund managers. But Repetti joins a vital literature that critiques the systemic effects of PE, including its opacity, its reliance on extreme leverage, and its tendency to undermine vital services. When technical loopholes in § 514 result in higher mortality rates, it is a reminder that the tax system’s reach is never truly neutral. We must look beyond the managers’ tax returns and consider how our tax architecture is actively shaping the quality of life and death in the real world.

Here is the rest of this week’s SSRN Tax Roundup:

Christina Allen (Curtin) & Richard Krever (Western Australia), Who Is an Employee? The Unfortunate Tax and Superannuation Legacy of a Transplanted Category (date posted: Dec. 23, 2025)

David R. Agrawal (UC Irvine) & Xinyu Chen (Michigan), State and Local Tax Policy in a Time of Telework (posted: Dec. 23, 2025)

Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni (Michigan), The Forgotten Weapon: Section 891 And the Origins of U.S. Retaliatory Tax Policy (posted: Jan. 2, 2026)

Andrei Barbosa (Minho), Remote Work and Transfer Pricing (posted: Dec. 22, 2025)

Chris Evans (New South Wales), Richard Krever (Western Australia) & Peter Mellor (Monash), Asprey and the Taxation of Wealth: Where to Next?, 27 Australian Journal of Taxation 24 (2025) (posted: Jan. 2, 2026)

Yuval Feldman (Bar-Ilan), The State’s Relationship with Its Citizens: From Coercion to Compliance and Back (posted: Dec. 29, 2025)

Brian D. Galle (UC Berkeley), David Gamage (Missouri) & Darien Shanske (UC Davis), Expert Report On The California 2026 Billionaire Tax: Revenue, Economic, and Constitutional Analysis (posted: Jan. 2, 2026)

Christopher Hoy (World Bank), Filip Jolevski (George Mason & World Bank) & Anthony Obeyesekere (World Bank), Revealing Tax Evasion: Experimental Evidence from a Representative Survey of Indonesian Firms (posted: Dec. 22, 2025)

Jim Y. Huang (Toronto), Fiscal Geometry as Representational Infrastructure for Transfer Pricing (posted: Dec. 29, 2025)

Jim Y. Huang (Toronto), Fiscal Geometry as a Methodological Meta-Grammar for Institutional Analysis (posted: Jan. 2, 2026)

Jim Y. Huang (Toronto), International Tax Law as an Event-Generating Infrastructure: A Fiscal Geometry Reading of Sovereignty, Treaties, and Enforcement (posted: Jan. 7, 2026)

Lyla Latif (Nairobi), Digital Fiscal Systems That See the Child, Fund the Child, and Reach the Child (posted: Dec. 30, 2025)

Lyla Latif (Nairobi), Transforming Extraction into Protection: From Global Tax Drainage to a Global Social Protection Fund (posted: Dec. 30, 2025)

Jiancong Liu (Paris School of Economics), Biased Tax Enforcement as a Trade Barrier: The Role of Mandated Transparency at Customs (posted: Jan. 5, 2026)

Giuseppe Moramarco (Independent) & Benjamin Beer (Independent), Abuse Within Pillar Two: Legal and Policy Challenges (posted: Dec. 24, 2025)

Taylor O’Brien (Texas Tech), Accounting for Accountability: Incorporating Oversight into the Section 139L Partial Interest Income Tax Exclusion for Lenders (posted: Dec. 29, 2025)

Manish Ram (Independent), IP-Based Location Inference and Place of Supply for Digital Services Under India’s GST (posted: Dec. 29, 2025)

Abdulmudallib Salihu Abubakar (Independent), Balancing Revenue Mobilization and Investment Promotion: An Assessment of Tax Incentives Benefits Under the Nigerian Tax Act, 2025 (posted: Jan. 5, 2026)

Pranvera Shehaj (WU Vienna), Withholding Taxes in Developing Countries: Relief Method and Tax Sparing in Tax Treaties with OECD Members (posted: Jan. 7, 2026)

Gayline Vuluku (WU Vienna), Erich Kirchler (Vienna) & Christian Bauer (Independent), Treat–Remind–Repeat! A Natural Field Experiment in a Tax Amnesty Context (posted: Dec. 26, 2025)

Alex Zhang (Emory), Racial Integration and Tax Exemption, American Journal of Law & Equality (forthcoming 2026) (posted: Jan. 6, 2026)