Frustrated by the relentless rise in healthcare costs, many Americans think they know who’s to blame for the high cost of prescription drugs, the shuttering of local hospitals and clinics, and the merger of their favorite doctor’s medical practice with a competitor: for-profit corporations and private equity firms.

This growing trend in the U.S. is known as corporatization. Investors supply much-needed funding to pharmaceutical and biomedical companies, healthcare institutions, and physicians to help pay for drug development, meet escalating expenses, and increase efficiency and scale. But too often, critics say, the push for profit ends up leaving patients with reduced quality and choice, and ever-surging costs.

In a new paper in the New England Journal of Medicine, co-author Amitabh Chandra argues private investment in the healthcare system fills a critical need that others, like the federal government and nonprofits, simply cannot.

In this edited conversation, Chandra, who is director of the Malcolm Wiener Center for Public Policy at Harvard Kennedy School and the Henry and Allison McCance Family Professor of Business Administration at Harvard Business School, said contrary to popular opinion, profit-seeking in healthcare doesn’t necessarily mean that patients will be worse off.

What is corporatization?

Corporatization is essentially a deal between a medical organization and investors. The organization receives capital that can be used for new technologies, upgraded facilities, research, or competitive salaries.

In return, investors expect a share of the profits. The share might be small or large — 1 percent, 10 percent, or even 50 percent — depending on the terms of the agreement. At its core, corporatization “unlocks” money for growth, but it does so in a way that prioritizes profits, since investors can always move their funds elsewhere if returns are lacking

You say private investment in healthcare isn’t necessarily bad. What are some of the benefits besides an infusion of cash?

The deal between an investor and a medical organization is voluntary, so it clearly benefits those two parties. But the real question is whether it benefits society — and that’s not always obvious.

The key measure is what happens to patient outcomes when corporatization occurs. In some areas, such as nursing homes, the record is poor. Here, some private equity firm owners may cut staffing and reduce quality to boost profits, which has been linked to higher patient mortality.

But in other areas, corporatization has delivered real benefits. In vitro fertilization (IVF) is one example. Because IVF is capital-intensive, larger corporate networks can use scale, data, and investment in technology to improve success rates. Patients benefit because quality is measurable (pregnancy rates), and clinics compete directly on outcomes and price.

Similarly, in the biopharmaceutical industry, private investment has been indispensable for funding the huge costs of drug development, enabling the creation of treatments that otherwise wouldn’t exist.

So, the benefits of corporatization beyond just “more money” depend on whether the investment is used to expand scale, improve processes, or foster innovation in ways that actually improve patient outcomes.

Because healthcare and scientific R&D are so expensive, isn’t tension between market incentives and health outcomes, between patients and profits, inevitable?

I don’t think so. The “inevitable tension” view assumes that anytime profits are involved, patients’ well-being is compromised. But imagine a world without profits — would patients automatically be better off? The answer is no.

Much of healthcare depends on improving quality and driving innovation: treating a heart attack patient better this year than last, developing new medicines, or adopting better technologies. All of that requires capital, and profits are what attract that capital.

It’s true that people worry — often rightly — about the excesses of for-profit entities. But from that, some conclude that the very presence of profit must harm patients. That’s a mistake.

Even the solo physician in private practice is seeking profit, and without profit it will shutter. So it’s naïve to say that corporations making profits are bad, but individuals making profits is fine.

The real challenge isn’t profit itself, but how well we align profits with value for patients. In sectors like IVF or biopharmaceuticals, profits and patient outcomes can reinforce each other. In others, like nursing homes, misaligned incentives can lead to harm.

In your view, why has corporatization been helpful in some sectors but not in others, like nursing homes?

A big part of the answer is how observable quality is. Take IVF clinics: Their promise is straightforward — fertility. Patients can easily see whether treatment leads to pregnancy, and clinics compete directly on success rates and cost.

Pharmaceuticals are more complex, but here quality is backed up by regulation. Patients may not be able to evaluate a drug on their own, but FDA approval signals that it is safe and effective, and physicians act as trusted intermediaries.

That combination of regulation and professional oversight helps align profits with patient outcomes, which is why corporatization has supported innovation in pharma.

By contrast, nursing homes lack clear, trusted quality measures. Families struggle to assess the quality of day-to-day care, and regulators are relatively weak. This creates space for profit-driven owners — especially private equity firms — to cut staffing and reduce quality, even in ways that increase patient mortality.

Without reliable measures or enforcement, corporatization in this sector tends to harm rather than help patients.

Isn’t the federal government better-suited than private equity to fund this kind of work, especially research and development, which often requires a huge investment over a long period of time with no guarantee that a product is going to work, get approved by regulators, or be successful in a crowded marketplace?

No. Governments, including the U.S., have shown themselves to be poor at sustaining long-term investments.

The NIH budget is about $35 billion, which is crucial for supporting basic science, but it’s small compared to what’s needed. By contrast, the pharmaceutical industry invests around $275 billion globally each year in R&D. That scale of spending is far beyond what governments, nonprofits and foundations are willing or able to sustain.

Without private capital the massive, high-risk clinical trials and product development that bring new treatments to patients simply wouldn’t happen

Government funding also comes with bureaucratic hurdles, shifting priorities, and budgetary uncertainty — not a good recipe for the steady, long-term investment required for drug development. Where government plays an essential role is in early-stage research, creating the scientific foundation.

Here too, as the current stoppage of NIH grants illustrates, it struggles to provide smooth funding, which is a prerequisite for producing great science. To be clear, it’s not just the U.S. government that is bad at long-term spending on science. The governments of many rich countries have a substantially worse record.

Why is that happening?

It’s ultimately a choice. Ideally, government should spend more because the benefits of basic science research accrue to society as a whole. Take Alzheimer’s disease: Developing a truly transformational treatment may take 30, 40, even 50 years. That kind of research horizon isn’t attractive to private investors, so government has to play a larger role in financing the early-stage science.

And in fact, despite its shortcomings, the U.S. government is the world’s largest funder of basic biomedical research. The problem is that governments everywhere face structural limits: They are not well-suited for long-term commitments that don’t yield visible benefits to voters in the short run. Other countries often free-ride on U.S. investments, making the challenge even greater.

What steps can be taken to reap the benefits of for-profit investment while minimizing some of the negative outcomes that can arise from a desire to find profit?

Profit-seeking is not the problem itself. Even nonprofits generate profits; they just don’t pay taxes on them. A system without profits wouldn’t automatically make patients better off; in fact, it would shrink the scale of care and stifle innovation. The real challenge is ensuring that profits are aligned with value for patients.

The most important step is to strengthen regulation. Right now, regulators in healthcare are under-resourced and often unable to oversee complex deals or prevent abuses. A well-resourced and independent regulator is critical to making corporatization work well. The FDA is a good example: It provides trusted, science-based approval of drugs, which helps align corporate incentives with patient outcomes.

We need similar capacity elsewhere in healthcare — regulators at the Centers for Medicare and Medicaid Services, the Federal Trade Commission, and the Department of Justice that are insulated from political interference and independent of the industries they oversee.

With better-quality measurement, enforcement of antitrust rules, and the authority to stop or unwind deals that don’t generate value for society, regulation can help ensure that corporate investment expands access, improves quality, and drives innovation without sacrificing patient well-being.