Street came to India chasing one of the world’s greatest hospital growth stories. It found something else too: a fight over who will pick up the bill.

Blackstone, KKR, TPG, General Atlantic and other global investors have spent about $10 billion buying stakes in Indian hospital chains over the past five years, according to data compiled by EY. That influx of capital has helped finance new facilities, expensive technology and a wave of consolidation in a country desperately short of hospital beds. It’s also made India one of the world’s most active markets for private-equity-driven hospital consolidation. Although PE-backed operators account for less than 5% of the country’s hospital beds, they command a presence in high-margin specialties such as cardiac surgery and cancer care.

Hospital revenue and valuations have surged, generating substantial returns for some investors. Yet the swift expansion of private capital in healthcare has raised concerns that it may be driving up costs and reducing patients’ access to care.

In August a parliamentary committee took aim at the economics of India’s private hospital boom, warning that an “unchecked influx of foreign capital” was facilitating acquisitions of cost-effective, midsize hospitals by large corporate groups. It recommended reconsidering foreign investment rules for healthcare, examining price caps and creating a regulator for hospitals.

The criticism echoes the growing tension between hospitals and insurers. Insurers say private providers, including PE-backed chains, are inflating bills and pushing patients toward high-cost procedures. Hospital operators say delayed insurer payments and inadequate reimbursement rates are squeezing operating margins.

In the US, lawmakers and insurers have grappled with many of the same questions for years. India is the latest proving ground for whether private capital can expand healthcare capacity without putting the service beyond patients’ reach.

“The biggest change in Indian healthcare hasn’t happened in the operating theater—it’s happened in the boardroom,” says Joseph Benaven, managing director of Kanate Hospitals in Kerala and a former president of the Indian Medical Association’s state unit. “Increasingly, hospitals are judged by return on capital and revenue per occupied bed.”When private equity firms began looking at the sector, the investment thesis was compelling. India had only about 1.3 hospital beds per 1,000 people, far below the levels in many developed economies. At the same time, demand for cancer care, cardiac treatment and other specialized services was rising as incomes increased and life expectancy improved.

Global investors saw an industry requiring heavy up-front investment but capable of generating long-term cash flows, as well as a fragmented network of standalone hospitals that could be combined into national chains with broader specialist offerings and higher returns on capital.

Policymakers themselves identified about 600 hospital projects requiring roughly $32 billion of investment in 2021, underscoring both the shortage of healthcare infrastructure and the scale of the opportunity.

Before KKR & Co.’s investment in Baby Memorial in July 2024, the Kerala-based hospital operator was a roughly 1,000-bed unit. Within two years the hospital had already surpassed its pretax earnings target, reaching 6 billion rupees ($62.6 million) in fiscal 2026, largely driven by acquisitions, according to a person familiar with the matter who asked not to be named due to reasons of privacy.

KKR is expanding its hospital portfolio. In August it agreed to acquire the Indian operations of Swedish hospital chain Medicover AB for $1.4 billion, a deal that will nearly double the number of hospital beds it owns in southern India to 10,000. The PE firm’s healthcare strategy has a proven track record. KKR previously backed entrepreneur Abhay Soi’s Radiant Life Care and helped merge it with listed Max Healthcare Institute Ltd. Its exit from Max Healthcare in 2022 is touted by the industry as a successful hospital investment.

India’s maturing capital markets have made this model especially attractive. Public listings and secondary share sales have given PE firms a clear path to cash out, freeing up capital for the next wave of acquisitions.

Other investors have also reaped substantial gains. Temasek Holdings (Pte) Ltd., for example, has generated roughly a 10-fold return on its 2017 investment in Manipal Health Enterprises Ltd. following a partial stake sale during the hospital operator’s initial public offering in July. The investment delivered an internal rate of return of about 30%, according to VCCircle, a provider of news and data on Indian private markets.

Ratings agency Crisil expects private hospitals’ revenue in India to grow as much as 15% in fiscal 2027, spurred by their ability to treat more patients and an up-to-7% jump in average revenue per occupied bed.

Yet the industry’s strong financial performance has drawn increasing scrutiny from policymakers concerned about affordability. Medical inflation has been running at as much as 13% annually, according to a parliament report.

“For all the benefits of private equity fund infusion, the tax we have to pay is higher cost,” says S. Prakash, chief executive officer of the General Insurance Council’s Health Insurance Ecosystem and Strategic Partnerships. Treatment at private hospitals costs, on average, five to 10 times as much as in the public system, with some of the biggest gaps occurring in cancer care, cardiac treatment, kidney failure and maternity services, according to a panel of Indian lawmakers.

The debate has also increasingly focused on what care should be covered. As hospitals move into more advanced and costly treatments, insurers are questioning whether some procedures provide a sufficient clinical benefit to justify their expense. Hospital operators argue that newer technologies, implants and surgical techniques improve outcomes despite raising costs.

To make coverage decisions, insurers need evidence-based treatment protocols, said Bhabatosh Mishra, chief operating officer of Niva Bupa Health Insurance Co., during an analyst call in May. He added that some robotic procedures can cost significantly more than conventional alternatives without delivering proportionately better outcomes.

For patients, however, these competing arguments often collide at the hospital checkout counter. When 40-year-old Poonam A., a business consultant in Mumbai who requested not to be fully identified because of privacy concerns, sought robot-assisted surgery at a private hospital earlier this year, she expected her state-run health insurance policy to cover the procedure. She paid an annual premium of about 21,000 rupees for a policy that provided 1.5 million rupees in base coverage, with provisions that could substantially increase the available benefit.

Instead, the insurer refused to reimburse the portion of the bill related to the robotic component of the surgery, according to claims documents reviewed by Bloomberg. Poonam ultimately agreed to pay the shortfall out of pocket.

“By the time an insurer enters the picture, the diagnosis has been made, the treatment has been chosen, and the insurer is largely left to settle the bill,” says Animesh Das, CEO of Acko General Insurance. “The real battle in healthcare now is over who owns the patient relationship.”The Insurance Regulatory and Development Authority of India has responded to the wider friction with new rules on cashless treatment and standardized authorization procedures.

Yet decades of experience elsewhere suggest regulation may not provide an easy answer. “The issue of whether or not regulation can contain rising healthcare costs has been debated in the US for 50 years,” says Lawton Robert Burns, a professor at the University of Pennsylvania’s Wharton School who’s studied both the US and Indian healthcare industries. “The jury’s out on that. We’re not convinced that regulation can effectively control costs.”Regulatory intervention in healthcare pricing would undermine India’s investment climate, Jean Eric Salata, chair of EQT Group, said at a media briefing in Mumbai on Sept. 16.

EQT holds significant stakes in IVF provider Indira IVF and tertiary-care specialist Asian Institute of Gastroenterology.

“It will be counter to the trend of deregulation that the government has been supporting, which has encouraged foreign investors like us to continue to invest in the country,” Salata said, adding that if regulation were to happen, it would discourage the firm from further investments.

Representatives for Blackstone, KKR, TPG, Temasek and General Atlantic either declined or didn’t respond to requests for comment. The Insurance Regulatory and Development Authority of India and the Ministry of Health and Family Welfare also didn’t respond to requests seeking comment on the insurer-hospital disputes and their implications for India’s healthcare financing system.

“India has reached a point where healthcare can’t become progressively more expensive while insurance remains affordable,” Das says. “Unless the economics are reset, the biggest casualty will be the missing middle, people who are not eligible for government support and can’t absorb rising medical costs.”