Hospital, private equity M&A expected to rise in 2026

Modern Healthcare – Thursday, December 18, 2025
By Alex Kacik

Health systems and physician groups were reluctant in 2025 to execute deals that would have led to industry consolidation and rising investment by private equity firms.

Next year is likely to be different.

In 2025, inflation and high labor costs squeezed cash reserves, looming “One Big Beautiful Bill” policies threatened reimbursement and new state laws aimed to curb private equity investment in healthcare. Aside from a handful of large deals, mergers and acquisitions took a back seat to less capital-intensive revenue growth strategies, such as streamlining billing and collections.

Dealmaking is expected to increase next year now that hospitals and physician groups have a clearer picture of how new federal and state policies could impact their businesses. New health system and physician group CEOs are mapping out their visions and growth strategies, potentially including new merger partners.

“The concern that states are going to come in and block everything has not materialized,” said John Saran, a healthcare lawyer at law firm Holland & Knight who focuses on mergers and acquisitions.

Health systems seek outpatient scale

Health systems are looking to grow their ambulatory networks, which likely will lead to more physician practice acquisitions and clinical affiliations.

For example, CommonSpirit is working to expand its ambulatory services offerings as well as its inpatient facilities, particularly in high-growth markets such as Denver, Phoenix and the Puget Sound region of Washington, John Petersdorf, senior vice president of operational finance, said during a Dec. 3 investor call. The Chicago-based, 158-hospital system also looks to boost revenue in its Utah market by adding physicians, he said.

“A lot of focus on growth is how we’re going to improve performance in [Utah],” Petersdorf said.

St. Louis-based Ascension’s $3.9 billion bid for ambulatory surgery center operator Amsurg indicates where the provider sector is headed, industry observers said. Regulation, patient preference and new technology are shifting more care from hospitals to lower-cost ambulatory facilities along with health systems’ merger and acquisition targets.

Regional health systems will continue to build their inpatient footprint through small hospital system deals, including those with integrated health plans such as Tacoma, Washington-based MultiCare Health System’s proposed acquisition of Corvallis, Oregon-based Samaritan Health Services. But many health systems, such as the University of Pittsburgh Medical Center and its joint venture with GoHealth Urgent Care, are focused on outpatient expansion.

The financial pressures stemming from reimbursement decreases have outweighed any regulatory hurdles posed by state laws implemented in 2025 and taking effect next year, advisers said. California, Oregon, Washington, Colorado, New Mexico, New York, Colorado, Illinois and other states have passed legislation that requires health systems to notify state overseers about proposed transactions. Some state laws give attorneys general the authority to place conditions on a deal.

More robust state laws, as well as more thorough federal merger filing requirements implemented in February, have added some preparation, time and cost to merger filings and reviews. But the regulations have not deterred deals, advisers said.

“In early 2026, we are going to see a lot more hospital deals because there is a backlog and operational and cost pressures are mounting,” said Ken Field, an antitrust healthcare attorney at law firm Hogan Lovells.

National health systems will continue to sell hospitals in markets where they do not have competitive market share, said Anu Singh, managing director at consultancy Kaufman Hall. Those downsizing plays, along with outpatient expansions, will help insulate health systems from reimbursement decreases, he said.

“Hospitals for too long believed inpatient scale would provide a competitive advantage,” Singh said. “Scale provides a certain level of safety, but health systems are looking less toward scale and more toward specific capabilities, know-how and complementary services. This new way of thinking about competitive dynamics will drive new transaction types.”

PE-backed healthcare deals to grow

Private equity investment in healthcare is expected to rebound in 2026, with corporate investors betting on healthcare information technology and biotech over physician groups that depend on volatile government funding.

Private equity firms will look outside of physician practice management where there is less regulatory scrutiny, such as revenue cycle software, pharmaceutical management technology and the medtech sector.

For example, private equity firm Curewell Capital announced in October a majority investment in Wilmington PharmaTech, which manufactures pharmaceutical ingredients.

Some providers still will enter into joint venture agreements with private equity-backed physician practice management service organizations. Those organizations, which are often funded or owned by private equity firms, bundle administrative tasks like purchasing, billing and contracts with insurers to try to lower operating costs across broad networks of physician practices.

Health systems still can retain majority ownership of these businesses, allowing them to keep their branding on ambulatory surgery centers and generate referrals while avoiding regulatory reviews associated with changes of ownership.

“These state laws are certainly affecting how private equity is structuring deals, such as taking on minority stakes,” said Michael Ramey, managing principal of strategic and transaction solutions at accounting and consulting firm PYA.

New corporate practice of medicine laws, such as one slated to take effect next year in Oregon, could deter full-scale acquisitions. The law is designed to ensure clinical decisions are made by doctors rather than management services organizations.

California passed two laws this year imposing restrictions on the corporate practice of medicine, but the laws were not as comprehensive as Oregon’s. Other states are expected to introduce similar bills next year targeting private equity investment in healthcare, said Angela Humphreys, chair of the healthcare practice group at law firm Bass, Berry & Sims.

Still, most of these laws — outside of Oregon — aren’t expected to halt private equity-linked deals in specialties with the biggest supply-demand gap, such as behavioral health and primary care.

Private equity firm Achieve Partners is one of many firms investing in the applied behavioral analysis sector. In August, the company announced an investment in Westside Children’s Therapy, which provides physical, occupational, speech and other services.

“Physician practice management deals will increase next year, but not as much as health IT and deals in the payer space trying to make healthcare more affordable for self-insured businesses,” said Rob Larson, managing director at consultancy Stax.

Access this article at its original source.