Supporting the health of your healthcare organization

2025 marked a year of divergence for healthcare. Below, we outline key areas for healthcare organizations to watch in 2026. 

Healthcare private equity M&A: Divergence in 2025, convergence ahead in 2026

While overall transaction volume declined for the fourth consecutive year in 2025, aggregate deal value increased – largely benefiting sponsors and helping strategic buyers bring transactions across the finish line. This growth in value was driven largely by a resurgence of “mega-deals,” with enterprise values approaching or exceeding $1 billion, as buyers pursued fewer, but more consequential, platform acquisitions.

Deal activity was highly concentrated. Strategic acquirers and well-capitalized sponsors targeted private equity-backed healthcare platforms in physician specialties (including oncology, gastroenterology, and urology), dental services, behavioral health, and healthcare IT – particularly businesses with differentiated, artificial intelligence (AI)-enabled assets.

In contrast, the lower-middle market experienced sustained pressure. Add-on acquisitions, historically the backbone of healthcare roll-up strategies, proved increasingly difficult to execute amid heightened regulatory, financing, and operational constraints.

A convergence of macroeconomic and regulatory headwinds weighed heavily on healthcare mergers and acquisitions (M&A) activity in 2025. Elevated borrowing costs and tight credit markets dampened leverage-driven returns, while more exacting diligence requirements extended timelines and increased execution risk. Provider margins faced sustained pressure from reimbursement headwinds, including heightened scrutiny following the “One Big Beautiful Bill” Act (OBBBA)’s Medicaid reforms and commercial payor in-network pricing strategies.

At the same time, operating costs rose materially. Wage inflation increased overhead, while the need for ongoing capital investment in AI, data infrastructure, and cybersecurity – to further address legacy technology debt – strained earnings and cast doubt on pro forma projections for more cautious spenders. Compounding these challenges, a growing wave of state-level legislation and rulemaking aimed at curbing private equity influence in healthcare introduced expanded regulatory oversight, longer periods between signing and closing, and increased transaction costs – contributing to deal fatigue across the market.

And yet, healthcare M&A interest remains intact and unshaken. Boardrooms across the country remained focused on exploring how to scale. Strategic joint ventures, minority investments, and mergers of equals gained traction in 2025 as sponsors and operators sought alternative pathways to growth and risk-sharing. If 2025 was defined by divergence, 2026 is increasingly shaping up to be a year of convergence – driven by healthcare’s recession-resistant fundamentals and renewed investor confidence. Notably, J.P. Morgan recently issued a favorable outlook for healthcare and life sciences, a meaningful shift following several years of sector underperformance.

Several factors are expected to support a rebound in healthcare private equity M&A in 2026, including:

• Greater clarity around earnings stabilization, as payors appear to have repriced their insurance books and provider contracts and many healthcare organizations show signs of having reached a financial floor
  
  
• Mounting exit pressure, as many private equity sponsors now hold healthcare assets beyond traditional investment horizons – making realizations a strategic imperative amid new fundraising cycles
  
  
• Record levels of private equity dry powder coupled with easing interest rates, with creative deal structures – including seller financing, rollover equity, and earnouts – bridging valuation gaps between buyers and sellers

Key trends likely to shape healthcare M&A opportunities in 2026 include:

• Accelerating consolidation in post-acute care sectors such as ambulatory surgery centers, hospice, and home health
  
  
• Sustained interest in AI-driven and tech-enabled healthcare platforms, particularly those focused on interoperability, predictive analytics, and value-based care models designed to reduce hospital admissions and improve outcomes
  
  
• Growing momentum in medtech solutions that enhance remote monitoring, care coordination, and patient engagement
  
  
• Increasing – but still early-stage – attention to the longevity and wellness sector, which has made meaningful scientific and entrepreneurial advances but has yet to fully mature for large-scale institutional investment

Positioning for the next cycle

While 2025 proved to be a turbulent year for healthcare private equity M&A, it also laid the groundwork for the next phase of growth. Markets are recalibrating, regulatory frameworks are becoming clearer, and capital remains both patient and plentiful. The sponsors and operators best positioned to succeed in 2026 will be those who combine strategic creativity with regulatory fluency, disciplined execution, and a willingness to rethink traditional deal structures and unlock new value opportunities.

As healthcare enters this period of convergence, transaction success will likely hinge less on momentum and more on judgment. For investors, operators, and healthcare platforms alike, the coming year presents not just an opportunity to transact – but an opportunity to transact smarter.

Government advocacy

The healthcare regulatory landscape in 2026 is expected to be shaped by the implementation of the OBBBA’s Medicaid restructuring and the anticipated expiration of enhanced Affordable Care Act subsidies. Together, these initiatives would increase the uninsured population and likely strain providers across the spectrum: hospitals, physician groups, behavioral health organizations, and other healthcare entities.

Further legislative modifications affecting healthcare are likely as Congress continues to refine these provisions, making sustained advocacy key. Private equity-backed healthcare organizations face an increasingly complex state legislative environment, with several states advancing disclosure requirements, transaction review processes, and operational restrictions requiring proactive engagement. Heightened federal and state program integrity enforcement will require providers to ensure their Medicare and Medicaid billing and compliance programs are audit-ready.

Strategics

Financial pressure is expected to drive innovation among strategic buyers in healthcare and insurance in 2026. On the payer side, insurers will likely continue to tighten benefits, reimbursement, and networks to manage rising premiums, address high-cost drugs, and account for the loss of certain federal subsidies and other reimbursement.

Pharmacy benefit managers (PBM) face escalating state oversight – restricting revenue modes and contracting practices and imposing transparency obligations. Cost containment strategies will likely play a central role in payers’ business plans, including care and disease management programs, formulary redesigns, narrow networks, and utilization management.

These efforts elevate the premium on value-based care. To succeed in the market, healthcare providers will need to deliver high-quality, low-cost care while taking meaningful financial risks. Clinically integrated networks (CIN), accountable care organizations (ACO), and other managed care entities will be well-positioned; however, payers’ expectations for value and quality will call for investment in digital health platforms (including AI tools), data management, and remote care capabilities.

Employer-sponsored health plans will likely continue to evolve as plan sponsors control spending and address rising Employee Retirement Income Security Act (ERISA) litigation risks. Employers will likely test new payment models, such as individual coverage health reimbursement arrangements (ICHRA), and will reevaluate vendor strategies, including direct-to-employer contracting and alternatives to traditional PBM arrangements.

Intensified scrutiny of M&A transactions for both payers and providers can be expected in 2026. Uncertainty and risk of delays are rising due to the withdrawal of long-standing, federal healthcare antitrust guidance and the increase in state requirements for notice and approval of healthcare transactions. In this more rigid regulatory environment, failures to secure required approvals and licensure, comply with corporate practice of medicine and fee‑splitting rules, or maintain robust federal and state compliance can trigger delays and enforcement actions. Strong compliance programs and well-developed transaction strategies will be key to mitigating antitrust risk, securing timely approvals, and avoiding government investigations and enforcement.

Healthtech and AI

The rapid advancement and adoption of healthcare technology tools, including the implementation of AI and machine learning, is anticipated to continue assisting in all aspects of healthcare delivery – ranging from diagnostic tools to the use of AI agents in more complex multi-step administrative processes.

These advancements in technology are expected to generate increased patient-centered and patient-driven care, as well as increased interest in general health and wellness, including through the use of wearable devices. Life sciences companies are also likely to continue penetrating the patient services market through partnerships, acquisitions, and de novo service and technology development.

In the health tech space, patient data will likely continue to hold power and generate value, raising questions about the ownership of such data and the notices and consents necessary for such use by third parties. In particular, continued state regulation of patient privacy rights can be expected – creating additional challenges for healthcare industry stakeholders to operate and innovate.

Healthcare disputes

Challenging economic conditions underlying the healthcare system are also expected to significantly drive disputes. The Trump Administration has made it clear that identifying and eliminating waste in government programs is a priority. With this in mind, increasing government investigations and a steady flow of qui tam actions can be expected.

With the increased economic pressures, especially in relation to capitated or value-based programs, a push and pull is anticipated to continue between providers and payors, and between payors and service providers – such as disease management companies – over the fixed pot of money available.

Additionally, as Robert F. Kennedy Jr. continues to roll out policies at the Department of Health and Human Services, significant programmatic litigation is likely to be funded by the key players in the industry, aimed at preventing the implementation of policies that have adverse consequences for that segment of the industry. Finally, litigation over the role of AI and chatbots in medical care is expected to be the new frontier in healthcare litigation; the first wave of product liability cases has already been brought against AI companies.

Healthcare restructuring

Healthcare companies – ranging from small, rural providers to large healthcare systems – will likely continue to face pressure from high labor costs, staffing shortages, increased operational costs, and reimbursement uncertainty related to the OBBBA.

In fact, in the third quarter of 2025, 12 healthcare companies commenced chapter 11 cases, 4 of which involved companies with liabilities exceeding $500 million. These mega chapter 11 filings, including cases commenced by Genesis Healthcare and Prospect Medical Holdings, demonstrate that even large-scale, private equity-backed healthcare organizations are not immune from financial pressures.

Additionally, an increasing number of healthcare companies have addressed their financial distress outside of court proceedings by utilizing “liability management exercises,” pursuant to which companies negotiate with key stakeholders to deleverage their balance sheets and obtain new funding and extended maturity dates.

To navigate the anticipated headwinds in 2026, healthcare companies are encouraged to carefully examine the impact of economic pressures on their operations and consider all available alternatives to mitigate financial distress. Financially stable companies can explore the unique opportunities that often arise during challenging times to acquire assets, expand service lines, and gain market share at steep discounts through strategic acquisitions of distressed companies.

For more information

DLA Piper stands ready to help clients navigate federal and state challenges in healthcare as the year unfolds. For more information, please contact the authors.