For roughly a decade, a physician group putting itself up for sale could expect a predictable auction dynamic: private equity would outbid the hospital system. PE had cheaper capital, more aggressive growth assumptions, and a rollup thesis that justified paying more than a strategic buyer evaluating the practice on its standalone economics.

That is no longer true, and the reversal happened fast.

The numbers that describe the flip

As of Q1 2026, the median EV/EBITDA multiple for PE-backed healthcare deals was 10.7x, down from 15.3x in 2025, while the median multiple for strategic acquirers rose to 13.4x from 9.0x, the highest strategic median recorded in the last five years.

Read those four numbers together. PE valuations fell by roughly a third. Strategic valuations rose by nearly half. The gap did not just narrow, it inverted. Whoever was the high bidder in 2024 is probably not the high bidder now.

The other half of the picture is volume. Private equity remains the dominant buyer type in physician practice M&A, representing 54.6% of all healthcare deal volume in Q1 2026, the first quarterly increase in PE's share in five years.

So PE is doing proportionally more deals while paying substantially less for them. That combination is the interesting part, and it is not what either side of the private-equity-in-healthcare debate expected.

What regulation actually did

The conventional narrative held that mounting scrutiny would drive private equity out of health care. FTC action and state attorney general enforcement in 2024 and 2025 fundamentally changed the calculus for physician practice rollups, slowing the pace of platform consolidation, and a wave of state-level legislation sought to impose greater scrutiny on PE-backed transactions and management services organizations.

The volume data says that did not happen. PE's share went up.

What the price data says is that regulation did something else: it repriced risk. Deals that carry meaningful antitrust exposure, lengthy state review, or the possibility of unwinding are worth less to a financial buyer whose entire model depends on a clean exit in three to seven years. Regulatory uncertainty does not merely add cost, it lengthens and endangers the exit, which is the thing a fund is actually selling to its investors. So PE bids come down.

A hospital system faces the same regulatory environment but a different clock. It is not exiting. It is buying a practice to hold, for referral capture, network completeness, and market position, benefits it captures over decades rather than a fund cycle. The same regulatory friction that discounts a PE bid barely moves a strategic one.

That asymmetry explains the inversion, and it means the practical effect of scrutiny was not to stop consolidation but to shift who does the consolidating. Practices are still being acquired. They are increasingly being acquired by hospital systems and strategic operators rather than financial sponsors. Whether that is an improvement depends entirely on one's view of hospital consolidation, which has its own well-documented effects on prices.

Where the money went instead

Capital did not leave health care. It moved to where regulation is thinner.

Private equity investors are moving away from reimbursement and regulatory exposure and toward software and services platforms that support care delivery, including AI-based telehealth platforms and revenue cycle tools. That is a rational reallocation: a software company serving providers has customer concentration risk but no Medicare reimbursement risk, no state licensing regime, and no attorney general asking whether it is practicing medicine without a license.

Within services, capital concentrated in specific sub-sectors, behavioral health, fertility and IVF, dermatology re-entry, urgent care, MSK and orthopedics, home health, and dental DSOs, at multiples of roughly 12 to 18x for behavioral health, 8 to 12x for orthopedics, and 8 to 14x for dental after correction. Pediatrics was among the fastest-growing targets, with PE investment in pediatric outpatient care tripling year over year in 2025.

Carve-outs are also rising, with sellers shedding labs, home health, and revenue-cycle units as non-core, and buyers picking them up as standalone platforms. That is a market rearranging its pieces rather than shrinking.

The structures shifted risk onto sellers

The less-discussed change is in deal terms, and for anyone selling a practice this matters more than the headline multiple.

Deals in 2026 require larger rollover equity of 20 to 40%, longer earn-outs, regulatory escrows, and tighter management incentive plans than 2022 deals.

Each of those moves risk from buyer to seller. Rollover equity means a physician-owner leaves a substantial share of their proceeds invested in the acquiring platform, so their outcome now depends on the buyer's performance rather than their own past results. Longer earn-outs mean more of the price is contingent on future numbers. Regulatory escrows mean money is held back against the possibility that a state review goes badly.

The practical consequence: a headline multiple is now a much weaker guide to what a seller actually receives. A 12x deal with 40% rollover and a three-year earn-out may deliver less certain cash than a 10x deal paid at closing. Comparing offers on multiple alone has become genuinely misleading.

The buyer mix has broadened too, with search funders, family offices, strategic operators, and potentially ESOP buyers replacing first-wave private equity in many sub-sectors. Those buyers have different hold periods, different return expectations, and different appetites for the terms above, which is why running a narrow process aimed only at PE firms now leaves value on the table.

Why volatility is the norm now

The deal-value swings tell their own story: $19 billion in Q4 2024, down to $7 billion in Q3 2025, then back to $22 billion in Q4 2025.

That is not a market responding to fundamentals, which do not move that fast. It is a market responding to policy signals. Concerns about reimbursement policy and regulatory scrutiny continue to weigh on valuations and slow deal timelines, especially in policy-sensitive areas, and buyers are favoring assets with steady cash flow, clearer reimbursement outlooks, and proven operations, leaning toward smaller deals and carve-outs that avoid heavy regulatory exposure.

Health care M&A has become a policy-derivative asset class. When Washington or a state capitol signals a direction, volume moves within a quarter. Anyone timing a transaction is now, unavoidably, timing a regulatory forecast.

What it means if you are the one selling

For a physician-owner, three implications follow directly from the data.

The identity of the highest bidder has changed. If your last valuation conversation was in 2023 and assumed a PE buyer would top the market, that assumption is now probably wrong, and running a process that does not seriously include hospital systems and strategic operators risks missing the best price.

Regulatory cleanliness is now a valuation input. Assets with clear reimbursement exposure, uncomplicated corporate-practice-of-medicine structures, and no antitrust overlap command a premium precisely because so many buyers are avoiding regulatory risk. Practices should expect scrutiny of their MSO structure, payer mix, and market share as pricing factors rather than just diligence items.

And terms deserve at least as much attention as price. With rollover in the 20 to 40% range, the question is no longer only what someone will pay, but how much of the outcome remains yours to control after closing.

The larger pattern is the one worth remembering. Consolidation in American health care did not stop when regulators started paying attention. It changed shape, changed owners, and moved toward the corners of the sector where oversight is lightest. That is the more durable lesson than any single quarter's multiple.

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