As States Tighten Oversight, Private Equity’s Healthcare Deals Decline

 

As States Tighten Oversight, Private Equity’s Healthcare Deals Decline

## The Era of Unchecked Growth Is Over

For years, private equity firms moved through the healthcare system like a quiet tide, sweeping up physician practices, outpatient clinics, and hospitals with little public notice or regulatory friction. The strategy was simple: consolidate, cut costs, boost revenues, and exit with a hefty profit. From 2018 to 2024, the healthcare services sector averaged **903 deals per year**. In 2021 alone, private equity firms completed a staggering **851 deals** for physician practice management companies.

Those days are over.

New data from PitchBook paints a picture of a market in retreat. Private equity healthcare services deals dropped **18.5% year-over-year in the second quarter of 2026**. Total deal value for the first half of 2026 was down **7.3%**. And the segment hardest hit—physician practice management—is on track to see **half the number of deals** this year as it did in 2025.

The cause? A cascade of new state laws designed to do exactly what they're doing: slow the private equity machine down.

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## The Numbers Tell a Stark Story

### A Market in Retreat

The data from PitchBook's Q2 2026 Healthcare Services Report is unambiguous:

**Overall Decline:** Healthcare services PE deals fell **18.5%** year-over-year in Q2 2026. The projected deal count for 2026 is on pace to be the lowest since **2017**.

**Physician Practice Management (PPM):** This segment, where private equity has the largest role, posted **71 deals** in Q2 2026, down from 111 in Q2 2025—a **35.8%** decline. The segment is on track to drop **46%** for the full year compared to 2025.

**Generalist and Multispecialty Providers:** This segment is pacing to finish 2026 at **54.4% below** 2025 levels—the steepest projected decline among all segments.

**Deal Value:** The first half of 2026 saw just **$17.8 billion** in deal value, far below the annual average of $62.8 billion since 2018.

**Exits:** 2026 exit count is projected to finish **26.5% below** 2025 levels, with exit value down **30.9%**.

### The Peak and the Fall

To understand the magnitude of the shift, consider the trajectory of physician practice management deals:

| Year | PPM Deals |

|------|-----------|

| 2021 (Peak) | 851 |

| H1 2026 | 105 |

That's a decline of nearly **88%** from the peak. What was once a gold rush has become a trickle.

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## Why the Decline? The States Strike Back

### A Wave of New Legislation

The primary driver of the slowdown, according to PitchBook analysts, is a **slew of new state laws** targeting private equity in healthcare.

At least **11 states** have enacted laws over the past two years to increase oversight of private equity healthcare transactions:

- **California, Connecticut, Delaware, Illinois, Indiana, Maine, Massachusetts, New Mexico, Oregon, Vermont, and Washington** have all adopted measures ranging from greater disclosure and transaction review to restrictions designed to keep medical practice decisions in physicians' hands.

An additional **22 bills** are pending in state legislatures, though many have seen little recent activity. At least **26 states introduced 79 bills** in 2026 addressing private equity's role in healthcare.

### What the Laws Actually Do

The new regulations vary by state but share common themes:

**1. Advance Notice and Transparency.** A new California law that took effect January 1, 2026, requires **at least 90 days' advance notice**, as well as detailed financial and governance information for certain healthcare transactions. Rhode Island enacted a similar law requiring advance notice for transactions involving private equity firms and management services organizations.

**2. Restrictions on Corporate Control.** Oregon's law, which took effect in January 2026, prohibits management services organizations from having majority control or ownership over a medical practice. It specifically targets the "friendly physician" model, where out-of-state physicians are used to own the clinical side of a practice while investors retain control of administrative and billing services.

**3. Broader Scrutiny.** Illinois became the latest state to tighten oversight when Governor JB Pritzker signed House Bill 5000 into law on August 7, 2026, effective January 1, 2027. Connecticut passed what may be the strongest law in the country addressing transparency and accountability for private equity-owned nursing homes.

### The Practical Impact

These new regulations are having a tangible effect on dealmaking. According to PitchBook, the laws are:

- **Lengthening transaction timelines**

- **Increasing deal costs and complexity**

- **Making serial roll-up strategies more complicated to execute**

As Brian Wright, lead research analyst of healthcare at PitchBook, told Fierce Healthcare: *"That has had an impact from our conversations with several lawyers who focus on PE and healthcare services. It's a longer regulatory process, and no one wants to be the first to go through a new regulatory process"*.

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## The Catalyst: High-Profile Failures and Public Outcry

### The Steward Health Care Collapse

The push for regulation didn't emerge from nowhere. It was fueled by high-profile failures that made private equity's role in healthcare a public issue.

The collapse of **Steward Health Care** is perhaps the most notable example. A private equity firm acquired a struggling six-hospital Massachusetts system and formed Steward in 2010. The firm later ended its investment. Steward expanded to more than 30 hospitals across eight states and entered into a sale-leaseback of hospital property with a real estate investment trust (REIT). In 2024, Steward filed for Chapter 11 bankruptcy with about **$9 billion in liabilities**, including $6.6 billion in long-term rent obligations.

### The Real Estate Trap

The Steward case highlighted a broader concern: **sale-leaseback deals** that leave hospitals without ownership of their real estate while still paying considerable rent to REITs. A 2025 study published in *The BMJ* found that among 87 hospitals whose real estate was acquired by REITs, **25% later closed or filed for bankruptcy**, compared with just 4% of matched hospitals.

These statistics have alarmed state officials and lawmakers, who are now trying to prevent similar outcomes.

### The Optum Backlash

In Oregon, the takeover of the Eugene-Springfield-area Oregon Medical Group by Optum prompted the loss of dozens of doctors who were forced to sign agreements blocking them from working for other area medical practices. Optum reversed course after pressure from lawmakers in May 2024, and Oregon's subsequent law rendered such agreements largely unenforceable.

Courtni Dresser, vice president of government relations for the Oregon Medical Association, captured the sentiment: *"We'll keep watching how it plays out in practice, but our focus remains the same: making sure physicians, not investors, are the ones making medical decisions"*.

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## The Economic Factors: It's Not Just Regulation

While state laws are a primary driver, they're not the only factor. The slowdown in private equity healthcare deals also reflects broader economic pressures.

### Higher Interest Rates

Rising interest rate expectations have made leveraged buyouts more expensive and less attractive. The cost of debt has increased, squeezing the returns that private equity firms can generate from healthcare acquisitions.

### Soft Healthcare Utilization

Softer patient volumes have also weighed on dealmaking. Hospitals, traditionally the largest strategic acquirers of physician practices, can't proceed with deals if their bottom line has taken a hit due to lower utilization trends.

Wright speculated that lower utilization may be due to shrunk coverage for Americans who had relied on now-expired Affordable Care Act subsidies.

### The "Fear Factor"

There's also a psychological element. As one attorney cited in the PitchBook report noted, *"no one wants to be the first to go through a new regulatory process"*. The uncertainty surrounding new laws has created a wait-and-see attitude among private equity firms.

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## The Segments: Winners and Losers

Not all healthcare segments are suffering equally. The slowdown is uneven, with some areas proving more resilient than others.

### The Hardest Hit: Physician Practice Management

PPMs have been hit hardest, with deals on track to decline by **46%** this year. The segment posted **71 deals in Q2 2026**, down from 111 in Q2 2025.

### The Steepest Decline: Generalist and Multispecialty Providers

This segment is pacing to finish 2026 at **54.4% below** 2025 levels—the steepest projected decline among all segments.

### The Most Resilient: Ancillary and Outsourced Services

Ancillary and outsourced services companies are faring best, on track to land just **4.9% below** 2025's deal count. Within this segment, clinical staffing, diagnostic labs, and ambulatory care services all remained strong.

### Bright Spots

Within other segments, urgent and emergency care, elder care, and fertility deals were bright spots. The largest transaction in the quarter was KKR's **$3.4 billion IPO** of Global Medical Response.

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## The Human Cost: Why This Matters

Behind the numbers and regulations are real people: patients, physicians, and communities affected by private equity's presence in healthcare.

### The Patient Impact

Rhode Island Attorney General Peter Neronha framed the issue in stark terms: *"Private equity and increasing market consolidation drive up the cost of care, further inhibiting patient access"*. His state's new regulation, he said, would give his office *"a bird's eye view to ensure that future medical group mergers do not harm Rhode Islanders' access to health care services"*.

### The Physician Impact

The Optum case in Oregon illustrated how private equity takeovers can affect physicians—forcing them to sign non-compete agreements that block them from working elsewhere. Oregon's subsequent law rendered such agreements largely unenforceable.

### The Community Impact

When hospitals backed by private equity fail, communities lose access to essential healthcare services. The Steward Health Care bankruptcy left hospitals across eight states in limbo, with patients and communities bearing the consequences.

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## The Future: What Comes Next?

### Will the Slowdown Continue?

The decline in private equity healthcare deals appears likely to continue, at least in the near term. New laws in Illinois and other states are set to take effect in 2027, adding to the regulatory burden. And the broader economic headwinds—higher interest rates, soft utilization—show no signs of abating.

### Will Private Equity Adapt?

PitchBook expects a rebound to be "imminent," but the recovery may look different from the boom years. Wright believes PPMs will benefit from efficiency gains thanks to artificial intelligence, which could eventually revive dealmaking.

But the era of unchecked consolidation is over. Future deals will likely be smaller, more targeted, and subject to greater scrutiny.

### The Policy Debate Continues

The battle over private equity in healthcare is far from settled. With at least 22 bills still pending and more states considering legislation, the regulatory landscape will continue to evolve.

As Michael Fenne, healthcare senior policy coordinator at the Private Equity Stakeholder Project, noted: *"Many [of the laws] add notice provisions that only took effect in 2026 or will take effect in 2027. It may still be too early to say"*.

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## Frequently Asked Questions (FAQs)

### 1. How much have private equity healthcare deals declined in 2026?

Private equity healthcare services deals dropped **18.5%** year-over-year in the second quarter of 2026. Physician practice management deals are on track to decline by **46%** for the full year.

### 2. Why are private equity healthcare deals declining?

The decline is driven by a combination of factors: new state laws increasing oversight of healthcare transactions, higher interest rates, soft healthcare utilization, and uncertainty about the regulatory process.

### 3. Which states have enacted new laws targeting private equity in healthcare?

At least **11 states** have enacted laws over the past two years: California, Connecticut, Delaware, Illinois, Indiana, Maine, Massachusetts, New Mexico, Oregon, Vermont, and Washington.

### 4. What do the new state laws actually do?

The laws vary but generally require advance notice and transparency for healthcare transactions, restrict corporate control of medical practices, and increase scrutiny of private equity-owned facilities.

### 5. What is the "friendly physician" model?

The "friendly physician" model is a practice where out-of-state physicians are used to own the clinical side of a practice while investors retain control of administrative and billing services. Oregon's new law specifically targets this model.

### 6. What role did high-profile failures play in the regulatory push?

The collapse of Steward Health Care and other private equity-backed healthcare failures helped put the issue on lawmakers' radar. A study found that 25% of hospitals whose real estate was acquired by REITs later closed or filed for bankruptcy.

### 7. Will the decline in private equity healthcare deals continue?

Most analysts expect the slowdown to continue in the near term, as new laws take effect and economic headwinds persist. However, PitchBook expects a rebound to be "imminent," potentially driven by efficiency gains from artificial intelligence.

### 8. What does this mean for patients?

Proponents of the new regulations argue that increased oversight will protect patients from the negative effects of consolidation, including higher costs and reduced access to care.

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## Conclusion: A Pivotal Moment for Healthcare

The decline in private equity healthcare deals marks a pivotal moment in the ongoing debate over the role of investors in America's healthcare system. After years of rapid consolidation, the brakes are finally being applied.

The new state laws reflect a growing recognition that healthcare is not like other industries. When private equity firms treat hospitals and physician practices as assets to be bought, stripped, and sold, patients suffer, physicians leave, and communities lose access to essential care.

The Steward Health Care collapse, the Optum backlash, and the mounting evidence of harm have prompted a regulatory response that is reshaping the healthcare M&A landscape. Deals are taking longer, costing more, and facing greater scrutiny.

Whether this slowdown represents a permanent shift or a temporary pause remains to be seen. PitchBook expects a rebound, driven by the promise of AI-driven efficiency gains. But the era of unchecked consolidation is over.

As Oregon Medical Association's Courtni Dresser put it: *"Our focus remains the same: making sure physicians, not investors, are the ones making medical decisions"*.

For now, the data is clear: the private equity machine is slowing down. And for many patients, physicians, and communities, that may be a very good thing.

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## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The views expressed are based on publicly available data and reports as of August 2026. Market conditions, regulatory landscapes, and deal activity are subject to change. The author does not endorse any specific investment strategies or policy positions. Before making any financial or investment decisions based on the content of this article, please consult with qualified professionals who can evaluate your specific situation.*