Medical Providers: The Great Rewiring of Healthcare Delivery

Rising capacity constraints, changing patient preferences, labor shortages and new technology are pushing more care toward outpatient facilities, physician groups and other lower-cost settings. At the same time, private capital has spent years consolidating a provider market that remains highly fragmented.

The result is not simply a larger healthcare services market. It is a redistribution of where care is delivered, who owns the provider, and where the economics ultimately accrue.

Here’s what investors should know.

Hospitals remain the backbone — but capacity is getting tight

Hospitals are not disappearing from the healthcare delivery equation. Their role is becoming more concentrated around complex, higher-acuity care.

Among 20 large academic medical centers analyzed in 2025, staffed-bed utilization ranged from 71% to 95%, with several institutions operating at 88%+ utilization and some exceeding the chart’s maximum planning range.

That matters because hospital capacity is difficult and expensive to add. When beds and clinical staff are scarce, keeping lower-acuity procedures inside the hospital becomes increasingly inefficient.

The pressure creates a natural incentive to move appropriate care elsewhere: ambulatory surgery centers, physician offices, home-based settings and virtual channels.

In other words, outpatient migration is not only a cost story. It is increasingly a capacity story.

The provider landscape is shifting away from the hospital

For much of the past decade, the number of US hospitals changed surprisingly little. Roughly 5,000 hospitals operated across state/local government, nonprofit and for-profit ownership structures, with nonprofits representing the largest category.

The more consequential change is happening outside the hospital walls.

EY expects ambulatory and post-acute services to drive healthcare volume growth, including physician practices, behavioral health and ambulatory surgery centers. PwC similarly expects healthcare delivery to become increasingly decentralized as care moves toward outpatient, home and virtual settings.

The economic logic is straightforward. Lower-acuity settings can deliver many procedures with less infrastructure and lower costs than traditional hospitals. EY notes that reimbursement for procedures performed in ASCs can be 40%–60% lower than comparable hospital outpatient department rates.

That creates savings for the system — but also forces operators to become exceptionally efficient.

The hospital is not being replaced. Its monopoly over the patient journey is being dismantled.

Private equity already spotted the opportunity

Capital followed the migration.

Healthcare services became one of private equity's most active hunting grounds as sponsors consolidated fragmented physician practices, ASCs, behavioral health providers, home-based care businesses and specialty groups. But the cycle has changed.

Healthcare services PE deal activity peaked during the 2021–22 investment boom and has fallen considerably since. In Q2 2026, deal count declined 18.5% YoY, while healthcare services deal value during H1 was 7.3% lower YoY.

Physician practice management companies have been hit particularly hard. Q2 PPM activity fell 35.8% YoY, with higher financing costs compounded by growing state scrutiny of PE ownership and MSO structures. Still, the slowdown is uneven.

Clinical staffing, diagnostic laboratories and ASCs remained relatively resilient, while vision and fertility were among the stronger PPM categories. The implication is important: provider consolidation is not ending. It is becoming more selective. The easy-money roll-up era has given way to a market where operational execution matters again.

Not every specialty is created equal

Healthcare services is not one market.

Dental, mental health, home-based care, musculoskeletal care, clinical staffing and dermatology each have at least 20 PE-backed companies held for seven years or longer, according to PitchBook. That creates two simultaneous dynamics.

First, there is a significant inventory of mature sponsor-owned assets that eventually needs an exit. Second, new capital must distinguish between specialties where consolidation can still create value and categories where the traditional roll-up model is increasingly crowded.

The attractive characteristics remain familiar: fragmented ownership, recurring demand, opportunities to centralize administrative functions, favorable demographics and the ability to shift procedures toward lower-cost settings.

EY highlights areas including gastroenterology, ophthalmology, musculoskeletal and cardiovascular care as relevant beneficiaries of ambulatory expansion. But buying practices is only step one.

The next phase of physician-group investing will depend less on adding locations and more on making the platform underneath them work.

The price of consolidation remains high

Despite weaker deal activity, healthcare services assets have not become cheap.

Median entry valuations for PE-backed healthcare services companies increased from 10.3x EV/EBITDA in 2017 to 13.6x in 2025.

Leverage has followed. Median net debt/EBITDA at entry reached 5.2x in 2025, versus 3.7x in 2023. At the same time, sponsors are increasingly buying larger businesses. Median revenue at entry reached $162.5M in 2025, while median EBITDA margins reached 20.5%. That changes the return equation.

When investors enter at double-digit EBITDA multiples with more than five turns of leverage, simply acquiring smaller practices at lower multiples may no longer be enough. Platforms need organic growth, better utilization, centralized operations and technology-driven productivity.

The investment thesis is shifting from multiple arbitrage to operational alpha.

Labor is the constraint — and potentially the opportunity

Healthcare remains unusually dependent on people.

Clinical capacity cannot be expanded simply by opening another location if physicians, nurses and support staff are unavailable. Administrative complexity adds another layer of labor intensity across scheduling, billing, patient access, HR and revenue cycle management.

That makes workforce productivity one of the defining economic questions for providers.

McKinsey estimates that redesigned work and AI enablement could generate 25%–50% productivity improvements across shared-service functions in clinical-care organizations.

The opportunity varies substantially by function:

• Corporate functions: 30%–50%

• HR: 40%–45%

• Patient access: 30%–40%

• Finance and RCM: 30%–35%

• Supply chain: 25%–30%

This is where AI becomes financially interesting. For providers, the immediate prize is not replacing clinicians. It is reducing the administrative machinery surrounding them. Every hour removed from documentation, scheduling, billing or administrative workflows can increase clinical throughput without requiring equivalent growth in headcount. For highly leveraged provider platforms, those productivity gains can flow directly into EBITDA.

Technology is becoming part of the provider business model

The healthcare technology opportunity increasingly sits alongside — rather than outside — healthcare delivery.

Bain estimates that provider-related healthcare PE deal value reached $62B in 2025, up 57% YoY, while provider HCIT deal value reached approximately $32B, doubling YoY. That divergence is revealing.

Capital is not only buying the organizations delivering care. It is increasingly buying the infrastructure that makes those organizations more productive: analytics, workforce optimization, revenue cycle tools, workflow software and broader technology platforms.

EY similarly identifies clinical workflows, patient engagement and revenue cycle management as major AI applications for healthcare providers. This creates a second-order investment thesis around provider consolidation: The winners may not only be the platforms owning physicians. They may also be the companies selling those platforms the tools required to operate at scale.

Follow the EBITDA

McKinsey projects approximately $114B of EBITDA across healthcare services and technology segments by 2029.

Business and managed services represent roughly $59.5B, followed by software, platforms and technology at $36.2B, data and analytics at $16.8B, and consulting services at $1.9B. More important than the absolute numbers is the expected growth profile.

Several technology-heavy segments are projected to grow EBITDA at more than 10% annually between 2024 and 2029, while portions of traditional administrative services grow considerably more slowly.

The healthcare delivery value chain is therefore expanding in two directions at once Care is moving outward from expensive centralized hospitals toward distributed provider settings. And value creation is moving inward — toward the software, data, payments, workflow and operational infrastructure connecting those providers.

Bottom Line

The medical provider opportunity is no longer simply about owning more clinics.

The healthcare delivery system is being rewired around three increasingly scarce assets: patients, clinical capacity and operating infrastructure.

Hospitals will remain essential for complex care, but capacity constraints and cost pressure are accelerating the migration of lower-acuity procedures toward ASCs, physician practices, home-based care and other distributed settings.

Private equity has already spent years consolidating those markets. Now the playbook is changing. Higher entry multiples, leverage, regulatory scrutiny and slower deal activity make traditional roll-ups harder to underwrite.

The next phase will be about operational leverage.

For investors, that means the most attractive platforms may be those that combine fragmented provider markets with strong demand, scalable operations and clear opportunities to use technology to increase throughput and margins.

And the biggest winners may not all own the provider.

Some will own the infrastructure that makes the provider more valu

Sources

American Hospital Association (AHA) / Statista — Number of hospitals in the United States from 2010 to 2019, by ownership type. Accessed via Economics By Design.
https://economicsbydesign.com/health-system/health-providers/types-of-healthcare-providers/

EY — Healthcare sector outlook in 2026. Analysis of healthcare delivery volumes, ambulatory and post-acute growth, ASC economics, physician practices, M&A and AI adoption.
https://www.ey.com/en_us/insights/strategy/healthcare-sector-outlook-in-2026

PwC — Healthcare trends: The future of providers. Analysis of decentralized healthcare delivery, hospital economics, outpatient care, home-based care and virtual delivery models.
https://www.pwc.com/us/en/industries/health-industries/library/healthcare-trends.html

McKinsey & Company — The real future of work in healthcare. Analysis of workforce redesign and potential productivity improvements across corporate functions, HR, patient access, finance, revenue cycle management and supply chain.
https://www.mckinsey.com/industries/healthcare/our-insights/the-real-future-of-work-in-healthcare

McKinsey & Company — What to expect in US healthcare. Healthcare profit-pool analysis and projected EBITDA distribution across business and managed services, data and analytics, consulting, and software, platforms and technology.
https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare

PitchBook — Q2 2026 Healthcare Services Report: Gusting Macroeconomic Headwinds Impede Progress. Published August 14, 2026. PE deal activity, provider and PPM transactions, specialty-level investment trends, PE-backed company inventory, entry valuations, EBITDA margins and leverage. Geography: US and Canada.

Bain & Company — Global Healthcare Private Equity Report 2026. Healthcare PE activity, provider and related services investment, provider HCIT, site-of-care migration and physician-group value creation.
https://www.bain.com/globalassets/noindex/2026/bain_report_global-healthcare-private-equity-report-2026.pdf

KPMG — 2026 Healthcare & Life Sciences Investment Outlook. Healthcare services M&A, physician organizations, ASCs, post-acute care, urgent care and specialty-provider investment trends.
https://kpmg.com/us/en/articles/2026/kpmg-2026-healthcare-life-sciences-investment-outlook.html

Boston Consulting Group (BCG) — The Direct-to-Patient Future of Health Care. Analysis of healthcare consumerization, direct-to-patient models, AI and the evolving patient journey.
https://www.bcg.com/publications/2026/the-direct-to-patient-future-of-health-care