US Healthcare: Strategic Navigation Amid Industry Challenges

A challenging environment

When it comes to headline transactions and market-moving M&A, the healthcare industry may not immediately come to mind. But in the United States—as in many economies around the world—healthcare is a dynamo.

In 2024, US healthcare deal activity continued to slow after its peak in 2021, with total deals declining roughly 30 percent year over year. Headwinds included high multiple expectations, given prior valuations in key sectors (for example, healthcare services and technology); continued margin pressure for payers and providers, which limited the funds available for acquisitions; and regulatory uncertainty (Exhibit 1). In this article, we assess US deal activity in 2024, identify important developments since 2023, and highlight key insights across leading sectors.

US healthcare deal trends in 2024

When we examined 2024 deal volume by acquirer and target subsector, a clear set of trends emerged. Most prominently, some subsectors (such as pre– and post–acute–care and physicians) focused on like-for-like consolidations, while others (particularly hospitals and payers) sought growth in near adjacencies (Exhibit 2).

Several key developments were particularly prominent:

• Meaningful activity from care delivery businesses. Smaller physician groups continued to consolidate; more than 80 percent of physician-led deal activity was composed of like-for-like transactions. Since 2019, the employment landscape for physicians has continued to evolve; as many as 70 percent of physicians are now employed by hospitals or corporate entities. This trend reflects a shift away from independent practice and toward larger organizational structures.

  In parallel, horizontal consolidation among pre-acute-care assets remained high, with key categories of these assets composing more than 80 percent of total pre-acute-care-led deal volume. Interest in outpatient behavioral health, for its part, notably increased, including acquisitions in demographic-specific outpatient mental health, where services tend to be tailored to meet particular needs.

  Similarly, more than 80 percent of deals in post–acute care were horizontal consolidations; transactions in this area focused on home health and hospice care. These investments reflected broader trends toward at-home care models, which benefit from demographic changes, including an aging population and a growing demand for cost-effective, patient-centered care solutions.

• Portfolio diversification and purposeful growth for hospitals. Approximately 40 percent of deal activity led by hospitals was focused on non-acute segments, including pre–acute care and physician practices, as health systems aimed to diversify their portfolios and act on growth opportunities in adjacent markets. Pre–acute care composed about 15 percent of hospital-led acquisitions in 2024, driven by the expansion of outpatient clinics, ambulatory surgery centers, and urgent care. Post-acute-care acquisitions contributed a smaller share of hospital-led deals—less than 5 percent of all hospital-led deals. In recent years, physician group acquisitions have consistently made up approximately 30 percent of hospital-led deal activity. In 2024, this category of hospital-led acquisitions predominantly focused on specialty groups, as hospitals sought to formalize partnerships across key service lines, such as orthopedics, neurology, and women’s health.
• A focused approach for financial investors. Private equity (PE) funds concentrated their 2024 investments primarily on healthcare services and technology businesses (over 50 percent of all PE-led deal activity). Pre–acute care (such as outpatient behavioral care) composed an additional 10 percent share, as did physician groups. Moreover, PE increasingly targeted tech-driven platforms to scale portfolio companies in add-on acquisitions—particularly those facilitating physician practices—to propel operational efficiencies, optimize economies of scale, and strengthen service capabilities in specialty areas.
• Consolidation for pharmacy and healthcare and technology services sectors. Consolidations drove deal activity across transactions led by pharmacy and healthcare services and technology companies, as like-for-like deals composed between 80 and 90 percent of deal flow in these sectors. In pharmacy businesses, more than 80 percent of deal activity was focused on horizontal transactions, reflecting efforts to expand networks and streamline distribution activities. Additionally, heightened competition from mail order and online pharmacies, which cater to convenience-oriented consumers and seek to meet complex treatment needs, has pressured traditional pharmacies to innovate or consolidate. In healthcare services and technology businesses, more than 80 percent of transactions were also like-for-like deals. Players in these sectors sought to focus on integrating complementary services and innovations to enhance their value propositions and strengthen their positions in an evolving healthcare ecosystem.
• A targeted approach by payers. Payers adopted a targeted approach to deals in 2024. Across their lines of business, they navigated EBITDA margin compression, which limits funds available for acquisitions. While deal activity led by payers is generally lower relative to other healthcare sectors, given the lower number of players on an absolute basis, 2024 saw particularly muted activity across most sectors. More than 50 percent of payer-led transactions focused on same-sector consolidation to expand care coverage and improve operational efficiency. Additionally, some payers were active in dealmaking in pre- and post-acute-care businesses (such as home health and ambulatory surgery centers). These businesses help to reduce the costs of care through better medication pricing, utilization, and adherence management.

Key changes in 2024 deal activity compared with 2023

When compared with 2023, overall US healthcare deal activity in 2024 declined, with a sharp drop in the absolute number of like-for-like transactions across all sectors. The steepest declines were in the physician and healthcare services and technology sectors—areas that have typically seen high deal volume. When compared with 2023, PE-led activity saw meaningful shifts, marked by a continued focus on healthcare services and technology deals and a notable reduction in transactions centered on physician groups (Exhibit 3).

When comparing 2024 with 2023, the most prominent insights include the following:

• Slowing of provider-led deal activity. While hospital-led deal activity continued to span the care continuum in 2024, hospital-led acquisitions across most provider segments (with the exception of physician assets) slowed. This decline likely reflected hospitals’ ongoing financial pressures and an increasingly complex regulatory landscape, which has affected their approach to strategic expansions. Pre- and post-acute-care deal activity also declined. While like-for-like transactions still composed more than 80 percent of total activity in both sectors, the number of these deals fell by 24 and 45 percent, respectively, relative to 2023. Rising labor costs (driven by staffing shortages) and regulatory changes (such as, for example, Centers for Medicare & Medicaid Services payment adjustments) have pushed providers to focus on core operations. However, each segment sought to control costs in its own ways. Pre-acute-care providers increasingly invested in healthcare services and technology, while post-acute-care players focused on pharmacy services to better manage care cost and improve outcomes for aging patients. In addition, consolidation among physician groups slowed substantially, with more than 50 fewer like-for-like transactions—a drop of 39 percent from 2023. Dental consolidation stabilized but still represents a substantial share of total provider-led transaction volume. Specialties with high volumes of ambulatory procedures, such as eye care, dermatology, and orthopedics, continued to consolidate.
• Decline of payer-led deal activity in consolidation-focused deals. Compared with 2023, payer-led, consolidation-focused deals fell by 29 percent, likely due to both limited payer-to-payer transaction opportunities (that is, a limited number of potential combinations exist) and regulatory caution. Payers have increasingly shifted their M&A focus toward pharmacy businesses to address rising specialty drug costs—a major driver of healthcare spending—while enhancing pharmacy integration, improving cost efficiencies, and delivering greater value to their members. Payer-led acquisitions of post-acute-care assets reflected an additional approach to reduce costs.
• Substantial declines for healthcare services and technology. Compared with 2023, the healthcare services and technology sectors experienced substantial declines in like-for-like transactions. Indeed, these types of deals declined by approximately 40 percent, reflecting an absolute decline of more than 50 transactions compared with 2023. This decline might be attributed to a slowdown after recent years of heightened activity, as well as elevated multiples.
• Increases for pharmacy consolidations. By contrast, pharmacy consolidations increased by more than 40 percent year over year in 2024. While the magnitude is notable, it’s due in part to exceptional circumstances: Pharmacy-related M&A accounts for approximately 5 percent of overall healthcare M&A volume. The small base means that the sector is more prone to fluctuations within specific subsegments.

• Pressure on PE. PE funds are holding assets for longer periods. In parallel, elevated asset valuations have created substantial gaps between buyer and seller expectations, hindering dealmaking. The hospital, physician, and post-acute-care sectors have experienced the sharpest relative declines, at 70 percent, 38 percent, and 35 percent, respectively. However, healthcare services and technology and pharmacy assets saw a meaningful increase in deal interest (30 and 88 percent, respectively, compared with 2023).

  In the hospital sector, operational challenges such as staffing shortages, increased operational expenses, and financial instability drove a year-over-year decline in private equity transactions, as PE firms adopted a more selective approach to these investments. Moreover, rising scrutiny from the US Senate, culminating in a report titled Profits over patients, published by the Senate Budget Committee in January 2025, may have dampened excitement around PE-led activity.

  Growing interest in healthcare services and technology sectors, reflected in the opportunity to use tech-enabled platforms to improve operational efficiencies, integrate fragmented workflows, and support predictive analytics and care optimization, made these businesses attractive targets for buy-and-build strategies. Similarly, interest rose in the pharmacy sector—in that case, driven by the role these companies play in value-based care (for example, accessible preventive services and chronic-disease support) and the growth potential from specialty services, digital integration, and increasing consumer demand for localized healthcare solutions.

Outlook for 2025

Despite the slowdown in activity seen in 2024, there are good reasons to expect greater M&A activity in 2025 and 2026 as many players seek to pursue innovation and growth. Immediate and long-term trends, such as the increasing emphasis on care-at-home models, value-based contracting, and tech-driven platforms, underscore the industry’s commitment to enhancing patient outcomes and operational efficiency. Although challenges such as labor shortages and margin pressures persist, they also drive the potential for creative strategies and targeted investments that can shape a more resilient and adaptive healthcare ecosystem. Looking ahead, US healthcare is expected to see continued investment in digital health solutions, AI-driven care models, and personalized medicine as stakeholders seek to unlock efficiencies and improve access to care. Additionally, the growing focus on preventive care and whole-person health signals a shift toward long-term, sustainable healthcare strategies. As organizations continue to navigate these complexities, M&A will remain an important means to enable growth and adapt to a changing healthcare landscape.