The number of health services deals dipped in the first half of 2026 but deal value "remained resilient" as strategic acquirers and dealmakers "reprice risk," according to a midyear outlook report from PwC.
The midyear outlook highlights how health services deal activity is evolving amid market pressures, emphasizing strategic focus, technology and portfolio optimization, the report authors wrote.
Health services investors and dealmakers entered 2026 with strong momentum, but geopolitical dynamics, policy, reimbursement uncertainty and ongoing pressure from the “SaaS apocalypse” tempered deal volume. The health services market is feeling the weight of skyrocketing costs, labor shortages and compressed margins.
"We're not seeing a retreat from healthcare deals. We're seeing a repricing of risk. While there are fewer transactions getting done, overall deal value has remained resilient as buyers continue to execute larger conviction-backed investments at fairly lucrative valuations. Capital remains available, but investors are demanding more proof points before committing," Dan Farrell, Health Services Deals Leader at PwC U.S., told Fierce Healthcare.
While deal volume softened in Q1, total value remained strong due to large transactions.
In the first quarter of 2026, there were 300 health services deals, according to PwC, down from 308 in the fourth quarter of 2025 and 324 in Q3 2025. Deal value in Q1 hit $18 billion and $10 billion so far in Q2 (through May 31). In Q4, deal value hit $29 billion but that was a huge jump from $8 billion in both Q3 and Q2 last year.
While deal value is rising, the margin squeeze is rewriting the playbook, according to PwC. The physician medical group market illustrates this trend well, Farrell noted.
"That sector captured a record 46% of first quarter deal volume and total transaction activity in the sector was up year over year, so the takeaway is not necessarily a lack of buyer appetite, it's more of a higher bar for investment. Buyers are simply prioritizing assets with strong fundamentals, reimbursement stability and clearly identifiable value creation opportunities," he said.
The physician medical group subsector's continued robust activity marks a multi-quarter expansion from 37% in the first quarter of 2025 to 42% in the fourth quarter. Year-over-year deal count grew 18%, with the subsector generating 2.9 times more transactions than the next largest subsector (eHealth).
Physician practice management activity continued at a steady pace in the first half of 2026—particularly in dentistry, oncology, and ophthalmology. In Q1, Cencora (formerly AmerisourceBergen) completed its $4.6 billion acquisition of the remaining equity stake in oncology platform OneOncology, and in March the company agreed to acquire EyeSouth Partners’ retina business for $1.1 billion.
Private equity continued to drive most deal flow, especially through platform add-ons. On the private equity side, one of the biggest deals to capture headlines was PE firm Kinderhook Industries' take-private buyout of Enhabit, a provider of home health and hospice care. The deal was valued at approximately $762 million.
"Sponsors continue to have substantial capital available, but they are deploying it more selectively. Many are focusing on platform investments and strategic add-ons that can accelerate growth or enhance a portfolio company's capabilities. The emphasis is increasingly on assets where value creation opportunities are identifiable and executable within a relatively short timeframe, which is overall fairly consistent with the private equity business model," Farrell said.
Looking at deals at the subsector level indicates that behavioral health and long-term care led first quarter 2026 market performance, with market caps expanding despite lower deal volumes, the PwC report said. Managed care and value-based care subsector market cap declined with EBITDA multiple compression in the first quarter of 2026. Deal activity in these subsectors has remained muted this year.
Healthcare technology, or what PwC describes as eHealth, captured 61% of disclosed deal value in the first quarter of 2026 despite a 29% decline in deal count.
Unexpected curveballs remain centered on policy and reimbursement dynamics, including persistent Medicare Advantage margin pressure and continued uncertainty in government sponsored populations. These factors compress decision timelines and raise the cost of strategic delay, the PwC analysts wrote.
"For dealmakers, the implication is clear: first movers with policy foresight, disciplined diligence, and an execution-ready value creation plan are best positioned to capture premium outcomes in the second half of 2026," the PwC healthcare leaders wrote in the report.
In the current policy and economic environment, strategic acquirers and private equity sponsors are prioritizing scalable, cash-generating platforms with clear reimbursement visibility, while using bolt-ons and carve-outs to sharpen portfolio focus and accelerate value creation, according to PwC analysts.
As medical costs continue to rise with projections that the cost trend will go up 8.5% from 2025 to 2026 that's driving the need for deals aimed at improving efficiency and protecting margins. Deals have shifted from simple growth tactics to strategic moves designed to protect margins and scale efficiently without increasing labor expenses, PwC noted in the report.
"I think the first question that buyers are asking now isn't necessarily how fast can this company grow, and that's historically what they used to ask first. Now the first question is, 'How protected are we if the environment becomes more challenging?' What that means to investors is they're asking, and they're spending a lot of time assessing the predictability of reimbursement and the sustainability of earnings," Farrell said. "Those two fundamentals have moved from being nice-to-have diligence items to investment prerequisites."
Farrell added, "Buyers now are far less inclined to underrate uncertainty around those factors than they were a few years ago, and once they've gained confidence in the stability of the platform, attention shifts toward the traditional value drivers, the evaluation of the payer mix, the flexibility of the labor model and the organization's ability to successfully execute its strategic and integration roadmap. Those are becoming the priorities."
In health services dealmaking, artificial intelligence capabilities and assets are still attractive, but AI has shifted from experimentation to a diligence requirement, with valuation tied to proven return on investment.
"In health services M&A, AI is no longer being valued for its potential, it's being valued for its proof. A year ago, investors were asking whether a company had an AI strategy," Farrell told Fierce Healthcare. "Today, they're asking whether the AI is actually changing business performance. They're asking one, can it improve productivity? Two, can it strengthen the margins? Three, can it help the company grow without expanding the cost base at the same rate? That's where the conversation has moved over the past year, and the reason is straightforward: healthcare remains an overall labor-intensive industry and investors are increasingly focused on businesses that can grow without necessarily adding costs at the same pace."
He added, "Some of the strongest AI stories we're seeing tend to fall into a few categories. Revenue cycle is one, where organizations can demonstrate improvements in collections, claims accuracy or denial management. Workforce optimization is another, where technology helps address labor constraints and improve productivity and patient engagement continues to gain traction when it leads to measurable improvements in access, retention or care navigation."
PwC anticipates that two forces are likely to shape health services deal activity—reimbursement and policy pressure and AI technology with proven value.
Medicare Advantage margin compression, higher medical cost trends and ongoing government-program volatility are raising the premium on assets with clear reimbursement visibility and demonstrable earnings durability. In this environment, buyers are underwriting downside first, then growth, the PwC report said.
“We expect payer and provider M&A activity to increase selectively, driven less by scale and more by the need for operational resilience, AI-enabled efficiency and value-based care capabilities. Investors are prioritizing assets with strong margin profiles, scalable operations, and measurable performance improvement potential," Farrell said.
PwC recommends that dealmakers prioritize portfolio moves that improve strategic focus, including carve-outs or divestitures of noncore assets that dilute management attention and capital returns.
"For acquisitions, concentrate on scalable platforms where value creation is execution-ready within 12 to 24 months, and is not dependent on macro recovery. Tighten diligence around payer-mix durability, labor model resilience, compliance risk, and the credibility of the technology value thesis," PwC healthcare experts wrote in the report.
"One of the biggest risks that we see today is organizations pursuing growth before they're fully defining where they want to compete in a different market. That approach may have been more forgiving, but today the stakes are higher," Farrell said. "Capital is not as abundant. Medical cost pressure remains significant, we estimate it at 9%, and reimbursement dynamics continue to evolve. As a result, management teams need to be far more intentional about how they allocate resources and what deals they decide to pursue. When companies are maintaining businesses that no longer align with the overall strategic priorities of an organization that can only dilute management attention and tie up capital."
In the next six months, "winners" will likely be dealmakers who move early on portfolio focus, prioritize assets with reimbursement visibility and margin durability, build value creation planning into the diligence stage and underwrite execution risk rigorously, according to the PwC report.