Private equity eyes digital health

Private equity firms have dramatically shifted their healthcare investment strategy, cooling their once-aggressive pursuit of physician practices and pivoting toward technology-enabled solutions, according to a McKinsey report. 

PE investments in physician groups plummeted 38% in 2024, while technology and healthcare services investments surged by 30%. The money hasn’t left healthcare—it’s simply following patients from hospitals to homes, with more than 80% of post-acute care transactions now centered on home health and hospice services. 

Private equity’s typical playbook in healthcare has followed a well-established pattern over the past decade. Firms identify fragmented sectors like physician practices, particularly in specialties with high reimbursement rates such as dermatology, ophthalmology, and orthopedics, then execute a roll-up strategy to consolidate multiple small practices under a single management platform. 

After acquisition, PE firms implement standardized operational procedures, centralize administrative functions, negotiate more favorable payer contracts through increased scale, add ancillary revenue streams, and leverage their combined purchasing power. They typically hold these consolidated entities for 4-7 years while growing earnings, ultimately aiming for an exit by selling to a larger PE firm, strategic buyer, or occasionally through an IPO. 

Private equity’s focus on maximizing returns within relatively short time frames creates inherent tensions when applied to healthcare services—a critical component of our national infrastructure. By prioritizing financial extraction over system sustainability, PE firms often implement aggressive cost-cutting measures, reduce staffing, and increase service prices without corresponding quality improvements. 

The 2025 Senate report found that these practices can lead to dangerous reductions in clinical coverage, longer wait times, and measurable declines in patient outcomes. When applied across multiple healthcare sectors—from emergency services to nursing homes to mental health facilities—this profit-extraction model systematically weakens healthcare infrastructure, particularly during crisis periods when stability and resilience are most needed. 

If the past is prologue, private equity’s new focus on healthcare technology platforms and digital health solutions may follow a similar pattern to its earlier investments in physician practices and facilities, albeit with some important differences.

Based on PE’s historical approach, we can expect these firms to prioritize rapid growth and market consolidation in their digital health investments. Just as they rolled up fragmented physician practices, PE firms will likely accelerate the consolidation of digital health solutions. This may result in a handful of dominant players emerging in key categories like remote monitoring, AI-enabled clinical documentation, and medication management.

Cost-cutting and efficiency measures will almost certainly follow. While technology naturally scales more efficiently than clinical services, PE firms may still implement aggressive targets for customer acquisition costs and engineering team productivity. This could potentially impact product quality and innovation timelines if implemented too aggressively.

Revenue optimization will remain central to PE strategy. For digital health companies, this might manifest as price increases for enterprise customers once they become dependent on the technology, upselling additional features that were previously included, or monetizing patient data (within regulatory boundaries). We may also see the introduction of transaction-based fee structures to capture more revenue as usage increases.

On the positive side, PEPE investment could accelerate much-needed interoperability and technology integration in healthcare. The capital influx may allow digital health companies to build more comprehensive offerings rather than siloed point solutions, potentially addressing one of healthcare technology’s greatest shortcomings.

However, PE’s characteristic focus on exits within 3-7 years raises questions about long-term sustainability. Healthcare technology implementations typically require years to fully realize their potential value, and frequent ownership changes could disrupt ongoing implementation efforts and relationships with healthcare organizations.

The patient impact remains an open question. Unlike direct clinical services, technology platforms sit one layer removed from patient care, potentially insulating them from some of the quality concerns that plagued PE-backed clinical services. However, if these platforms make algorithmic recommendations that influence clinical decisions or determine resource allocation, similar ethical questions may come up about prioritizing financial metrics over patient outcomes.

Regulatory oversight will almost certainly increase as these technologies become more central to care delivery. If PE-backed technology companies follow the pattern seen in clinical services—prioritizing revenue over quality—we may see similar regulatory responses targeting healthcare AI and digital health tools specifically.

In essence, history suggests PE will bring much-needed capital and operational discipline to digital health while potentially introducing some of the same tensions between short-term financial goals and long-term healthcare quality that characterized their earlier investments in direct care delivery.