Healthcare dealmakers are not slowing down. According to KPMG’s mid-2025 M&A trends update, 61% of investors expected increased M&A activity in 2025 compared to 2024. That optimism proved directionally right for the market overall, though not for healthcare services specifically. Data from LevinPro HC noted that the total overall healthcare M&A deal count (which covers 17 different healthcare sectors, including biopharma and medical device) increased 4% in 2025.
While the entire healthcare M&A ecosystem grew, there was a decline in the direct healthcare services sector. For context, healthcare services includes categories such as: physician medical groups, eHealth, behavioral health, long-term care, managed / value-based care, hospitals / health systems, home health, rehabilitation, ambulatory surgery centers, and home infusion services. According to PricewaterhouseCoopers (“PwC”) 2025 year-end report, M&A in healthcare services totaled $46 billion — down 26% from 2024, when the sector recorded $62 billion. However, buried in the $46 billion figure is a growth story: a 3.6x increase from Q3 value to Q4 (roughly $8 billion in Q3 to roughly $29 billion in Q4).
Despite this growth, uncertainty reigns as the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, is expected to reshape the financial dynamics facing health systems and private equity investors alike. Additionally, as I noted in a previous article, some states are taking issue with investment in this sector and adding friction to the process for transaction actors. This creates an unusual dynamic in that there is an elevated deal appetite in combination with a genuinely uncertain reimbursement environment.
For valuation practitioners, it’s worth asking a narrower question buried inside that combination: when reimbursement mechanics are this unsettled, does a revenue multiple still tell you anything reliable about what a healthcare services business is worth?
What OBBBA Changes
In a previous article, I noted state-level changes to CPOM and PE-oversight regulations, but it’s worth being clear that most of those state-level changes don’t touch physician reimbursement itself. Reimbursement uncertainty is a separate issue, and it’s worth distinguishing two different kinds of it before going further, because they carry very different implications for a valuation.
The first kind is routine and has always existed: day-to-day billing and claims-adjudication variance. Physicians generally get paid one of three ways — direct patient payment, in-network contracted rates with a commercial payer, or out-of-network billing. For contracted claims, a practice submits a procedure code, and the payer remits payment based on the negotiated or program-set rate tied to that code. Commercial payers typically reimburse at a meaningful premium to Medicare rates for the same procedure, and the size of that premium varies by payer, market, and specialty.
The second kind is what motivates this post: structural, policy-driven uncertainty or changes to the reimbursement system itself, layered on top of the normal billing variance above.
It’s worth being specific about the mechanism here, because “reimbursement uncertainty” as a phrase can become vague in a valuation report if it isn’t tied to actual provisions. A few of OBBBA’s healthcare-financing changes bear directly on how provider revenue flows:
- State-directed payment caps. OBBBA caps state-directed Medicaid payments, which is a mechanism many hospitals, especially safety-net and rural facilities, have relied on to supplement base Medicaid rates. Above-cap arrangements phase down 10 percentage points per year starting in 2028.
- Medicaid eligibility and financing restrictions. The law adds new work/community-engagement requirements for Medicaid eligibility (projected as the single largest source of federal Medicaid savings in the bill) and tightens restrictions on the provider-tax mechanisms states use to finance their Medicaid programs.
- Marketplace subsidy and enrollment changes. OBBBA imposes stricter pre-enrollment income and residency verification for ACA marketplace subsidies and does not extend the enhanced premium tax credits that expired at the end of 2025.
- A rural hospital offset. The law also creates a rural health transformation fund providing five years of payments to selected states, sized in part by rural population and hospital count — a partial, geographically uneven counterweight to the cuts above.
The Congressional Budget Office estimates these and related coverage provisions will result in roughly 10–12 million additional people losing health coverage by 2034, with the bulk of the changes phasing in over multiple years rather than hitting all at once. That phased, multi-year timeline is itself a valuation-relevant fact, not just a policy footnote.
Why This Specifically Strains Revenue-Multiple Approaches
A revenue multiple is a reasonable way to estimate value when a target’s revenue-to-cash-flow conversion is relatively stable and predictable across the comp set. It’s much shakier for the second kind, when the composition of a target’s revenue now determines how exposed that revenue is to the specific policy risks above.
Two physician-group platforms with identical trailing-twelve-month revenue and similar current EBITDA margins can have very different forward risk profiles if one derives a meaningfully larger share of revenue from state-directed Medicaid payments facing the 2028 phase-down, or from marketplace-covered patients affected by the subsidy changes, than the other. A revenue multiple applied uniformly across that comp set will tend to understate the valuation gap between them, because it treats a dollar of revenue as a dollar of revenue regardless of its reimbursement source or exposure to OBBBA’s specific provisions.
Why an EBITDA Approach Carries More of the Signal, With Caveats
An EBITDA or discounted-cash-flow approach doesn’t automatically solve this, but it forces the analysis to confront the mechanism more directly, because margin is where reimbursement-rate changes and shifting payer mix show up. A few practical implications for how that analysis should be built are:
- Segment revenue and margin by reimbursement/risk type before normalizing EBITDA. A target’s fee-for-service and value-based-care revenue segments don’t carry the same risk-adjusted margin profile going forward, even if they blend into one EBITDA figure today. Treating them as a single undifferentiated revenue base in a normalization exercise risks smoothing over exactly the risk differential that matters most right now.
- Model the OBBBA phase-in explicitly in the projection period, not as a discount-rate adjustment. The 2028 state-directed-payment phase-down is a dated, quantifiable event for affected targets. A DCF that treats it as a discrete step-down in specific projected years will be more defensible than one that tries to capture the same risk by nudging the discount rate upward across the board.
- Treat shared savings/capitated revenue recognition as a source of EBITDA quality adjustment, not just growth. Contingent value-based-care revenue that hasn’t been trued up, or that depends on a benchmark methodology that could shift under new CMS guidance, deserves the same scrutiny a valuation analyst would apply to any non-recurring or estimate-dependent revenue item.
- Scenario-weight rather than single-point the multiple. Given how much of OBBBA’s ultimate financial impact still depends on state-level implementation choices (particularly around provider taxes and state-directed payment restructuring) and on whether Congress revisits the expired marketplace subsidies, a range of reimbursement-scenario outcomes, weighted and disclosed, is more defensible right now than a single confidently-stated multiple for either a revenue or an EBITDA approach — but especially for a revenue multiple that can’t distinguish between the scenarios at all.
If your comp set includes value-based-care-exposed physician groups, hospitals with meaningful state-directed Medicaid revenue, or any target where a chunk of the revenue base sits in a reimbursement category touched by OBBBA, a standard revenue multiple pulled from a generic healthcare-services comp set is likely to understate the real spread between your target and its peers.
That’s exactly the kind of situation where segmenting revenue by reimbursement risk, modeling policy phase-ins explicitly, and scenario-weighting the output rather than defaulting to a single blended multiple makes a material difference to the conclusion.
If you’re working through a valuation like this and want a second set of eyes on the methodology, SF Valuations works with these issues regularly and is happy to talk through your specific fact pattern. Reach out anytime.