As part of our ongoing whitepaper series, Marwood and Sidley have partnered to examine the evolution of the physician practice management sector.

For nearly two decades, the sector rewarded investors who believed that healthcare delivery could be scaled like any other fragmented professional services business. The logic was compelling: acquire physician practices at modest multiples, centralize administrative functions, apply leverage, and exit at a higher multiple once scale was achieved. In a low-rate environment with benign reimbursement trends, this model produced attractive returns and repeatable outcomes.

But the conditions that sustained this approach have changed fundamentally. The physician practice management model that defined healthcare private equity in its first generation – rapid M&A, limited integration, heavy reliance on multiple expansion, weak physician succession planning, and high leverage – has encountered structural challenges. COVID exposed the risks in this model as it has collided with rising labor costs, reimbursement pressure, and, critically, a sharp increase in interest rates. Together, these forces revealed a model optimized for growth, not resilience.