What You Should Know
- The Reality Check: In HGP’s 20-year retrospective, the verdict is harsh: technology delivered on workflows but failed on economics. Since HGP’s founding, U.S. healthcare spending has doubled to $5.3 trillion, proving that digitization alone does not equal efficiency.
- The Market Rebound: Despite the cynicism, the deal market is roaring back. Q3 2025 saw a record 136 M&A deals, and valuations have settled comfortably above pre-pandemic levels (approx. 5.1x revenue), signaling that the “Great Reset” is over.
- The AI Divide: A massive gap exists between hype and exit. While 50% of investment capital went to AI-native firms in 2025, only 13% of M&A deals involved them. Strategic buyers are purchasing fundamental workflow companies, not just algorithms.
HGP 2026 Market Review: M&A Hits Record Highs as AI Investment Captures 50% of Capital
According to the January 2026 Market Review from Healthcare Growth Partners (HGP), the industry has achieved “near-universal” adoption of technology, yet the economic returns remain elusive. Since HGP’s founding two decades ago, U.S. healthcare spending has nearly doubled, rising from $2.5 trillion to $5.3 trillion.
“Health IT has meaningfully modernized workflows and data capture,” the report notes, “while its impact on outcomes and its economic value has been limited.”
However, as we enter 2026, the report suggests the industry isn’t collapsing—it’s maturing. With inflation moderating to 2.6% and interest rates easing, the market is shifting from “regulatory compliance” to “economic accountability.”
The “Add-On” Era of AI
Perhaps the most counter-intuitive finding for 2026 is the role of Artificial Intelligence. The prevailing narrative is that AI startups will disrupt legacy incumbents (like Epic or Oracle). HGP’s data suggests the opposite: Incumbents are eating the innovation.
“So far, AI is proving additive, not existential, for incumbents,” the analysts write.
The numbers reveal a bifurcated market:
- The Hype: Investors are pouring money into the dream. In 2025, 50% of US Health IT investment dollars flowed to AI-native companies.
- The Reality: Buyers are purchasing utility. Only 13% of M&A and buyout transactions involved companies heavily marketing AI capabilities.
Strategic acquirers are prioritizing “revenue durability” and “embedded workflows” over generative magic. They are buying the track, not the train.
The Regulatory Fork in the Road
The report identifies a critical divergence in how the government is shaping the market. Regulation is splitting healthcare into two distinct economic models:
- Institutional Value-Based Care: CMS is doubling down on long-term accountability (e.g., the new ACCESS model for chronic care). This favors platforms with deep data moats and capital capacity.
- Consumer-Directed Health: Simultaneously, affordability pressures are pushing markets toward transactional dynamics (ICHRAs, HSAs, Price Transparency). This favors tools built for speed, access, and retail-like efficiency.
Companies straddling these two worlds may find themselves pulled apart. “The result is two parallel investment theses,” HGP notes.
M&A: The Healthy “New Normal”
After the “COVID sugar high” of 2021 and the subsequent crash, 2025 marked the return of a healthy middle class in deal-making. Quarterly M&A volume hit an all-time high in Q3 2025 with 136 deals. Valuations for software companies have stabilized at 5.1x revenue—lower than the COVID peak of 8.1x, but notably higher than the pre-pandemic average of 4.6x.
However, getting these deals done requires creativity. The report highlights a rise in “flexible deal structures,” with buyers using earnouts and rollover equity to bridge the gap between buyer caution and seller optimism.
The Verdict
2026 feels different not because the problems are solved, but because the industry has stopped pretending that software solves everything.
As HGP concludes, the next decade won’t be shaped by “regulatory incentives” (like Meaningful Use), but by “accountability and economics.” The winners won’t be the ones who digitize the chart; they will be the ones who finally—after twenty years—figure out how to lower the bill.
