This article is part of the “Perspectives in Private Equity” series.
Private equity investors in health care and life sciences are accustomed to navigating a complex and shifting regulatory and policy environment, and 2025 put those capabilities into sharp focus.
Under the Biden administration, there was a slowdown in the velocity of private equity investments into the health care space as the scrutiny of deals intensified and authorities took an aggressive stance. With the arrival of the new president, that challenge has not completely disappeared as investors come to terms with broader federal policy changes.
Reductions in Medicaid reimbursements and the loss of expanded Affordable Care Act (ACA) insurance subsidies create meaningful revenue challenges for all health care providers and have the potential to reduce access to health care for millions of beneficiaries.
At the same time, funds are also responding to positive signals from the administration to paying for technology and digital interventions in health care, rapid advancements in artificial intelligence adoption, changing expectations from the Food and Drug Administration (FDA) for medical products, supply chain vulnerabilities and labor market difficulties. Going into 2026, achieving strategic growth in both new and existing investments calls for a deep understanding of a fast-moving landscape.
Health Care Providers
It is now abundantly clear that health care coverage is a prominent policy area during the second Trump administration. With passage of the One Big Beautiful Bill Act (OBBBA) in 2025, spending on Medicaid programs is set to drop by over $800 billion over the next decade, with the introduction of new community engagement and work requirements, stricter eligibility rules and reduced funding for state-directed payments. While the major Medicaid enrollment and spending reductions from OBBBA will materialize in 2027 and 2028, states and providers are beginning to scale back spending in 2026 to prepare for the impact.
Further, plans to extend the enhanced ACA subsidies did not materialize in Congress. The loss of ACA subsidies that expired at the end of 2025 means millions potentially will switch to higher deductible health plans to help mitigate higher health insurance premiums or drop coverage altogether due to cost. We can expect higher out-of-pocket costs and increased uninsured rates in 2025 to place financial challenges on the health care delivery system, especially in states that have not expanded Medicaid. The financial viability of health providers in many rural areas is likely to be stressed despite the distribution of the first year installment of the OBBBA’s Rural Health Transformation Fund. States that have provided funds to shore up ACA premiums may be able to mitigate impacts of the ACA subsidy reduction.
Efforts to reduce Medicare spending in the OBBBA focused on eliminating eligibility for certain immigrants and delaying new rules that would have made it easier for very low-income enrollees to access the Medicare Savings Programs.
Cuts in health coverage in the U.S. not only reduce revenues for insurers on the front end, but also significantly impact the revenue streams entering the system. Coverage is an engine of growth or contraction for health care providers such as hospitals and physicians, pharmaceutical and device manufacturers, and the associated supply chains and therefore a foundational issue that must be considered by investors in the U.S. health care and life sciences market today.
Trump announced an outline for new health care legislation in January 2026, prioritizing drug price reforms, health savings accounts expansion, price transparency for health costs and enhanced fraud protections and safeguards. If and when we see congressional action on these proposals, there could be another round of spending reductions, potentially including Medicare site neutrality payment for hospitals, reforms to Medicare hospital payment for uncompensated care and changes to graduate medical education.
Life Sciences
After a tough period for the global life sciences sector, we expect to see an uptick in investment opportunities and deal activity materialize through 2026. Preventative and therapeutic solutions are likely to see a greater focus, including therapies, data and technology. More broadly, we expect to see greater use of artificial intelligence (AI) in both detection and prevention.
Health care is moving towards a digital-first approach and we can look forward to more innovative solutions in relation to triaging, connected support, monitoring and assessment. Drug discovery and clinical trial timelines also have the potential to shorten due to enhanced technology and use of data assessment techniques.
We expect to see more big gene therapy bets, with increasing capital being allocated to oncology therapies, in particular. It is still the case that 90% of new anti-cancer drugs fail in clinical trials and addressing that will be a focus.
Regulatory compliance will be ever more complex for life sciences businesses this year, while supply chain vulnerabilities and reliability remain a significant risk factor for FDA-regulated drugs and medical devices. Supply chain disruptions caused by tariffs, sanctions and other policies that favor domestic production, alongside challenges in meeting global quality control and good manufacturing practice requirements, continue to be front of mind. 2026 has also seen new questions about the predictability and consistence of FDA’s standards of review for new therapies, including but not limited to vaccines; this uncertainty also has the potential to put a drag on investment.
Finally, prescription drug pricing is a big focus for the current administration with the Great Healthcare Plan unveiled by the White House in January, once again highlighting the President’s intent to cut drug prices dramatically. With Americans used to paying the highest drug prices in the world, the implementation of most-favored-nation drug pricing agreements and other strategies will remain key points of discussion through 2026.
Artificial Intelligence
As referenced above, the use of AI and machine learning (ML) in health care continues to proliferate as new technologies are applied to research and development, manufacturing and post-market surveillance, and communications with patients and providers.
With cost pressures and labor market shortages also exerting increasing pressure on global health care systems, the demand for efficiency savings is driving the use of AI across administrative and clinical workflow automation, clinical decision support and diagnostics, remote patient monitoring and workforce redesign.
The current administration is focused on encouraging AI adoption and supporting small, insurgent AI innovators that have the potential to enhance patient care, operational efficiency and financial stability. However, there remains a scarcity of regulation and it is unlikely that the U.S. will address that at scale in 2026. Instead, we will continue to see states stepping in with their own AI laws, creating a complex regulatory patchwork.
For private equity, we expect this year to bring a new wave of AI-driven health care investment opportunities. We will see continued support for clinical tools that improve the treatment of intractable conditions like cancer, sepsis, and other conditions, combined with continuing scrutiny of the unique aspects of AI/ML-supported applications, such as cybersecurity, transparency, hallucinations, data drift and change validation.
Medicare Advantage
The Trump administration’s Advance Notice of payment changes for the Medicare Advantage (MA) program for 2027 surprised many investors with a relatively low benchmark rate update of less than 1%. The proposed update is likely to be revised upward by the Centers for Medicare & Medicaid Services (CMS) in the final rate notice as the agency faces considerable pressure to finalize a more generous update in a mid-term election year. Nevertheless, MA enrollment growth is expected to continue on a slower trajectory relative to double-digit growth in recent years. Large plans have put the brakes on marketing and the value proposition of MA extra benefits (i.e., the value of added MA benefits compared to traditional Medicare) has declined across the board as plan costs have risen faster than Medicare payment.
Continued cost pressures are likely to prompt increased MA plan interest in cost-saving technology, and proven care management interventions from third-party vendors.
For vendors, these trends could enhance demand for specialized technologies, data-driven analytics and tools that support more cost-effective care delivery. As a result, this is still an area where we expect to see private equity involvement intensifying. We also expect to see the administration retain their focus on program integrity and operations of the MA program. Marketing, AI-enabled medical claims review, prior authorization and risk adjustment coding could all be areas of greater interest and additional oversight.
Fraud and Abuse and Enforcement
Despite the deregulatory bend of the new Trump administration, regulatory agencies and the Department of Justice (DOJ) have continued to be aggressive in certain areas of enforcement as it relates to health care and life sciences.
The administration has announced health care fraud as a False Claims Act (FCA) priority, for example, and announced a record $6.8 billion dollars recovered in FY 2025, including in the arenas of managed care, prescription drugs, and unnecessary services and substandard care. FCA enforcement will remain a risk for portfolio companies. We have also continued to see enforcement against private equity firms under that Act. In summer 2025, the DOJ announced a settlement with defense contractor Aero Turbine and private equity owners Gallant Capital Partners, for example, for alleged cybersecurity violations.
The U.S. Court of Appeals for the Eleventh Circuit is also considering a landmark challenge to the constitutionality of the FCA’s whistleblower provisions, with a decision expected this year that could head to the Supreme Court and ultimately have far-reaching consequences. If the provisions are deemed unconstitutional, the whistleblower-driven private enforcement mechanism of the FCA would come under threat.
Health care is also among the most penalized sectors when it comes to enforcement of the Foreign and Corrupt Practices Act, with pharmaceuticals companies, device manufacturers and service businesses risking significant penalties for bribing foreign officials.
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