Question for healthcare investors - rollups and HCIT

Public markets guy here who has seen a huge number of these blow up over the last decade, both PE owned junk bonds/loans and public companies.

Broadly speaking, I hate the sector and have bearish views on fair value, subject to a few caveats.

1. Weaker reimbursement trends and outlook versus hospitals, which themselves face a frightening future: Medicare FFS physician fee schedule has been negative YoY per RVU every single year for the past two decades. Medicare Advantage is under tremendous pressure. Medicaid MCO plans have historically been bad reimbursment but that can get even worse as states find their Medicaid budgets squeezed further by the One Big Beautiful Bill. States have a strong by incentive to preserve more funding to hospitals / emergent care. So even if grandfathered Medicaid supplemental DPPs are maintained states will continue to throw any scarce additional dollars to hospitals, leaving less for MCO plans to pay under value based or other FFS to physician practices. Commercial growth in specialties is declining but still mid to high single digits YoY for 2025. Across the US though, government is 40% patients and commercial 60% — that is better than reimbursement looks because a WAY larger portion of government is very sick and very old, so when it comes to utilization volumes, government and commercial are more like 50/50 or 40/60. Outpatient specific PPMs are better than those that have significant hospital based work; generically people on Medicaid don’t go to the doctor annually, they go straight to ER.
2. At same time physician salaries across specialties are growing faster than inflation, some cases double digits YoY. The supply of physicians is firmly limited by US licensing and immigration policy (in contrast to the UK or Australia, which have more flexible policies) — given the current immigration zeitgeist, with bipartisan support for reduced immigration levels, we will continue to see a margin squeeze at the clinic level.
3. Further worsening the labor trends, physician attrition is woefully high for these businesses. The companies then often face double whammy — outpatient focused firms often lose patient volumes for 3-6 months, and, for inpatient physician staffers, have to pay up to millions per physician to get temporary labor. Both types of firms also need to pay seriously high signing / retention bonuses. The PE sponsors creatively label all of these attrition costs as “one time add backs”. The junk bond market might buy those things, but the public markets and prospective acquirers do not. These are recurring, incessant costs, of the PPM business. Period.
4. Given reimbursement flat to down and labor up, no amount of acquisitions leads to organic growth at Clinic level. No organic earnings growth = ShitCo that will trade horribly if it were public. For some time all the PPMs do however benefit from utilization growth (ie more patients/visits/RVUs per physician) and from upcoding (ie have nurse practitioner do more work and clip higher margin vs paying high price doc). But both of these have limits / plateau. Which means, at the end of the day (typically 2-3 years following acquisition) you’re flat at best on a same site basis.
5. Other than corporate SG&A, limited synergies and operating leverage. When manufacturing widget company A buys company B, plant capacity and a bunch of other core operating costs can be rationalized. That is impossible here or very negligible. Largest cost is physicians and obviously can’t get operating leverage there. Clinic level admin costs and rent costs, same issue. Maybe can do something on IT / EHR / revenue cycle mgmt but reality is these things can’t move needle enough. So long story short, there is limited cost synergy. Revenue is a tad better on synergy but need to be massive in a local market for this to work. Basically you get huge in one area and do a very tough bargain with commercial plans. Problem 1 with this approach for new investments is antitrust enforcement growing and continuing under  Trump. Problem 2 is that you have well resourced competitors (academics / non profits) that can make establishing market dominance in attractive commercial geographies impossible or prohitively expensive.
6. Lower maintenance capex than hospitals but far lower barriers to entry — no moat. Non competes than many states, even red states, have banned will just not work. People will quit and work 50 miles away or in another state. I know plenty of guys in my industry who commute from Manhattan to Greenwich/Darien…moreover, while things are tough for solo practitioners, there are a very large number of physician-owned practices (10-20 physicians) absolutely crushing it and hiring. They crush it because they tend to be most credentialed / have academic affiliations at top health systems and thus get best commercial mix. And further, they are way way less margin / ROOC focused vs PE roll up (which are levered and answer to return driven investors) so the small/mid physician owned guys  can theoretically be okay while undercutting PE on price or by providing better service quality / office location / etc.
7. no natural acquirer or public mkt exit. For the reasons above namely no organic earnings growth potential, no long only would buy these at a HSD/LDD EBITDA multiple at IPO. It doesn’t check a single box of what the guys at Wellington or Fidelity Contra or Bailey Gifford look for. Not one. On the sale to sponsor, well the MF guys who’ve gotten burnt in space (envision, team healthcare, etc) won’t touch these things nor should they (unless somehow there’s huge local geo market shares and really high commercial reimbursement mix along with low labor attrition, each of which is extraordinarily rare). For the same reasons above people will say at IC (a) United Healthcare stock at 8.5x fwd EBITDA (they own ton of physician practices) and (b) Walgreens disaster and market have no credit to VillageMD (a PPm) acquisition, in fact market thought it was unmitigated disaster and acquisition was insane destruction of shareholder value and (c) ex HCA which is a darling every other hospital stock trades at 5-7x EBITDA, see UHS, THC, ARDT, etc; even on EBITA multiple given more capital intensity, it’s 10-11x or less  and all these companies growing organically. Finally payors / insurers used to be the acquirers of the larger sponsor owned practices but given how bad the acq have done and their own issues (again see United Healthcare stock, they were serial acquirer of a ton of PPMs and now they are down and out from any M&A as are other payors), no chance they return.
8. Very tough to realize cash proceeds via dividend recap. Both private credit and syndicated bond/loan markets have gotten burnt so badly here they won’t do more than 6-7x total leverage And that would be at high cost. So can’t tap debt mkt as alternate to sale/IPO mkt.

Put all this together and you have businesses whose earnings can only decline organically over medium-long term, with low barriers to entry, extremely limited negotiating power with payors/customers (subject to a few carve outs I laid out above), and little chance to realize proceeds via exit or dvd. All that together tells me this should be a sector that, were it public and in large structures with big float / lotta eyeballs on them, would trade at best at 7-9x EBITDA, and probably less. I think therefore the arb math today for MM PE firms in the sector just doesn’t work and most deals are going to end up in out of court debt restructuring followed by continuation vehicle.