Healthcare entered Q1 2026 in the middle of a significant policy shift, with government reimbursement changes creating a clear split between sectors that felt the pain and those that did not.
Healthcare Services was the top performer in the industry, and buyer interest in the space remains strong. Across the broader M&A market, acquirers are being more selective, focusing on businesses with steady cash flows, technology-enabled operations, and predictable revenue. Deal activity in biotechnology and specialty care shows that long-term strategic demand is very much alive.
Healthcare ended Q1 2026 with results that varied widely by sector. Healthcare Services was the clear winner, rising 33.6% year-over-year and adding another 5.1% during the quarter (the only sector to finish positive in both periods). Companies such as HCA Healthcare, DaVita, and Tenet Health serve patients on a recurring basis and are largely sheltered from swings in federal reimbursement policy.
Managed Healthcare and Insurance had the worst quarter in the industry, falling 37.4% year-over-year and another 16.8% during Q1. The main driver was a January 2026 proposal from the Centers for Medicare and Medicaid Services to increase 2027 Medicare Advantage payment rates by just 0.09%, a fraction of the 4% to 6% increase analysts had expected.2 The news sent shares of UnitedHealth Group, Humana, Elevance Health, and Centene sharply lower in a single session. Adding to the pressure, medical costs across the sector had already been running high (UnitedHealth reported that $0.89 of every premium dollar went toward paying claims) and the One Big Beautiful Bill Act had shrunk the pool of eligible Medicaid members that insurers cover.3
Medical Devices and Equipment fell 16.9% year-over-year and 13.7% for the quarter, caught between rising import costs from tariffs and investor concern that GLP-1 weight-loss drugs will reduce long-term demand for devices used in chronic disease treatment.4 Life Sciences Tools and Services dropped 8.3% year-over-year and 20.2% for the quarter, amid widespread uncertainty around NIH funding levels and reduced spending by academic and government research institutions.5 Pharmaceuticals gained 10.3% year-over-year despite a small 3.1% quarterly dip, and Biotechnology rose 7.3% year-over-year while holding roughly flat for the quarter. IT and Digital Health was down just 1.0% year-over-year, making it one of the more resilient sectors in a difficult environment.
Valuation multiples fell across nearly all sectors during Q1. IT and Digital Health saw the largest drop, declining 4.4 turns to 16.4x, followed by Life Sciences Tools and Services at 16.3x (down 3.8x). Medical Devices fell from 16.8x to 14.5x. Healthcare Services was the steadiest, holding essentially flat at 8.7x, reflecting the consistent underlying economics of the sector.
The DCA Healthcare Index† traded at 13.6x EV/EBITDA, down 0.6x from Q4 2025 and 1.1x below the same time last year. The roughly 4-turn gap between the index and the S&P 500 reflects the policy risk currently built into healthcare valuations, as well as the operating profile typical of mid-market companies.
The DCA Healthcare Index fell 9.6 percentage points during Q1, just behind the S&P 500's 8.1 percentage point decline. The gap reflects the heavier sector-specific pressures weighing on healthcare names this quarter. Since the index launched in March 2021, it has gained 33.9%, compared to 66.2% for the S&P 500.
Healthcare deal volume came in at 655 transactions in Q1 2026, down 8.0% from Q4 2025 and 12.2% below Q1 2025. The decline reflects a market still working through regulatory uncertainty and rising costs, but the deals that did close tell a more encouraging story.
Biotechnology was the most active area, accounting for six of the twelve highlighted transactions and the largest deal values of the quarter. Novartis acquired Avidity Biosciences for approximately $11.7 billion, Sanofi acquired Dynavax for $2.2 billion, and GSK acquired RAPT Therapeutics for $1.9 billion. Large pharmaceutical companies continue to buy biotech assets as a faster path to building their drug pipelines than developing treatments in-house.6 The sector entered 2026 with an estimated $2.1 trillion in available capital for dealmaking.7
On the hospital and health system side, Q1 2026 produced 22 announced deals (the most in any quarter since early 2020, according to Kaufman Hall) with a combined $14.5 billion in transacted revenue. More than two-thirds of those deals were divestitures, as health systems sell off underperforming locations and shift their focus toward outpatient and technology-enabled care.8 The GTCR acquisition of Dentalcorp for $2.6 billion and GE HealthCare's $2.3 billion purchase of Intelerad show the breadth of activity, spanning specialty provider networks and digital health infrastructure.
In April, the government finalized 2027 Medicare Advantage payment rates at a 2.48% increase (well above the 0.09% originally proposed) which lifts one of the biggest uncertainties hanging over managed care as the year progresses.9 The bigger picture, though, is the growing gap between care providers (outpatient clinics, specialty practices, dental groups) and payers (insurers, managed care plans), with buyers consistently favoring businesses built around commercial patients and predictable volume. For owners in Healthcare Services and related sectors, the market continues to reward companies with strong margins, recurring revenue, and the operational depth to support growth.
† The DCA Healthcare Index is a proprietary index of publicly traded mid-market healthcare companies maintained by Dinan Capital Advisors. Index composition is available upon request.
1 Kaufman Hall. "M&A Quarterly Activity Report: Q1 2026." April 2026. kaufmanhall.com
2 CNBC. "Health insurers tumble after Trump proposes keeping Medicare rates flat." January 27, 2026. cnbc.com
3 Fortune. "Why is UnitedHealth stock down 20%?" January 27, 2026. fortune.com
4 Financial Content / Barchart. "Are Medical Device Stocks Flatlining?" February 6, 2026. markets.financialcontent.com
5 STAT News, "National Survey of NIH-Funded Researchers Shows Precarious State of U.S. Science," March 19, 2026. statnews.com
6 PwC. "Global M&A trends in health industries: 2026 outlook." January 2026. pwc.com
7 EY, "Life Sciences M&A Spending Accelerates, as the Industry Faces Growth Gaps and Looks to AI and China for Innovation," January 12, 2026. ey.com
8 Fierce Healthcare. "Hospital M&A roars back to life in Q1 2026." April 2026. fiercehealthcare.com
9 24/7 Wall St. "5 Stocks That Should Benefit from the 2026 Medicare Advantage Rate Decision." April 7, 2026. 247wallst.com