Investors in the healthcare industry are navigating a shift in the financial markets heading into the final quarter of 2025. Industry leaders from Flagstar Bank, Muzinich & Co., Patriot Capital, Pinnacle Financial Partners and U.S. Bank National Association joined McGuireWoods partner Nick DuPuis to discuss industry trends and insights for healthcare businesses, borrowers and lenders. While uncertainty regarding interest rates, tariffs and regulatory policies continued to cause volatility in the market, the outlook toward year-end and into 2026 has shifted from wariness to cautious optimism.
Industry Trends
Healthcare Subsectors Causing Investor Concern
While lenders are hopeful about the rise in deal volume heading into year-end and 2026, some remain wary of investing in particular sectors of the healthcare industry.
- Generalized Consumer-Facing Businesses: Lenders continue to see a decline in returns for generalized consumer-facing healthcare businesses. Businesses such as urgent care and retail clinics battle staffing shortages, and providers of elective procedures are more likely to be impacted by economic downturns and shifting consumer preferences. Elective medical procedures often rely on out-of-pocket payments from consumers, which can be costly and unpredictable. Consumer-facing models fight increasing competition, regulatory scrutiny, economic uncertainty for expendable income, and reputational risks, which impact revenue stability and predictability from an underwriting perspective.
- Single-State Medicaid Businesses: Lenders are cautious about businesses that depend heavily on Medicaid revenue from a single state, given some of the uncertainty caused by the One Big Beautiful Bill Act (OBBBA). Medicaid programs are administered at the state level, resulting in variability in reimbursement rates, eligibility criteria and payment timelines. A business concentrated in one state is highly exposed to that state’s policy changes and budget constraints. If a state reduces reimbursement rates, tightens eligibility or delays payments, the business’s liquidity may be impacted. This lack of diversification increases risk for lenders, making single-state businesses less attractive borrowers.
Healthcare Subsectors Showing Momentum
- In-Home Hospice Providers: Despite mounting challenges for generalized consumer-facing healthcare businesses, in-home hospice and infusion businesses benefit from more favorable reimbursement trends. This divergence underscores shifting priorities toward cost-effective, value-based care delivered outside of the traditional hospital setting, especially for high-risk and chronic populations. The increased availability of in-home services normalizes the need and costs of such services and increasing access for patients in those markets.
- On-Shore Contracting Operations: Healthcare businesses have accelerated their efforts to bring critical operations closer to home in response to volatile tariff policies and heightened concerns over global supply chain reliability. Healthcare investors see an increased need for capital to expand onshore contracting operations. While U.S.-based operations come at a steeper cost than foreign contractors, businesses hope that local operations will mitigate geopolitical risks and the impacts of global disruptions.
Finance Trends
Refinancings Remain Prominent Amid Market Volatility
The 2025 debt financing market was characterized by a steady stream of add-on acquisition financings rather than new platform acquisitions and refinancings and maturity date extensions in response to uncertain interest rate projections, tariff uncertainty and shifting regulatory policies. When faced with the choice between refinancing existing debt and venturing into the leveraged loan market, healthcare businesses increasingly opt for extending or refinancing with existing lenders rather than seeking capital from new lending relationships. Ongoing changes in healthcare policies and financial regulations created uncertainty in an industry that historically prioritized conservative financial management and long-term stability over risky investment strategies.
As a result of fewer new deals in the market, lenders traditionally focused on large-cap transactions elected to move “down market,” pursuing middle-market and lower-middle-market transactions without promises of title designations or ancillary product opportunities. This shift evidences the market’s prioritization of future growth opportunities and the quality of the lenders’ relationships with their borrowers versus a high-volume, high-price-tag model.
“Not All Medicaid Is Created Equal” — Underwriting Focus Shifts to Medicaid Rolloff and Cashflow Challenges
Prior to 2025, lenders’ primary deal considerations related to pricing, EBITDA addbacks and restricted payments. As a result of cuts to federal grants and potential Medicaid access, lenders in the healthcare space anticipate that Medicaid roll-offs for large populations will have a direct impact on borrower liquidity across the industry. They are concerned that heightened reimbursement pressures will cause increased cash flow challenges and that liquidity covenants will become the first line of defense in monitoring the ongoing strength of healthcare borrowers.
Panelists encouraged borrowers to contact their lenders as early as possible to discuss solutions if they know a default is imminent. Panelists stressed that the rollback of Medicaid benefits will impact certain populations and sectors more than others, and that lenders need to understand that the type and location of lenders’ investments will make a difference in mitigating those risks.
Forward-Looking Considerations
In addition to discussing market trends, panelists offered targeted advice for borrowers and lenders navigating today’s evolving credit environment. Their insights reflect the importance of being proactive and flexible.
Guidance for Borrowers:
- Don’t Wait for Interest Rates to Drop. If borrowers think they can wait to time the market’s interest rate environment, they may want to think again. While the Federal Reserve recently reduced interest rates by 25 basis points, and some believe that additional decreases are yet to come this year, no interest rate cuts are guaranteed. Delaying action could result in missed strategic opportunities while waiting for ideal conditions that may never materialize.
- Institutional Banks vs. Private Credit — Find the Right Fit. Borrowers today have more financing options than ever, with institutional banks and private credit lenders each offering distinct advantages. Borrowers should assess their needs and priorities in evaluating whether institutional banks or private credit lenders are the better option. Institutional banks typically offer a lower-cost capital, longer-term relationships and access to ancillary bank products. However, they may be constrained by regulatory requirements or stricter credit committees. Private credit can offer greater flexibility, faster execution and customized terms, but it typically comes with a higher price tag. With no “one size fits all” solution, private credit lenders and institutional banks are finding opportunities to work together to provide flexible structures to borrowers through a combination of traditional banking and private credit structures to provide financing solutions for their borrowers.
Guidance for Lenders:
- Financial Covenants. In anticipation of pending healthcare regulatory changes and cuts to subsidized healthcare programs, lenders must reconsider how they structure and prioritize financial covenants. Panelists stressed that while covenants remain an essential risk management tool, borrowers with strong liquidity positions are generally better equipped to weather market volatility. Lenders can afford to be more flexible on financial covenants so long as their borrowers can maintain an acceptable level of liquidity.
- Look Beyond the Balance Sheet. Lenders are encouraged to take a more holistic approach when evaluating prospective deals. They need to look beyond the numbers to understand the business model, management team and long-term strategic vision of each prospective borrower. Competition for high-quality borrowers is challenging, but lenders who take the time to build trust and alignment with their clients are more likely to secure repeat business and avoid transactional pitfalls.
As financial markets continue to fluctuate amid ongoing regulatory and political shifts, panelists’ insights served as a timely reminder that success in a volatile environment depends not only on diligent financial structuring, but also on proactive and informed decision-making and flexibility for lenders and borrowers.
Track Healthcare Deal Notice and Consent Laws by State
To help clients stay ahead, McGuireWoods launched an interactive 50-state tracker covering pre-transaction notice and consent laws — including real-time updates and links to key regulatory guidance.
Explore the map and learn what’s changing in your states of interest.
Articles in this series can be found on the conference website under the “Key Takeaways” section.