As private equity sponsors look for exits from the physician platforms they built, health systems are among the buyers they talk to. Corporate entities now own a larger share of U.S. physician practices than hospitals do: 33.2 percent against 30.6 percent as of January 1, 2026, according to the Physicians Advocacy Institute and Avalere Health, while hospitals still employ far more physicians than corporate entities (59.7 percent of U.S. physicians against 22.3 percent).[1] A sponsor selling a platform to a health system is selling into the dominant employer of physicians.
A financial buyer prices the platform as it runs today. A health system has to price what the platform will earn under its own ownership, and it has to do so without paying for referrals. Both constraints change the earnings that can support the price.
The seller's EBITDA is built on the seller's compensation model
A private-equity-backed platform typically reports earnings after physician compensation, and the compensation it reports is whatever the platform's model pays. In many platforms, physicians who sold their practices accepted lower ongoing compensation in exchange for a share of the sale proceeds and equity in the management company. The lower compensation shows up as higher platform earnings.
A health system that acquires the platform and employs the physicians inherits a different obligation. Under the Stark Law's employment exception, compensation to employed physicians must be consistent with fair market value, meaning what well-informed parties not in a position to generate business for each other would agree to.[2][3] If the platform's physicians are paid below that level today, the health system cannot assume it will keep paying them that way after closing. It will need to pay fair market value compensation, and the earnings available to support the purchase price fall by the difference.
The same logic runs in the other direction. If the platform pays physicians well above market because the sponsor is buying loyalty through its final hold period, the health system may be able to normalize compensation downward, and earnings rise. Either way, the buyer's valuation has to start from the compensation it will actually pay, not the compensation on the seller's income statement.
A labeled hypothetical: a platform reports $12 million of earnings after paying its 40 physicians an average of $450,000. If fair market value compensation for those physicians in that market and specialty mix is $520,000, the health system's pro forma earnings before any other change are $12 million less 40 times $70,000, or $9.2 million. At the same multiple, roughly a quarter of the price has moved.
The buyer's synergies do not belong in the price
A health system can usually see value in a physician platform that a financial buyer cannot: filled referral gaps, captured ancillaries, strengthened service lines, better payer leverage. Under Stark's definition, fair market value is the value in an arm's-length transaction consistent with general market value, and general market value for an asset is the price it would bring between a well-informed buyer and seller not in a position to generate business for each other.[2] The health system's expected downstream revenue from the physicians is precisely the kind of value that definition excludes.
In practice this means the valuation is done from the standpoint of a buyer who gets the platform's own earnings and nothing else. The health system may have strategic reasons to pay at the top of a supportable range, and it may document those reasons for commercial reasonableness. It cannot use its own referral economics to push the range higher.
How the MSO structure affects the valuation
Many platforms run through a management services organization that contracts with physician-owned professional corporations. A health system buyer has to decide whether to keep that structure or convert the physicians to employment. The choice affects the valuation in three places.
First, the management fee. If the health system keeps the MSO, the fee the professional corporations pay must itself be defensible as fair market value for the services provided, independent of the physicians' compensation. If it converts to employment, the fee disappears and its economics are absorbed into the employment model, where physician compensation is tested directly.
Second, the carve-out. Health systems rarely want every market in a multistate platform. Valuing a regional piece means allocating shared MSO costs, payer contracts, technology and leases to the piece being bought, and deciding whether a standalone buyer would pay for the shared services at all.
Third, the physicians. A platform's value rests on physicians who partnered with a sponsor because they wanted to stay independent. If the acquisition converts them to health-system employment, some will leave, and the valuation should account for that through the discount rate, a holdback or an earnout rather than assuming everyone stays.
Two questions to answer before the letter of intent
For a health system considering a platform acquisition, the diligence file should answer two questions before the parties anchor on a price.
What will we pay the physicians? The fair market value compensation analysis for the physicians who will be employed is the single largest adjustment between the seller's earnings and the buyer's, and it should be completed before the enterprise valuation, not after.
Whose earnings are we valuing? The analysis should state that the earnings being capitalized are the platform's own, under the buyer's compensation model, with the buyer's referral economics excluded.
Sources & Notes
- Physicians Advocacy Institute and Avalere Health, "PAI-Avalere Health Report on Physician Employment Trends and Practice Acquisitions: 2018-2026," figures as of January 1, 2026, https://www.physiciansadvocacyinstitute.org/PAI-Research/PAI-Avalere-Health-Report-on-Physician-Employment-Trends-and-Practice-Acquisitions-2018-2026.← 1
- 42 C.F.R. § 411.351, definitions of "fair market value" and "general market value," https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.351 (eCFR current as of October 20, 2026).← 1← 2
- 42 C.F.R. § 411.357(c), bona fide employment relationships, https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.357 (eCFR current as of October 19, 2026).← 1