In today’s healthcare environment, private equity isn’t just a funding source. It’s a chance for medical practices to rethink how their operations scale — and whether that growth will actually hold. For private equity groups, investing in medical practices can yield significant returns while contributing to the improvement of healthcare services. However, navigating the complexities of the healthcare private equity industry requires a keen understanding of the risks involved for both investors and sell-side groups, especially in the wake of large legislation like the One, Big, Beautiful Bill (OBBB) that can impact the bottom line of the entire industry.
And yet, the biggest risks often don’t look like risks. They look like business as usual — a workflow that hasn’t changed in years, or a team that, “gets it done.” Perhaps it’s a revenue model that “still works” as is. For a private equity sponsor, this is where problems typically begin. What appears acceptable in diligence can be what slows you down after close or may pop up during particular diligence and prevent a hopeful sale from happening.
The patterns aren’t harmless, but these quiet issues slip past early review and show up later when they’re cutting into margin, slowing integration, and making exit plans more difficult to execute. Medical practices readying for sale need to run lean, and when deals move quickly, which they tend to do, risk has many places to hide.
To help understand what this might look like in your organization, we’ve highlighted the five complacency risks we see most often — and why surfacing them early gives you more control over integration and performance.
1. Shifting payer dynamics and inconsistent reimbursements
When your funding is tied to policies outside of your control, margins are vulnerable. Medicaid reimbursement changes, annual payer contract resets, and insurance updates triggered by state policy, like those enacted under the OBBB, can ripple across your financials without warning. Even a small shift in contract language or billing requirements can slow your revenue cycle or block reimbursement altogether.
For both buyers and sellers, these real-case scenarios come into play more frequently than anticipated. If your model relies on inherited contracts, or worse, missing ones, the variability compounds. Reimbursement logic changes year to year, and any inconsistency in how you manage documentation, claims, or contract renewals can quietly snowball into a material risk.
You might not know every answer upfront, but you need to know where the gaps are. Which contracts are active? Which are up for renegotiation? Which are you assuming will hold? If you’re planning to buy or sell, these questions aren’t minor. Both parties should be in agreement ahead of time on their expected payer population make up — what percentage of our patients are we planning to rely on Medicaid or other reimbursement and how does it impact the bottom line? The risk of unasked questions trickles into compliance, operations, and the systems holding the practice together.
2. Inherited compliance gaps
When you acquire a business, you inherit more than the books. You take on the systems, the shortcuts, and the unspoken assumptions that have held everything together — sometimes for years.
Maybe the old electronic health record system “still works,” but that doesn’t mean it’s supporting the model you’re trying to scale. If your teams are relying on habit versus documentation at the start, you’re going to see small compliance gaps begin to stack up. And in markets where Medicaid cuts are tightening margins, those gaps are creating friction, exposing you to financial and operational risk.
Before questioning whether your system has failed or the process didn’t work, ask yourself:
- How does your team handle payer documentation?
- What’s their process when a policy changes midyear?
- Who owns compliance when everyone’s wearing multiple hats?
By answering these overlooked aspects, you’ll be able to narrow down where these gaps may be widening and risk may be compounding.
3. Outdated revenue cycle practices
If something’s going to slip through the cracks, it’s probably the revenue cycle. It’s rarely flagged during diligence, and it usually looks fine on paper. But under the surface, you’ll notice small inefficiencies that turn into structural drag.
In large medical practices and in groups of portfolio companies, billing can span multiple sites, systems, and payer types making it easy for outdated practices to settle in. Practices like manual coding or under-reviewed contracts weren’t built to scale in the way they’re being forced to.
You might not notice the impact right away but over time, those routines will begin to distort your numbers. A trickle down of slowing cash and inflating effort to altering your adjusted EBITDA.
How often are you actually checking what’s happening behind the numbers? How long has it been since your process has changed?
4. Cybersecurity: Modern attacks on outdated systems
Too many practices still rely on outdated systems that weren’t built for today’s cyber risks. Attacks move quickly, and once patient data is exposed, the damage doesn’t stop with IT. It spreads into HIPAA violations, class-action lawsuits, and reputational fallout that can take years to repair.
A breach is a stress test. The question isn’t whether risk exists — it’s how the practice responds. Does leadership escalate quickly? Are roles clear? Are systems isolated, documented, and recoverable? For investors, this is due diligence in motion. A breach reveals whether the practice can contain damage, communicate with clarity, and restore trust without losing operational footing. That response tells you more than any checklist.
5. Turnover and institutional knowledge risk
Burnout, turnover, and weak incentives don’t show up in the report until they’ve already hit the bottom line — in the run up to and in the wake of purchase, when changes to operating models, pay, and performance expectations can rock your staffing.
Turnover doesn’t just change the org chart, it affects internal stability. Institutional knowledge becomes a liability when it lives in one person’s head. Clear role and process documentation can mitigate loss of knowledge and maintain standard operating procedures. If critical information, payer logic, reporting routines, and system access only exists with one or two people, your operation is exposed every time someone leaves.
Further, reputation for an entire group may rest on one provider’s name.
Retention strategies need to look past salary. Scheduling flexibility, professional development, recognition, and performance models all play a role. Working with a trusted advisor to design and implement these incentives ensures stability isn’t just a “check-the-box” activity, but rather the way the organization is built and operated.
Risk builds in quiet places
Risk hides in the spreadsheet no one checks. In the system that still “technically works.” In the answer that’s always been “we’ve just done it that way.”
You don’t need to rebuild from scratch. But you do need to ask harder questions before those answers start showing up in your reporting.
So, if you’re not sure where to look, start here: What assumptions are baked into your model? Which ones are still true? And which ones are quietly eating into your return?
Spotting these risks is only one step in protecting value throughout the private equity life cycle — from transaction preparation, to diligence, to exit. Whether it’s validating the numbers before you close, defining the value creation initiatives in the first 100 days, or preparing for a strong exit, each phase presents opportunities to act before complacency takes hold.
