The State of PE-Backed Orthopedic MSOs

An analysis of private equity consolidation in Orthopedics

May 07, 2026

Introduction

With extended hold periods of PE-backed Orthopedic MSOs, it felt like a good time to take a look at where things stand, particularly from the surgeon’s viewpoint. Many are probably wondering what delayed exits mean for their equity, and what a realistic exit looks like.

Physicians may only have a cursory understanding of what they originally signed — the cash at close, the rollover equity, the expectation of a secondary transaction (“second bite”) at a higher multiple. They may not fully understand where their common equity sits relative to platform debt, the preferred return obligations ahead of it, and the reality of exit multiples given current market conditions.

Publicly available information about capital markets, reimbursement trends, and exit activity is less favorable than original projections suggested for most ZIRP-era platforms. The gap between entry valuation and achievable exit value, after accounting for debt service and preferred return obligations, leaves physician common equity in a narrow or impaired position across much of the cohort.

I am writing this from an informed vantage point. I practiced in a PE-backed orthopedic group during the peak of consolidation, held a senior operating role at a venture-backed MSK company, and am now building a portfolio career in MSK-adjacent consulting work. I no longer hold any position inside a PE platform but do have stock and stock options in the VC-backed company.

This article is not specific to any company, platform, or approach. Rather it represents my analysis of the traditional private equity-backed Orthopedic MSO market based on current trends and conditions. The goal is to use both my current distance and prior proximity for an informed yet detached analysis.

Part 1: The Investment Thesis

This is a mid to late-cycle analysis, not a retrospective. The PE orthopedic consolidation wave may have crested, but the market is far from settled. Many platforms are still operating, many physicians are still inside these structures, and the policy/fiscal environment continues to evolve. The purpose of examining the thesis and its vulnerabilities is not to render a verdict on past decisions but to inform present and future ones. This analysis is for physicians evaluating their options, capital allocators assessing the sector, and policymakers designing payment models that will determine what physician practice structures are economically viable going forward.

With that framing established, let’s review how we got here.

Between 2017 and 2022, private equity consolidated orthopedics at an unprecedented pace. The specialty presented the characteristics PE investors favor: a fragmented market of independent practices, high procedural volume, favorable demographics generating durable demand, robust ancillary revenue opportunities, and a reimbursement structure that historically rewarded high-acuity procedural care. By 2022, more than 16 PE-backed management platforms were actively consolidating orthopedic practices across the country.

The timing was aided by favorable market conditions, both financial and clinical. Near-zero interest rates made leveraged buyouts cheap with far less onerous debt service. The math of rolling up practices at 6-8x EBITDA and exiting a scaled platform at a 12-14x multiple works on paper when cost of capital is negligible. (As we’ll cover later, things get trickier when rates go up and entry and exit multiples invert.)

Perhaps the biggest catalyst was the site-of-service shift to ambulatory surgery centers, particularly for high-acuity procedures historically performed in hospitals. For decades, total joint replacement and complex spine surgery were classified as inpatient-only procedures, meaning Medicare reimbursement required hospital admission. CMS removed total knee arthroplasty from the Inpatient Only List in 2020, followed closely by total hip arthroplasty in 2021.

Whether prescient or opportunistic, the timing was right. The outpatient shift began years ago in the commercial market but crested at the exact moment PE capital was flooding into the space. The pandemic acted as an accelerant as patients and surgeons became comfortable with the ASC setting for higher-acuity cases out of necessity.

From a financial standpoint, ASC economics matter more than professional fees. A total joint replacement generates modest revenue for the surgeon — roughly $1,200-1,500 per procedure. The bigger economic opportunity lies with facility fees. Medicare pays ASCs approximately $9,300 for a joint replacement while commercial rates are often $15-25k+. Migration of joint replacement and spine procedures to surgery centers unlocked facility fees for lucrative Orthopedic procedures creating a massive arbitrage opportunity.

The revenue available at the ASC level was the economic engine the PE-in-Ortho thesis was built around. Robust growth projections for outpatient joint and spine procedures painted a favorable picture and path to grow EBITDA. Platforms that acquired or built ASC infrastructure early captured those economics directly and positioned themselves to take advantage. Platforms that did not were relying on efficiency gains and economies of scale with capped upside.

The physician calculus made sense too, at least pre-pandemic. Independent orthopedic groups were facing relentless administrative burden, rising overhead costs, and deteriorating reimbursement rates. Health systems were aggressive acquirers of independent practices throughout the 2010s, and in many geographies surgeons who had spent careers building independent groups watched hospital systems completely reset market dynamics.

Hospital employment of physicians grew from 23.4% in 2012 to 34.5% in 2024 — a 47% increase over twelve years. In orthopedics, 54% of surgeons remained in private practice as of the 2024 AMA Physician Practice Benchmark Survey, tied with ophthalmology for the highest percentage. That finding reflects the specialty’s historically stronger economic position compared to primary care, driven in part by the ancillary revenue capture that made Ortho practices attractive to PE.

Still, despite their proclivity for independence, Orthopedic Surgeons are not immune to market pressures. When a health system acquires the dominant orthopedic group in a mid-sized market, remaining independent groups lose referral access, imaging revenue share, and payer contracting leverage simultaneously. Health system consolidation created a binary decision: affiliate with a hospital system or seek out an alternative path to maintain independence.

For some, private equity appeared to offer such a path, but the devil was in the details of deal structure.

Deal Structure

Understanding deal mechanics is essential to understanding the current environment. A typical PE transaction worked as follows:

The platform — a PE-backed management services organization (MSO) — acquired a practice at an agreed valuation, typically 6-10x EBITDA for an individual group. The purchase price was paid in two parts: a cash component at close and a stake in the newly formed MSO (rollover equity). Most deals were structured as 60-70% cash and 30-40% rollover equity, enough to ensure physicians had a vested interest in continued platform growth and success.

For senior partners approaching retirement, the cash component functioned as an effective liquidity event at a multiple they could never have achieved selling to a hospital, winding the practice down, or through a buyout. Meanwhile, rollover equity became a potential golden parachute, offering a “second bite of the apple” when the platform exited at a higher multiple in five to seven years.

For younger partners, the value proposition of a private equity sale is less clear. Depending on deal structure, cash at close was often smaller relative to earning years ahead. Furthermore, a smaller rollover equity stake meant less upside in the event of a second transaction. That imbalance was offset by the promise of third or even fourth transactions during the course of a long career, each an opportunity to capture more liquidity at increasing value.

The principal mechanism that funded MSO operations — and created EBITDA for the platform — was the salary scrape. Before the transaction, orthopedic groups typically ran on a net income model: revenue minus expenses, distributed to partners. After the transaction, a portion of that net income was redirected to the MSO as a management fee and to support platform growth and additional acquisitions. Physicians kept their salaries but took home less than they had before with the difference flowing upward to fund the platform’s overhead and debt service, and to generate the EBITDA that would be used to value the platform at exit.

Older partners who negotiated maximum cash at close minimized their exposure to the salary scrape and the downside risk of their rollover equity. In other words, they realized most of their value at the time of the first sale. Younger partners were exposed to income compression with less upfront cash to offset the salary scrape. They were also more exposed to the ultimate performance of the capital stack sitting above their common equity. As a result, early career surgeons will bear the biggest burden of distressed platforms.

The MSO approach made sense for both sides at the time. PE firms followed their playbook: identify a fragmented market with favorable economics (Orthopedics), deploy capital at the available cost (near zero interest), and build platforms that generate value through growth, efficiency, and economies of scale (consolidate). Physicians who transacted did so in response to margin pressure and health system encroachment. They took liquidity and bet on a larger platform to deliver stability and growth capital while allowing for some measure of independence. The prospect of a second liquidity event further sweetened the pot.

Now, slowing sector growth and the paucity of exits hints at the challenges genuine orthopedic consolidation requires. Fund timelines (typically 5-7 years) incentivize rapid EBITDA growth, not years of operational integration, data infrastructure, care model development, and payer relationship building. An investment thesis that made sense during the ZIRP/ASC boom era now looks shakier in retrospect.

Orthopedics: Attractive, Yet Complicated

Orthopedics was not the first specialty to attract PE consolidation. Dermatology, gastroenterology, ophthalmology, and dental service organizations came first. The varying results seen in those specialties provide insights into the orthopedic experience and the limits of generalizing from it.

Ophthalmology and gastroenterology — both ASC-focused, procedurally standardizable, and less dependent on individual surgeon variation for volume — have produced reasonably durable platforms. GI Alliance was acquired by Cardinal Health at a valuation of $3.9 billion, one of the largest specialty PPM exits to date. Of note, Cardinal is a distributor, not a traditional PE firm, suggesting the exit market for specialty platforms may increasingly depend on non-PE strategic buyers. Dermatology has produced mixed results; the aesthetic segment, with higher cash-pay revenue and more standardizable workflows, has performed better than the medical dermatology segment.

On the surface, Orthopedics mirrors Ophthalmology and Gastroenterology with reproducible unit economics, care protocolization, and site of service arbitrage opportunities. On closer analysis, several important differences emerge. First, high revenue musculoskeletal procedures are more complex and tied to individual surgeon relationships, referral patterns, and skill set than most other specialties. Post-transaction productivity and facility utilization incentives are more fragile operationally than anticipated.

Second, procedure-level reimbursement compression continues for the two highest-volume orthopedic procedures, total knee and total hip replacement. These procedures have experienced the sharpest reimbursement declines, directly impairing the revenue base that platforms were underwritten on. Facility fee capture offsets this compression; however, in the typical PE-backed MSO structure, that benefit is appreciated at the platform level, not the surgeon level. That imbalance starts to fray with prolonged hold times and delayed exits.

Because of these factors, PE-backed Orthopedic consolidation hasn’t necessarily been smooth sailing. The fundamental miscalculation was that most attractive acquisition targets already had favorable economics — busy surgeons, profitable ASCs, and established ancillary service lines. These were mature businesses facing headwinds, not distressed assets in need of turnaround.

The ASC piece remains important, but not for the initially intended reasons. ASC distributions have become the main source of salary scrape “repair” but may be insufficient if ownership stake is low or non-existent. In addition, ASC revenue is flowing to debt service obligations caused by stubbornly high interest rates and to address rising overhead costs caused by sticky inflation.

Rather than becoming the main source of EBITDA growth, ASC revenue is being used to keep platforms afloat. Young total joint and spine surgeons understand the value they bring to centers and will be less inclined to let someone else capture that value. Sophisticated groups understood that capturing and holding onto ASC ancillary revenue themselves was the smarter path to independence.

Meanwhile, PE-backed MSOs may be experiencing both buyer and seller’s remorse.

Part 2: A Distressed Cycle

PE-backed consolidation activity has slowed significantly. The deal announcements, press releases about platform expansions, and trade press roundups that characterized the 2019-2022 period have given way to a quieter environment marked by extended hold periods and balance sheet restructurings.

The exit market — or lack thereof — tells the story. PPM recapitalizations hit their lowest level in a decade in 2024, with only 13 completed transactions across all specialties (down from nearly 100 in both 2021 and 2022). It’s worth noting that a rebound in M&A and exit activity has been forecast by industry analysts in each of the past three years.

The most recent iteration of this forecast, predicting that PE will "reignite" PPM M&A in 2026, follows the same pattern of optimism generated by advisors and bankers hopeful for transaction fees. This year could be the year but hope for continued interest rate cuts is fading in the face of domestic and global economic uncertainty. Inflation remains high, and there are now whispers of rate increases. The spread between buyers and sellers persists, portending less activity and/or lower exit multiples. Despite best efforts, willing an exit market into existence has not proven successful.

In Orthopedics, the most-cited exit was SCA Health’s acquisition of OrthoAlliance from Revelstoke Capital Partners, widely presented as validation of the second-bite model. But that exit might be a difficult-to-replicate exception, not evidence of a broader thaw. Orthopedic PPMs present a management challenge that ASC operators like SCA Health may have underestimated. The value of the platform is inseparable from that of the physicians, who retain leverage, geographic mobility, and the ability to affiliate with competing facilities. Managing a collection of independent-minded orthopedic surgeons across dozens of markets is different than operating a standardized ASC chain.

Meanwhile, SCA itself has since undergone significant organizational restructuring, limiting its utility as a template for subsequent transactions. “Just sell to Optum” is no longer a solid exit plan. A clear buyer’s market for Orthopedic MSOs has yet to materialize while the seller’s market is being pressured by long hold periods. In turn, those hold periods and the financing structures associated with them are creating another layer of vulnerability.

Most 2019-2022 vintage orthopedic MSO platforms were financed with floating-rate debt from private credit lenders. The Secured Overnight Financing Rate (SOFR), used as a benchmark reference rate for most institutional lending, rose from near zero in early 2022 to over 5% by mid-2023. A platform carrying $300 million in debt at SOFR plus 600 basis points saw its effective borrowing rate go from roughly 7% to over 11%, representing an additional $12-15 million in annual interest burden on the same principal. Growing debt service exacerbated by prolonged hold times directly impairs EBITDA at a time when compressed valuation multiples make it even harder to achieve a favorable exit. As a result, some platforms turned to continuation funds.

Orthopedic Care Partners, one of the larger MSOs backed by Varsity Healthcare Partners, completed a $543 million recapitalization in late 2024 — a $185 million hybrid capital raise from Brookfield Asset Management alongside a $358 million senior credit facility refinancing led by TPG Twin Brook Capital Partners. While framed as positioning for growth, from a different lens it could be interpreted as a balance sheet extension. By refinancing maturing debt and adding a capital cushion, OCP could be buying time, hoping a stronger exit market materializes. The platform simultaneously installed new executive leadership, perhaps repositioning for a transaction process.

The distress in the current cohort is only partly a function of bad luck with rates and bad timing with macroeconomic conditions. There’s a fundamental flaw in the highly leveraged PE model as applied to orthopedics. Short fund timelines create little incentive to do the hard, slow work of genuine operational consolidation. Building centralized RCM infrastructure, standardizing supply chain, integrating cross-platform benefits, developing payer contracting leverage, and embracing value-based care capability all take, at minimum, 3-5 years to generate returns. A PE fund on a 5–7-year hold cycle, already 18 months into platform formation when these initiatives would need to begin, has limited incentive to pursue them. The playbook instead is to affiliate practices quickly and generate volume-driven growth before underlying economics become regressive.

The lack of M&A and exit activity may be an indication that the latter has already happened.

Understanding Capital Structure

The result of prolonged hold times is a cohort of platforms caught between an entry valuation they can’t recover, a debt service burden compressing the EBITDA they need to attract a buyer, and a physician workforce that is increasingly aware that the second bite may not materialize. If an exit does happen, physicians are often at the mercy of capital structures and waterfall mechanics that were opaque at the time of the initial sale. These mechanics are particularly salient when valuations and exit multiples turn unfavorable.

Consider a theoretical platform that enters with $20M EBITDA at a 12x multiple, or $240M in enterprise value. Capital is structured as $156M in senior floating-rate debt and $84M in equity split 70/30 between PE preferred and physician common equity. Effective debt rate at entry is approximately 6% (SOFR near zero plus spread), and the annual interest burden is approximately $9.4M.

The original underwriting assumption is that EBITDA grows to $26M over the hold period (30% growth through rollups, operational improvements, and volume growth) and that an 11x exit will occur by year 5 at an enterprise value of $286M. At that exit, debt is repaid ($156M), PE preferred equity receives $88M (1.5x return on $59M), and physician common equity receives $42M — a meaningful return on the rollover. This is the enticing “second bite” realized. It also represents a best-case scenario that hasn’t broadly materialized.

First, SOFR rose from near zero to over 5% by mid-2023. Effective debt rate moved from ~6% to ~11.5%. In our scenario, annual interest burden would increase from $9.4M to approximately $18M, an $8.6M annual drag on free cash flow that was supposed to fund operational investment and EBITDA growth. Rather than pumping up EBITDA, ASC facilities are being diverted to growing interest payments.

Second, EBITDA growth underperformed. Reimbursement compression, misaligned physician incentives, and limited operational integration produced modest growth — let’s say $22M rather than $26M, a 10% increase rather than the budgeted 30%. In cases of PIK (payment-in-kind) interest provisions, unpaid interest is added to principal rather than paid in cash, causing the debt balance to grow from $156M to $170M or beyond.

Third, exit multiples contracted. Sponsor-to-sponsor recapitalizations, one expected exit mechanism, effectively ceased for most platforms in 2023-2024. Current market multiples for orthopedic platforms without demonstrated operational EBITDA growth are likely in the 7-9x range (or less) rather than the 10-12x range assumed at entry.

That presumed favorable exit at the time of the initial sale now looks like 8x on $22M EBITDA or an $176M enterprise value. After repaying $170M in senior debt, only $6M remains. All of it goes to PE preferred equity; physician common equity goes to zero. Even in a moderate scenario — 9x on $22M = $198M — senior debt consumes $170M, leaving $28M against $88M in PE preferred obligations. Physician common equity still receives nothing. In our scenario, given current exit multiples of 7-9x, EBITDA would have to grow 44-65% before physicians see any return at all.

The specific dollar amounts here are theoretical and illustrative. However, the general waterfall mechanics hold. In any ZIRP-vintage transaction with 60-65% leverage and standard preferred return terms, physician common equity requires an exit value exceeding the original entry valuation just to break even — a threshold that multiple compression and modest EBITDA growth have placed out of reach for much of the cohort. And that’s not even factoring in transaction fees and other hidden costs that further reduce distributable funds.

These compressed scenarios do not require catastrophic operational failure. Instead, they require the simultaneous occurrence of three conditions that were each individually unlikely to be modeled at signing: higher interest rates, modest EBITDA growth, and compressed exit multiples.

All three exist now. Not every platform sits at this exact intersection, but many fall within a band where even moderate underperformance produces similar waterfall compression.

Is Recovery Possible?

There exist conditions under which the PE orthopedic model produces acceptable outcomes. In other words, the model is not inherently unworkable. However, it is sensitive to conditions that turned unfavorable between 2022 and 2025. For ZIRP-era platforms, the model produces acceptable outcomes for common equity holders (physicians) under four conditions:

Condition #1: EBITDA growth sufficient to justify entry multiples.

Most platforms were acquired at 10-14x EBITDA. For common equity to recover meaningful value at current exit multiples of 7-9x, a platform needs to grow EBITDA materially above the entry base. The principal levers to achieve this growth include volume expansion, ancillary revenue capture (e.g., ASC facility fees), operational savings, and improved RCM. The platforms that invested in operational integration early and can demonstrate this growth trajectory are in a better position than those that relied primarily on practice affiliations and arbitrary volume targets.

Condition #2: A viable balance sheet extension mechanism that buys time without deepening the equity trap.

When a clean exit is not available, PE funds have two related, yet distinct options for extending the hold period: continuation funds and hybrid recapitalizations. A continuation fund transfers the asset from an aging fund into a new vehicle managed by the same GP. Existing LPs can cash out or roll equity into the new vehicle; the GP retains control, and the hold period resets without a change of ownership. Physician owners may experience some liquidity but may also be subject to new, possibly less favorable, contract terms.

A hybrid recapitalization, like the OCP Brookfield/TPG Twin Brook transaction, brings in new third-party capital at the platform level, refinancing maturing debt, adding equity cushion, and extending maturity while the existing GP retains its position. Both mechanisms can be useful for platforms with genuine underlying EBITDA momentum that simply need more time. However, neither changes capital structure math nor waterfall provisions.

Condition #3: An exit pathway at a valuation sufficient to satisfy obligations ahead of physician common equity.

A true exit requires a buyer — either a new PE sponsor acquiring a controlling stake in a sponsor-to-sponsor recapitalization, or a strategic acquirer such as a health system, distributor, or payer. Sponsor-to-sponsor recapitalizations were the expected primary exit mechanism for most 2021-vintage platforms. As detailed in the exit options section below, that market has been largely closed since 2023. Strategic acquirers — principally health systems — represent the most plausible exit pathway for the distressed cohort. But their acquisition terms may fall short of physician expectations set at the time of the first sale.

The conditions under which a true exit generates meaningful physician common equity recovery are the same as Condition #1: exit proceeds must clear the combined debt and preferred return threshold which requires either a strong operational EBITDA trajectory or a recovery in ZIRP-era exit multiples. For most of the pandemic-era cohort, neither condition is currently met.

Condition #4: Physician stability must hold through the resolution period.

Platform EBITDA and a convincing growth story depend on physician equity holder buy-in. Surgeon volume depends on satisfaction with compensation, governance, and the clinical environment. A platform experiencing income compression and governance dissatisfaction faces a compounding dynamic: attrition —> reduced EBITDA —> increased financial pressure —> more attrition. Physician retention is simultaneously the leading indicator of platform health and the variable most difficult to manage in a distressed capital structure. Moreover, prolonged hold period breed discontent. The sunk cost fallacy only holds for senior surgeons who experienced a favorable first sale. Younger surgeons are less incentivized to wait out an exit.

Conditions #1 and #4 might be achievable for a subset of platforms while Conditions #2 and #3 are largely subject to market whims. The practical implication is that prolonged hold times and exit pressures are in direct conflict with unfavorable market conditions.

Something has to give.

Possible Outcomes

The capital mechanics described above produce a range of outcomes depending on the rate environment, exit market, and platform operational performance. There are four plausible outcomes for the low-interest rate cohort that’s currently pushing the 5–7-year timeline.

Scenario #1: Favorable Outcome

Conditions: SOFR declines to 3-3.5%, platforms demonstrate 15+% EBITDA growth above their entry bases, PE deal activity recovers meaningfully
Outcome: Sponsor-to-sponsor recapitalizations resume for strong platforms, strategic buyers provide exits for mid-tier assets, and common equity holders in the better-structured platforms realize meaningful value (1.5-2x return on rollover equity).

This scenario is possible but requires simultaneous improvement across rate environment, exit market, and operational performance — a tall order in today’s environment.

Scenario #2: Acceptable Outcome

Conditions: Rates stabilize at current levels, platforms demonstrate 5-10% EBITDA growth, limited sponsor-to-sponsor activity resumes
Outcome: A subset of platforms find exits over 2026-2029 at reduced but acceptable multiples (0.5-1.5x return on rollover equity).

This scenario is achievable for platforms with less growth but lower leverage, genuine ASC economics, and more robust operational integration.

Scenario #3: Distressed Outcome

Conditions: Rates stabilize or increase, EBITDA growth is flat, the buyer’s market remains weak
Outcome: Distressed sale to a health system, structured refinancing, or a wind-down, with physician common equity recovering little to nothing (rollover equity goes to zero).

This scenario occurs for more levered platforms that relied on multiple arbitrage, presumed strong growth, and lower interest rates that never materialized.

Scenario #4: Catastrophic Outcome

Conditions: Rates increase, physician attrition accelerates, loan covenant breaches trigger, acquirers remain constrained by their own capital challenges
Outcome: The distressed resolution timeline accelerates and the buyer price at which assets clear is insufficient to satisfy preferred return obligations for many platforms. Not only is common equity wiped out, but debt restructuring or loan forgiveness triggers Cancellation of Debt Income, a taxable event for physicians.

This scenario is a real risk, but not the central case. Private credit lenders, themselves under pressure, are actively extending rather than enforcing covenants.

Part 3: Exit Options

Capital sponsors and physician common equity holders are both hopeful of a return to exit activity. In the current environment, there are four principal exit options, each with its own constraints that explain the current backlog.

Option #1: Recapitalization and continuation vehicles

The most common mechanism for extending PE holds beyond fund term limits is the continuation vehicle. To review, this fund structure allows GPs to transfer assets from an aging fund into a new vehicle, providing partial liquidity to existing LPs while extending the hold period for investors who choose to roll into the new vehicle. This has been used in the orthopedic PE cohort, but there are limitations.

First, continuation vehicles do not solve the valuation mismatch problem. Instead, they satisfy LPs’ desire for liquidity and extend the hold period until platform financials and/or exit conditions improve. Furthermore, the asset is transferred at a negotiated valuation that must satisfy both rolling and exiting LPs. With compressed multiples, that “spread” may be difficult to resolve to the satisfaction of new and existing investors.

Second, the rate environment makes the new vehicle’s economics less attractive than the original fund’s underwriting assumed. A continuation vehicle financing its acquisition of the asset at current debt costs starts from a higher cost basis than the original platform leaving less room for the return that would attract rolling LPs.

Finally, physician equity holders may find their rollover position restructured or diluted in the continuation vehicle transaction depending on how the new vehicle is capitalized. The continuation vehicle extends the timeline but does not change the underlying truth — exit value must exceed obligations senior to physician common equity. That gap has not closed.

Option #2: Sale to a health system

Health systems are the most logical strategic acquirer for distressed orthopedic platforms. Constraints on this pathway are related to physician expectations and the realities of health system acquisitions.

Health systems do not want to acquire loan obligations. A platform carrying $150-300+ million in senior debt is not an attractive acquisition target for a health system whose own balance sheet is under pressure and whose credit rating is sensitive to leverage ratios. Most health system acquisitions of physician practices are structured as asset purchases, not enterprise acquisitions that include existing debt. That means the PE fund and its lenders need to resolve capital obligations before or as part of the health system transaction. This typically requires the sale price to cover the debt and preferred return obligations before physician common equity sees any value — essentially a wipeout scenario.

Health systems also do not pay strategic multiples for orthopedic practice volume. What they want is surgeons who commit to using the health system’s facilities, cases that flow through their OR and HOPD, and facility fee revenue from ASCs they can acquire and control. The alignment between what health systems want to buy and what distressed PE platforms are positioned to sell is imperfect.

Further complicating matters, platform physicians may resist becoming employees of a health system, especially if such an acquisition renders their rollover equity worthless. While health system employment provides a stable salary floor, the income ceiling is often lower than traditional private practice. Employed physicians rarely benefit from ancillary income generation, a non-starter for surgeons used to getting distributions from physical therapy, DME, imaging, and ASC revenue. Finally, many groups partnered with PE specifically to avoid health system employment.

Option #3: Sponsor-to-sponsor sale

A larger fund acquiring a distressed orthopedic platform at today’s debt costs needs to underwrite a return on a higher effective cost of capital than the original fund assumed. The business model risk — whether orthopedic PPMs can generate the EBITDA growth required to service debt and produce the return a fund needs — has not been proven at scale. Lack of sponsor-to-sponsor sales despite prolonged hold periods serves as proof. Despite persistent rumors of multiple platforms coming to market, only one true second sale has taken place (the aforementioned OrthoAlliance/SCA transaction).

The operational thesis was that genuine consolidation of back-office functions, payer contracting, and care delivery would compound EBITDA beyond what organic volume growth alone produces. The evidence that this has been achieved systemically is limited. A new fund acquiring a platform is essentially making a fresh bet on operational value creation in an asset where the original fund’s hold period was not long enough to fully test that thesis. The remaining consolidation opportunity — the whitespace of large independent orthopedic groups in attractive markets willing to transact — has contracted significantly from the initial consolidation period, limiting the add-on acquisition growth strategy that supported many original investment theses. For a larger fund to make this bet at current debt costs, the asset needs to be demonstrably well-operated, have genuine ASC economics, and be priced to reflect the current environment rather than the original entry multiple.

Only a small subset of the cohort may be able to satisfy those conditions.

Option #4: Physician buybacks

The most interesting, and least discussed, exit option is a partial or full repurchase of the platform by its physician partners. This pathway deserves more attention than it usually receives because it is the option most aligned with the overall MSO thesis. It’s not an easy or straightforward path, but it might be the most viable.

A physician buyback requires unwinding the existing capital structure. Debt must be satisfied or negotiated down before the practice is recapitalized under physician ownership. In a scenario where the platform’s enterprise value is below the sum of its obligations, this requires either a discounted payoff negotiated with lenders and the PE fund or a transaction in which the physicians acquire the operating assets rather than the platform itself. In this scenario, the PE fund must resolve the financial structure.

Physician buybacks face several obstacles, cash requirements chief among them. An orthopedic group repurchasing its infrastructure needs working capital to fund the transition period, invest in the back-office systems it previously relied on the MSO to provide, and buy out ASC equity that the platform holds. That requirement — typically several million dollars for a mid-sized group — requires either physician equity contributions, bank financing secured against practice revenue, or a third-party capital partner who is not a traditional PE fund. Community development financial institutions, family offices, and specialty-focused credit funds are potential sources; none is as efficient as a PE fund for this purpose.

Physician risk tolerance is the second constraint. Surgeons who transacted into a leveraged buyout that failed to meet expectations may not be enthusiastic about the prospect of a leveraged buyback. The physicians most likely to pursue a buyback are those with the financial reserves to absorb the transition cost and the governance discipline to manage a physician-owned entity. Recreating what existed before the PE transaction is not a given.

Non-compete clauses and restrictive covenants create additional complexity. Transaction documents typically include covenants that restrict physician mobility and define the conditions under which they can separate from the platform. Those provisions were designed to protect the platform’s value during the PE hold period; in a buyback scenario they may constrain the terms on which physicians can repurchase or reconstitute their practice. Each platform’s transaction documents are different, and any buyback requires careful legal analysis of these provisions before structuring begins.

Despite these obstacles, the physician buyback outcome is worth consideration. A successful repurchase converts a failing PE-backed platform into a physician-owned model that evidence suggests produces better cost and quality outcomes. It may also benefit from operational efficiencies built during the PE hold period. Finally, it creates the physician ownership base from which sustainable alternative models can be developed. The obstacles are real but not insurmountable, and in some markets, they will be overcome.

The private equity orthopedic consolidation wave was not built on bad intentions or irrational assumptions. The thesis made sense under the conditions in which it was conceived: a fragmented specialty with genuine consolidation economics, favorable reimbursement trends, a compelling ASC opportunity, and cheap capital. Many of the platforms built during this period created real infrastructure — centralized operations, shared services, ASC networks — that has genuine value independent of what the capital stack above it looks like.

What the thesis did not adequately account for was the interaction between leverage, fund timelines, and an operating environment that never materialized. Higher rates, compressed multiples, and modest EBITDA growth arrived simultaneously, and the waterfall mechanics that seemed theoretical at signing have become very concrete for physician equity holders.

The exit landscape doesn’t offer easy resolution. Continuation vehicles extend the timeline without changing the math. Health system acquisitions rarely generate the proceeds or independence physicians expected. Sponsor-to-sponsor recapitalizations remain largely inactive for the current cohort. Physician buybacks are possible but require capital, governance discipline, and risk tolerance beyond the reach of many groups.

Something has to resolve. The question is on whose terms and whether the infrastructure built during the PE era becomes the foundation for a more durable ownership model or simply a balance sheet problem to be unwound.

That question is the subject of a future piece.

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