Expect more hospital mergers in 2025, with deals driven by distress and opportunity

Hospital merger activity has risen in each of the past three years, and analysts expect to see more deals in 2025.

More hospital mergers are expected in the coming year, partly driven by deals with organizations that are struggling financially, says Anu Singh of Kaufman Hall.

Experts say there are a number of factors driving the expected uptick in hospital mergers and acquisitions, including financial need, health systems seeing opportunities to solve problems, and academic medical centers looking to evolve.

Most of the hospital deals in 2024 involved an organization in financial trouble, says Anu Singh, managing director at Kaufman Hall. While hospitals are generally faring better financially than they were a few years ago, many are continuing to struggle.

Looking at the year ahead, Singh tells Chief Healthcare Executive® that he expects many deals to be driven by hospitals in distress.

“In 2025, I think the repositioning of portfolios is a theme that will continue to the year,” Singh says. “I still think we'll see a high or a pretty significant number of the divestiture-type transactions.”

With mergers driven by hospitals looking for strategic opportunities, or a desire to survive, Singh says he expects “more M&A activity this year than last year.”

“We'll still continue to see the mega-mergers, which are very strategic in nature, as well as the other end of the spectrum, the highly distressed bankruptcy-type transactions that we saw in the previous years,” he says. “I think we'll see those and everything in between continue to accelerate.”

Analysts also expect less federal scrutiny of hospital mergers under President Donald Trump’s administration.

• Read more: The Trump White House could lead to more hospital mergers

Seeking a lifeline

Some divestiture activity appears to be underway. Prospect Medical Holdings, which owns 16 hospitals in California, Connecticut, Pennsylvania and Rhode Island, filed for bankruptcy last week.

There were 72 announced hospital mergers in 2024, and nearly one-third of those deals (30.6%) involved an organization in distress, a record high, according to an analysis by Kaufman Hall. The total number of hospital mergers topped the 65 announced deals in 2023, and the 53 hospital mergers and acquisitions in 2022.

Many hospitals are seeing improved operating margins, but some are still seeing only modest gains, if any. Hospitals are continuing to struggle with higher costs, and for some, the revenues aren’t keeping pace, Singh says.

“I think the reset of the expense space for a number of organizations, without a corresponding revenue counterbalance, is creating some challenges for a lot of different types of organizations right now,” he says. “And those organizations are going to increasingly have to consider partnerships and transactions as the path to stability.”

Mark Pascaris, senior director of Fitch Ratings, expects more mergers and acquisitions, and he says many will involve hospitals looking for a lifeline.

“A lot of those folks are looking for ways to shore up their position in the market,” Pascaris said in a webinar earlier this month. Some of those hospitals “might end up joining another health system,” he says.

For some hospitals, they are going to pursue partnerships to remain viable, and, as Singh says, “just to keep the doors open.”

Other deals may involve systems that aren’t necessarily in danger of failing, but they are facing serious cost pressures.

Sanford Health completed the acquisition of the Marshfield Clinic Health System earlier this month, creating a merged system of 56 hospitals with $10 billion in revenue. Marshfield Clinic had been looking for a partner as the Wisconsin-based system has struggled financially.

Singh says such considerations are driving more deals.

“I think that the industry as a whole is facing all kinds of headwinds, but the nature of those headwinds manifest themselves differently based on the strategic, financial and operating position of each of the participants,” Singh says.

Finding partners to get stronger

For some hospitals, including larger systems, they may be looking at mergers or partnerships with other hospitals that can supplement areas where they would like to be stronger.

And Singh says it’s not necessarily about health systems looking to have a wider footprint.

“I think if you look at transactions of 5, 10, 15 years ago, they were very much scale driven, on the premise of, let's just put the hospital systems on top of each other, and we'll be bigger and better,” Singh says.

“And I think what we're seeing now is hospitals and health systems are saying, well, wait a minute, it's not just bigger. Maybe we're big enough, but now we’ve got to be better in something, and being better means you look at tactical, specific relationship types, whether it's a service line, whether it's a capability or whether it's a resource,” he adds.

Beyond merging with other hospitals, health systems could seek other organizations in mergers and acquisitions, Singh says. Some could be looking at companies to bolster their capabilities with artificial intelligence, or they could be looking to acquire outpatient providers to expand their services for patients and capture more revenue.

Some academic medical centers, including UCSF Health and the University of Alabama at Birmingham Health System, have completed deals to acquire hospitals. Singh says it’s likely that other academic health systems will be looking at mergers and acquisitions.

Academic medical centers are facing the same pressures to change and evolve as other hospitals and health systems, he says.

“The ones that are taking a proactive approach, I think they're the ones that are looking at what we either need to diversify our base of operation, expand areas which we're touching the community in terms of both geography and services,” Singh says. “And ultimately, what they're basically saying is we have a vision for the future of this academic medical center that is beyond what its traditional base has been. And so we need to pursue that.”

Analysts such as Pascaris expect more hospitals to consider mergers or acquisitions involving hospitals or health systems outside their main area or a neighboring region.

Risant Health, a subsidiary of Kaiser Permanente, completed the acquisition of Geisinger, the Pennsylvania-based health system, and Cone Health, a system in North Carolina. Both systems are far from Kaiser Permanente’s base in California.

“I think we will continue to see more of that activity,” Pascaris says.