Hospital merger activity slows dramatically

After seeing more hospital mergers over the past couple of years, deals dropped dramatically in the first quarter of 2025.

Only five hospital mergers took place in the first quarter of 2025, the lowest number in years, according to an analysis by Kaufman Hall. (Image credit: ©bonkarn - stock.adobe.com)

Only five hospital transactions took place in the first three months of the year, according to an analysis from Kaufman Hall, the healthcare consulting firm. It’s the smallest number of first quarter mergers since at least 2018. By comparison, there were 20 announced deals in the first quarter of 2024, according to Kaufman Hall.

The few deals that took place involved smaller organizations, and four of the five transactions involved a provider in financial distress.

“Those transactions that are moving forward are those that must move forward to save struggling organizations,” the Kaufman Hall report stated.

Analysts say that hospital merger activity could be slower in the coming months, with health systems exercising more caution over concerns about federal funding and worries about the economic climate.

None of the first quarter deals could be qualified as “mega mergers,” which Kaufman Hall describes as deals where the smaller party brings over $1 billion in revenue. The average revenue size of the smaller party in the first quarter deals was $279 million, or about half of the seller size in the first quarter of 2024 ($559 million).

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The broad uncertainty of the economy and federal policies in Washington appear to be slowing down the pace of hospital deals, and merger and acquisitions in other sectors. Across all sectors, there were 6,955 mergers and acquisitions in the first quarter of 2025, which represents a 20-year low, according to an analysis by Ion Analytics. Deal volume rose to $827 billion, which represents a 15% increase, but that was propelled by a few large transactions.

There were 72 announced hospital mergers in 2024, up from 65 announced deals in 2023. The hospital industry saw many deals involving hospitals struggling financially, with a record 30% of deals coming with providers in distress, Kaufman Hall said.

Anu Singh, managing director at Kaufman Hall, told Chief Healthcare Executive® in a January interview that he expects to see financial distress driving more hospital deals. He also said some hospitals are looking to find partners as they realize they’re not going to return to pre-pandemic margins.

“We're also seeing organizations who say, … ‘We're never getting back to that, and we're trying our hardest to mitigate the negative cash flow. We can't.’ So we're also seeing some organizations that are almost coming into the partnership discussion with the level of distress where a financial trigger is what's driving them to partnership,” Singh says.

A report by BRG issued last week projected that more healthcare mergers would take place this year. The BRG report looked at mergers across the broader healthcare industry, including hospitals, insurers and life sciences.

With more hospitals facing financial pressures, there could be more deals, particularly if there’s reduced funding from Washington, said David Wildebrandt, a managing director at BRG.

In an interview with Chief Healthcare Executive®, Wildebrandt said more hospitals may look for partners to stay afloat. But he also said hospitals may be less “opportunistic” and may be more cautious about proceeding with acquisitions.

“The people that are the purchasers are going to be more selective,” he says. “It’s going to take more working capital and take longer to get profitable. So you could see them being very picky about the deals.”

Some novel partnerships are emerging. In January, Duke Health and UNC Health announced that they are teaming up to build North Carolina’s first standalone children’s hospital and a campus offering a variety of pediatric services.

Last week, Beacon Health System, based in South Bend, Indiana, reached an agreement to acquire four hospitals in southwest Michigan from Ascension. The deal still requires regulatory approval.