Dive Brief:
Broader market volatility appears to be chilling hospital deal making, according to a new report from Kaufman Hall published on Tuesday.
The sector announced only five hospital and health system mergers and acquisitions during the first quarter of 2025 — a sharp reversal from last year, when hospitals and health systems unveiled 20 deals during the first quarter.
Deal sizes were also smaller during the quarter compared with the recent past, the consultancy said. Notably, no mega mergers, or tie ups in which the smaller party has annual revenues above $1 billion, were announced.
Dive Insight:
The market slowdown comes amid global economic and policy uncertainty, as President Donald Trump’s new tariff policy appears poised to spark a trade war, while at home his administration has floated cuts to Medicaid and some funds for medical research.
“The low number of M&A transactions involving hospitals and health systems mirrors global trends across industries,” said Anu Singh, managing director at Kaufman Hall, in a statement accompanying the report. “Economic uncertainty around tariffs and healthcare policy has likely contributed to a relatively quiet quarter.”
The report compared today’s uncertainty to the days of the COVID-19 pandemic, when hospital M&A activity also dipped.
“The climb out of that slowdown showed that the appetite for M&A activity remains,” the report said. “Revival of activity in 2025 will likely be dependent on a restoration of some certainty about the nation’s economic direction and the financial stability of the healthcare sector.”
Overwhelmingly, the majority of health systems that continued to make deals during the first quarter were distressed.
Four of the five proposed deals involved distressed facilities and three of the deals were divestitures or a portfolio repositioning. This suggests that health systems pursuing M&A now are moving forward because they must do so “to save struggling organizations,” according to the report.
Both divestitures and deals involving distressed facilities have been on the rise since 2024, according to Kaufman Hall.
Deal sizes were also smaller. The average size of the smaller party by annual revenue was $279 million, about half the average seller size seen in the first quarter of last year.
While hospitals have generally reported more stable operating margins compared with years prior, the consultancy noted there is a divide growing between the sector’s top and bottom performers. As of February, there was a 44.6% gulf in operating margin performance between 5th and 95th percentile hospitals, Kaufman Hall said.
Health systems that are less pressured by dire finances may need more time before returning to “more normal” M&A behavior, the consultancy predicted. Health systems will likely need to see a greater amount of certainty in the market prior to pursuing deals this year.
