Health systems downsized in 2024, report shows

Health systems divested hospitals at a record pace last year, a new report shows.

Nearly two-thirds of the 72 announced hospital transactions in 2024 involved an organization that was selling facilities, according to the latest data from Kaufman Hall. That’s double the percentage in 2023 and the highest tally tracked by the consultancy, the report released Thursday shows.

Related: How state laws, regulation could shape hospital deals in 2025

Much of that activity was linked to the restructuring of Steward Health Care, which in May filed for Chapter 11 bankruptcy protection with plans to sell its entire 31-hospital network.

“The recalibration of market portfolios is ongoing for national for-profit and nonprofit health systems,” said Anu Singh, managing director of Kaufman Hall and author of the report. “There’s an evolving point of view that if you can’t be at the top of the market, it’s time to not be there.”

Here are three takeaways from the report:

1. Many divested hospitals were performing poorly

More than 30% of hospitals or health systems involved in mergers and acquisition talks in 2024 were in financial distress, according to the report. That was also a record high, topping 2023’s mark of 28%.

Even though median operating margins have stabilized across the entire hospital sector, financial performance has varied widely based on an organization’s location and size, Singh said.

“If the industry as a whole is seeing median margins go up and your organization is stagnating, that is a warning sign,” he said.

2. The size of financially troubled acquisition targets grew

The average annual revenue of the seller involved in financially distressed hospital deals last year was $401 million, up from $138 million in 2023, according to Kaufman Hall data.

The report cited several announced mergers and acquisitions that reflected the trend, including New Hyde Park, New York-based Northwell Health’s plans to acquire Danbury, Connecticut-based Nuvance Health, and Sioux Falls, South Dakota-based Sanford Health’s merger with Marshfield (Wisconsin) Clinic Health System.

The larger acquisition targets indicate larger systems aren’t immune to financial and operational challenges, analysts said.

3. Hospital deal volume was still relatively muted

The 72 announced hospital transactions in 2024 were still well below the high of 117 in 2017.

Although hospital deal volume may continue to slightly increase year-over-year, the number of announced transactions isn’t expected to rebound to pre-pandemic levels, analysts said.

Some health systems are turning to joint ventures to expand certain services such as behavioral health, imaging, senior living and labs, according to the report. Those joint ventures tend to limit regulatory scrutiny as state attorneys general ramp up oversight, analysts said.

“There are states that are now looking at health system expansion or restructuring and saying we should have been more involved in these prior transactions,” Singh said.