Health systems announced five hospital merger and acquisition proposals in the first three months of the year, the lowest quarterly amount in more than a decade.
Providers were reluctant to wade into hospital transactions amid the uncertainty surrounding tariffs, federal funding concerns, state and federal regulatory changes and economic volatility, according to a new report from consultancy Kaufman Hall. Four of the five proposed hospital deals involved financially distressed facilities, the report found.
Related: How state laws, regulations could shape hospital deals in 2025
Here’s what to know from the quarterly roundup.
1. Transaction volume, size plummet
Hospital merger and acquisition activity had been slowly rebounding since a sharp downturn after the COVID-19 pandemic. But that momentum slowed in the first three months of the year.
The average size of hospital acquisition targets was $279 million in revenue, which was about half the 2024 first quarter average seller size.
2. Financially distressed hospital sales continue
Many of the first quarter hospital deals involved a financially struggling facility, continuing a 2024 trend.
The number of financially distressed hospital transactions has increased as the divide between high-performing and low-performing hospitals grows. There was a 44.6% spread in median operating margins between the 5th and 95th percentile hospitals, according to Kaufman Hall data.
3. Economic, regulatory uncertainty drags hospital deals
Health system leaders are not formally moving forward with hospital merger and acquisition talks amid federal funding changes, changing federal regulations and new state oversight laws.
The National Institutes of Health has tried to pare back grant funding, President Donald Trump has issued a number of tariffs on foreign goods, a more robust premerger notification form went into effect and Congress is considering federal Medicaid funding cuts.
In addition, states have looked to expand hospital transaction review laws, slowing deal activity in the first quarter.
4. National health systems downsize
Three of the five proposed hospital deals announced in the first quarter involved a national health system that aimed to reduce its acute care footprint.
Health systems are exiting markets where they don’t have the market share to compete, continuing a 2024 trend, according to the report.
5. Health systems prioritize partnerships
Providers are turning to strategic partnerships as hospital mergers and acquisition activity cools.
The report highlighted a partnership between Chapel Hill, North Carolina-based UNC Health and Durham, North Carolina-based Duke Health to create a new children’s hospital in the state, as well as plans for MultiCare Health System in Tacoma, Washington, and Kootenai Health in Coeur d’Alene, Idaho, to co-develop a 30-acre medical campus in northern Idaho.
