Hospital M&A Activity Remained Strong in Q1 With 15 Deals Announced

Hospital M&A Activity Remained Strong in Q1 With 15 Deals Announced

Merger and acquisition activity among hospitals and health systems picked up last year after 2021’s recent historic low. This activity remained strong during the first quarter of 2023, according to a report released Thursday by Kaufman Hall.

Hospitals and health systems announced 15 M&A transactions in the first quarter of 2023, which almost matches the 17 transactions announced in the fourth quarter of 2022.

Kaufman Hall’s analysts noted a trend toward larger transaction sizes last year, and they found that this trend has been maintained so far in 2023. For transactions announced in the first quarter of this year, the average size of the smaller party, as measured in annual revenues, remained high at $827 million. This is slightly below the historic last year’s average of $852 million.

Total transacted revenue for the first quarter of 2023 was also near historic highs at $12.4 billion, according to the report.

For 14 of the 15 M&A transactions announced in the first quarter, the acquiring party was a not-for-profit health system. Of these 14 health systems, three were affiliated with a university or other academic institution, and five were religiously affiliated.

M&A activity has remained strong in 2023 because many hospitals feel they need to restructure amid a bevy of challenges, the report pointed out. For example, hospitals are competing with highly capitalized health plans, retail giants and digital health companies. They are also dealing with a sweeping burnout crisis, major workforce shortage, rising cost of supplies, and the fact that many patients are delaying care due to financial pressures.

Because of these challenges, mid-size health systems are seeking partners to help them maintain financial health. Some also want to be able to utilize the capabilities and resources of larger health systems, according to the report.

This trend is reflected in some of the recent remarks made by executives announcing hospital M&A deals, the report noted. For example, the CEO and president of Flagler Health+ told the Jacksonville Daily Record that his health system decided to merge with UF Health because it was “facing both new and evolving industry headwinds.” He also said that becoming a part of UF Health would give Flagler Health+ access to “additional resources and unique position in the healthcare marketplace to better serve [its] patients.”

Another key trend can be seen in the biggest M&A deal announced in 2023 so far, which is the planned merger between New Mexico-based Presbyterian Healthcare Services and Midwest-based UnityPoint Health. The deal, which could create an $11 billion entity, is an example of a cross-market transaction (a deal that combines health systems located in different areas, with little or no market overlap).

Some of the biggest M&A deals in 2022 were cross-market transactions, with the mega-merger between Atrium Health and Advocate Aurora Health taking the top spot.

Last month, Sanjay Saxena, global leader of Boston Consulting Group’s healthcare division, told MedCity News that he thinks more hospitals and health systems will continue to pursue cross-market mergers. From a regulatory perspective, these deals are more favorable because they don’t attract as much attention from the Federal Trade Commission on anticompetitive grounds.

The desire for scale to achieve a better financial position is also a key motivator for such deals, Saxena said. Many health systems believe that if they gain volume, they will be able to exert more leverage over payers and suppliers, he declared.

Credit: SB, Getty Images

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