Many hospital leaders are getting the M&A sequence wrong, and executives who have sat on both sides of the deal table say the consequences are predictable: costly integrations, misaligned cultures and acquisitions that strain balance sheets without a clear path to value.
A group of healthcare leaders recently discussed where health system deal-making often goes off the rails, and what organizations should do instead.
That discipline is becoming increasingly critical as hospitals and health systems pursue partnerships under mounting financial pressure. For many organizations, the question is no longer whether consolidation can create scale, but whether the deal is tied to a clearly defined operational, clinical or strategic need from the outset.
“Don’t pursue a transaction, pursue a solution,” Tracea Saraliev, a board member at Los Angeles-based PIH Health and Santa Cruz, Calif.-based Dominican Hospital and founder of Healthcare Innovation Associates, said during a panel at Becker’s Annual Meeting. “What problem are you trying to solve? Once you figure out what the problem is that you’re trying to solve, think about what is the right structure, and then the right partner. The sequence should follow in that order. I think a lot of times we have it inverted the wrong way.”
Ms Saraliev’s comments reflect a challenge many health systems continue to face. M&A activity has rebounded toward pre-pandemic levels, with 22 transactions announced in the first quarter of 2026 alone, according to Kaufman Hall, including three mega-mergers. As activity increases, so does the risk of pursuing deals without a clearly defined strategic purpose.
Scale is no longer the strategy
For years, hospital M&A followed a simple premise: grow larger, gain leverage and reduce costs. Increasingly, health systems are questioning that approach.
“We’re seeing that the larger health systems are suffering from diseconomies of scale and having to divest and rationalize their portfolio,” Ms. Saraliev said. “That’s definitely not the strategy anymore.”
The shift is visible across the industry. Chicago-based CommonSpirit, Renton, Wash.-based Providence and Franklin, Tenn.-based Community Health Systems are offloading noncore assets as they focus on markets where they hold stronger competitive positions. More than two-thirds of transactions announced in the first quarter of 2026 involved a divestiture, according to Kaufman Hall, up from 45.6% of all deals in 2025.
Brett Nelson, a director at VMG Health — which works with healthcare organizations on mergers, acquisitions and other types of transactions — said the trend mirrors what he is seeing among clients.
“Many of these not-for-profit health systems have been very vocal about their intent to right-size the ship and shore up their finances,” he said.
In place of scale for scale’s sake, a different rationale is emerging: acquiring capabilities.
Ms. Saraliev described today’s transactions as falling into two broad categories — survival and solutions. Survival deals help organizations stabilize margins, access capital and strengthen their negotiating position with payers. Solution-oriented deals help health systems gain capabilities they lack, particularly in technology, revenue cycle operations and ambulatory care.
“A lot of systems are lacking capabilities, especially on the technology side, whether it’s AI or rev cycle,” she said.
The regional advantage
If scale is becoming less important, regional relevance is becoming more important.
Bob Ridlen, vice president of corporate development at Nashville, Tenn.-based Ardent Health, said the system evaluates acquisitions based on where it can improve outcomes and operational performance.
“We’re not just trying to grow wherever. We’re not just being opportunistic as to what’s available for sale,” Mr. Ridlen said. “We’re trying to be smart and deploy our capital in the region where we can better serve the patient.”
Jeffrey Costello, CFO of South Bend, Ind.-based Beacon Health System, echoed that perspective. Beacon acquired four Ascension Southwest Michigan hospitals July 1, 2025, expanding to 11 hospitals across northern Indiana and southwestern Michigan.
“COVID taught us that being a big national player doesn’t necessarily mean that scale is going to be the savior,” Mr. Costello said. “It’s a license to lose more money in a really tough time.”
Mr. Costello said the acquired hospitals had been losing market share under Ascension, but Beacon Health believed the assets could be repositioned successfully. Factors supporting the decision included favorable demographics in the Kalamazoo market, a partnership with Western Michigan University Homer Stryker M.D. School of Medicine and diversification across two states.
“Checking the strategic box was pretty easy for us,” he said. “The financial box was much harder.”
What boards need to ask
The most important conversations often happen in the boardroom, where enthusiasm for a transaction can outpace strategic discipline.
Ms. Saraliev, who has served on multiple boards evaluating acquisitions, said hospitals and health systems should begin by examining their long-term sustainability plans.
“You can’t just reactively sit around and wait for a partner to approach you or to see what deal falls in your lap,” she said.
She also cautioned boards against confusing projected synergies with execution capability.
“I can see hundreds of millions of dollars of synergies on a page and accretion, but is it actually going to happen?” she said. “Do they have that capability? Do they have that competency?”
Mr. Costello described Beacon’s board as interested but cautious during the due diligence process, which he compared to inspecting a vehicle before driving it.
“The board was interested, but reserved. It wasn’t until probably halfway through due diligence that I could see a path to success,” he said. “You can inspect the bus, you can walk around it, you can go underneath it, but until you’re actually driving the bus, you really don’t know what it’s like.”
Beyond strategy and due diligence, executives said successful transactions often come down to maintaining objectivity throughout what can be a lengthy and emotionally charged process. Leaders can become attached to a deal after months of negotiations, making it difficult to stay focused on the original rationale or recognize when circumstances have changed.
“When you have a deal on the line, don’t let emotions get involved,” Mr. Ridlen said. “Keep your eye on why you’re doing this deal, why it is a great strategic fit and find ways to get it closed.”
Mr. Nelson said health systems should also be willing to walk away from a deal.
“We were helping two not-for-profit health systems joint venture some assets potentially, and the two parties could just not get to an agreement on price and walked away from a deal after 18 months of discussion,” he said. “In hindsight, with things that have happened in the market, it was the right decision for both organizations.”
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