Before COVID, Medicare reimbursement increases routinely outpaced the inflation rate, a narrow buffer that gave nonprofit health systems room to operate. That dynamic has reversed. Warren Ladner, CFO of Southern Illinois Healthcare, said without strategic acquisitions staying ahead of the cost curve is no longer possible.
The pace of activity reflects that pressure. Justin Meany, who leads U.S. Bank’s nonprofit healthcare practice as senior vice president and division manager of nonprofit healthcare, pointed to the announced partnership between Evanston, Ill.-based Endeavor Health and Chicago-based Rush University Medical Center as one of the more visible recent examples of a consolidation wave he’s tracking nationally.
“I feel like everybody’s talking to everybody in one way, shape or form,” Mr. Meany said. “And there’s certain acquisitions that you hear rumbling about that I’m like, I don’t know how that works.”
Volume doesn’t equal success. Mr. Meany has also watched deals dissolve and the reason is usually the same.
“We’ve all heard of deals that kind of fall apart because culturally some of them are not compatible,” he said. “Many times they could be in defensive mode, you could be in aggressive mode. It just depends on what pocket of the country that you’re in.”
Technology infrastructure, he said, is one of the most reliable early indicators of whether a merger can be absorbed efficiently.
“You’ve also got to look at whether they’re an Epic shop or if they have Workday in place or Oracle and those types of efficiencies matter as well and can help them come together on a quicker basis,” Mr. Meany said.
He also described the characteristic he sees most consistently in the most effective health systems his team works with.
“The health systems that are the strongest right now are the ones that really have a closed loop,” Mr. Meany said. “They can funnel their patients from the hospital side so that would be the major trauma centers and also some of the emergency centers, and then link it all together with some of the community-based care. That’s outpatient, that’s imaging, that is also any type of ambulatory service center.”
Pat Keel, CFO of Vandalia Health in Charleston, W.Va., joined the system six months ago after a decade at St. Jude Children’s Research Hospital, arriving in the middle of a growth period that has more than tripled Vandalia’s size through acquisitions over four years. Vandalia operates across nine different EHR and billing systems. It will migrate to Epic over the next several months, going live in October 2028.
The need for both sides of the transaction to come together on the same digital platforms prioritizes execution discipline over deal volume.
“If you don’t gain the efficiencies, if you can’t incorporate the cost cultures and really come together as an integrated system, closing the loop and keeping the patients, it really is not necessarily the best decision,” Ms. Keel said.
The groundwork that matters starts in the earliest conversations about whether to pursue a deal at all.
“I think it’s really important when you begin to explore partnerships or acquisitions or mergers to be really clear on is the fit the right thing? Are the cultures aligned? Do both parties understand what the strategic direction is, what the desired outcome is?” Ms. Keel said. “Those conversations start out fairly small. But as you get further down that road, it’s also important to widen that circle. So your internal experts are also at the table when you’re structuring the deals, when you’re getting ready to finalize the transaction and integrate the organization.”
When it’s done right, the result is worth the effort.
“If you go into it with both parties understanding what the operating model is going to be, what those metrics that you’re going to measure that success by and are jointly aligned and moving in the right direction, it can be very powerful,” Ms. Keel said.
The Epic migration has also created a partnership mechanism that doesn’t require full acquisition. Smaller health systems that can’t afford Epic on their own are approaching Vandalia about access through Epic’s Community Connect program, which are relationships that create affiliation and integration without changing ownership.
Not every deal makes it that far. Garrick Stoldt, CFO of Saint Peter’s Healthcare System in New Brunswick, N.J., absorbed the cost of two deals that ended before they could close.
“We’re a product of two failed mergers,” Mr. Stoldt said. “The first one was killed by the FTC because of market concentration. The second one was killed because our partner got spooked by the One Big Beautiful Bill Act.”
The breakdown illustrates how factors outside any CFO’s control — regulatory scrutiny, legislative uncertainty, a partner’s risk tolerance — can end deals regardless of strategic logic.
For systems with dominant market share, the path to M&A growth is similarly constrained by regulators. Mr. Ladner’s system controls approximately 70% of its combined market and can’t acquire locally. His alternative is joint ventures on specific assets with a deliberate limit on ownership that he said reflects the economics of physician partnership.
“I’m willing to only go 51% of an ASC,” Mr. Ladner said. “If anybody has any experience in this room, you’d know you go 100% in an ASC, it’s probably not going to do well.”
Strong relationships in the community make deals possible before the first formal conversation begins. Vandalia’s CEO — who previously served as CFO before — has built that foundation deliberately.
“One of the things he’s done very well is he has great relationships. He meets with people routinely to understand their challenges, our challenges,” Ms. Keel said. “Those conversations are just occurring all the time and so as we find ways to partner and work together, we do in whatever form makes sense for the two organizations.”
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