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Hospital M&A activity up 27% vs. 2022

Hospital and health system merger and acquisition activity increased 27% year over year to 75 announced transactions in 2023, according to a report published Jan. 2 by Cain Brothers, a division of Key Banc Capital Markets.

Five things to know:

1. The increase in M&A activity is attributed to cooling macroeconomic headwinds as strategic discussions between hospitals and health systems pick up steam. Key factors driving activity in the sector include: 

  • Improving market relevance
  • Desire for revenue and geographic diversification and economies of scale and capabilities
  • Decreasing EBITDA margins due to cost inflation
  • Reimbursement increases below historical rates
  • Medicaid expansion and certificate-of-need changes in certain states
  • Increasing construction costs per new bed 

2. While M&A activity has been relatively consistent in recent years, new trends are gathering momentum such as transformative partnerships that expand beyond traditional acute care settings, according to the report. 

3. Behavioral health, outpatient surgery and post-acute joint ventures are among the partnerships that hospital and health systems are pursuing this year, according to a Jan. 4 VMG Health survey of hospital executives. 

4. Cross-market M&A activity is also a notable trend. Health systems are expected to continue to identify mergers across state lines with like-minded systems as they aim to generate economies of scale as a tool to fight elevated expense pressures, according to Fitch Ratings. 

5. Some transactions have been met with regulatory challenges as state and federal agencies apply more scrutiny to deals they deem potential anticompetitive. Walnut Creek, Calif.-based John Muir Health terminated plans to fully acquire San Ramon Regional Medical Center from majority owner Tenet Healthcare — headquartered in Dallas — after the Federal Trade Commission sued to block the deal in December. The FTC argued that the transaction would drive up healthcare costs in the area by eliminating head-to-head competition between John Muir and Tenet.

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