By the fourth quarter of 2026, it’s clear that hospital M&A volume has recovered. Beyond the tally, though, is a landscape where the deals are getting more complicated, driven in part by who is selling.
Health systems announced 18 transactions in the second quarter of 2026, one of the highest Q2 counts since 2019. A year earlier the sector managed just eight, and transacted revenue was $1.4 billion against $7.7 billion this year. The first half of the year saw 40 deals announced compared to the 46 announced in all of 2025, which marked the lowest annual transaction total in 15 years.
Volume is the easiest part of the story. The harder question, said Mark Johnston, a partner at ECG Management Consultants who structures medical group mergers, joint ventures and hospital partnerships, is who is at the table.
“Instead of financially impaired organizations, you have what I would call strategically impaired organizations that just can’t keep up with everybody else around them in the market,” he said.
Financially impaired organizations were a byproduct of the pandemic’s unwinding. Federal relief carried hospitals through the acute phase of COVID-19, and when it wound down in late 2022, Mr. Johnston said, systems that hadn’t adapted were looking at a merger as a matter of survival rather than strategy.
“Their boards were able to accept that because it was existential: ‘If we don’t find a partner today, we will not exist,'” he said.
That cohort has largely transacted. What remains is a set of systems that one could call strategically impaired, or those that are stable but falling behind. “They’re doing okay,” Mr. Johnston said. “They’re surviving, but every year is a grind and they’re creating no excess capital to reinvest in ambulatory facilities or in their plant or anything else.”
Kaufman Hall’s data reflects the shift. Of the 18 transactions announced in the second quarter, only three involved financially distressed sellers, and two-thirds were independent systems proactively seeking partners.
The control question
Here’s where the deal gets more complicated. Without a crisis, boards can be harder to move. A seller that isn’t running out of time can afford to ask for more. Lay board members at small nonprofit systems and single hospitals take real pride in independence, Mr. Johnston said, and letting go of it is difficult when nothing as blunt as a loan breach is forcing the question.
So in deals driven by strategic impairment, he said, sellers increasingly ask for retained local control or a management agreement rather than a conventional acquisition. These are the arrangements where a board “doesn’t feel like they’re giving up everything, because they don’t feel like they have to.”
Those terms are harder for a buyer to underwrite. “Am I really going to deploy that balance sheet into an organization that I actually don’t have a lot of control over downstream how it gets spent?” Mr. Johnston said. Strip out the capital and what’s left to offer is management expertise, which he noted not every successful system has.
Neither side tends to force the question early, leaving it to surface at signing. “A lot of the time, people talk at a high level about the level of autonomy that an acquired organization will have, and it’s not until they get a definitive agreement that it really looks like a traditional acquisition and the whole thing blows up,” he said, “because nobody could really understand what the other side wanted.”
Buyers have asked ECG to model the implications of H.R. 1 — the tax and spending law carrying significant Medicaid reductions — while sellers are generally working from year-old financials, leaving the two sides with different views of the future. Mr. Johnston hasn’t seen the law end a deal on its own. “If a deal had strategic merit before HR1, it probably still has it after HR1,” he said, “albeit at an overall lower expectation of performance.”
Regulators are a factor, too. State officials have called for close review of two proposed combinations in recent weeks, in Minnesota and North Carolina, and at least 35 states now require notification of certain mergers. Regulators have historically been more flexible when distress puts a hospital at risk of closing, which is a harder case for a strategically impaired seller to make.
So far this year, volume figures suggest a market returning to normal, but terms suggest something else. Buyers are competing for sellers that can afford to wait, and the deals that close in the last months of 2026 will likely be the ones where both sides settle what control actually means before the definitive agreement.
