Hospital
M&A
activity
has
been
sluggish
so
far
this
year,
according
to
a
report
released
Thursday
by
Kaufman
Hall.
There
were
only
five
hospital
M&A
transactions
during
the
first
quarter
of
2025
—
compared
to
the
first
quarters
of
2024
and
2023,
which
had
20
and
15
deals,
respectively.
This
slump
is
due
mainly
to
the
Trump
administration’s
flurry
of
new
policies
and
the
resulting
widespread
economic
uncertainty.
Hospitals
were
putting
off
strategic
decisions
amid
the
ambiguity,
but
things
picked
up
a
bit
in
the
second
quarter,
with
eight
M&A
deals
announced.
The
average
seller
size
across
these
eight
deals
was
relatively
low
at
$175
million
—
in
comparison
to
the
second
quarter
of
last
year,
when
the
average
seller
size
was
$984
million.
The
report
noted
that
about
half
of
the
M&A
transactions
in
the
second
quarter
of
2025
were
divestitures
of
smaller
facilities.
Kaufman
Hall
also
pointed
out
that
there
were
zero
mega
mergers
—
M&A
deals
in
which
the
annual
revenue
of
the
smaller
party
exceeds
$1
billion
—
during
the
first
half
of
the
year.
Overall,
the
small
size
of
the
sellers
and
the
low
deal
volume
led
to
a
modest
$1.4
billion
in
total
transacted
revenue
for
the
second
quarter.
For
the
second
quarter
of
2024,
this
figure
was
$10.8
billion.
Since
the
M&A
slowdown
that
occurred
in
the
first
half
of
this
year
was
largely
caused
by
economic
uncertainty
and
pending
healthcare
policy
changes,
deals
may
increase
during
the
second
half
of
2025.
The
passage
of
the
One
Big
Beautiful
Bill
Act,
which
includes
roughly
$1
trillion
in
healthcare
cuts,
has
provided
some
clarity.
With
Medicaid
spending
set
to
fall
by
$665
billion
and
coverage
to
shrink
by
8.7
million
people,
hospitals
now
face
clearer
—
though
harsher
—
financial
realities.
“This
may
lead
to
an
interesting
dichotomy
in
health
system
M&A
activity,
with
the
acceleration
of
organizations
looking
for
partners
in
response
to
new
financial
challenges,
but
a
careful
and
measured
approach
being
taken
by
well-positioned
health
systems,”
the
report
read.
Rural
hospitals,
which
are
typically
heavily
dependent
on
Medicaid,
are
particularly
vulnerable.
Margins
for
small
rural
hospitals
have
dropped
12.3%
year-over-year,
and
closures
continue
to
mount.
Nearly
100
rural
hospitals
have
been
forced
to
shutter
over
the
past
decade.
These
circumstances
could
lead
to
greater
uptake
of
the
Rural
Emergency
Hospital
(REH)
model.
This
model,
which
CMS
launched
in
2023,
allows
hospitals
to
shed
inpatient
services
to
focus
on
emergency
and
outpatient
care.
In
exchange,
REHs
receive
enhanced
Medicare
reimbursement
rates,
as
well
as
a
monthly
facility
payment
to
help
sustain
access
to
essential
care.
The
report
noted
that
this
model
is
slowly
gaining
traction.
Only
41
hospitals
have
undergone
the
conversation,
but
several
recent
announcements
suggest
growing
interest
in
the
model
as
a
way
to
maintain
rural
access.
One
of
these
announcements
is
from
North
Carolina-based
ECU
Health,
which
has
proposed
the
reopening
of
one
of
its
closed
hospitals
as
a
REH.
Tennessee-based
Jellico
Regional
Hospital
and
Georgia-based
Randolph
County
Hospital
have
also
recently
announced
plans
to
reopen
shuttered
facilities
and
transition
them
to
REH
status.
As
for
larger,
more
well-resourced
health
systems,
there
is
an
increasing
focus
on
outpatient
care.
Health
systems
like
Ascension
and
Cleveland
Clinic
are
investing
heavily
in
ambulatory
surgery
centers,
which
indicates
a
broader
trend
of
pivoting
from
inpatient
care
to
lower-cost,
outpatient
services,
the
report
pointed
out.
Ascension
is
doing
this
through
its
acquisition
of
Amsurg,
and
Cleveland
Clinic
forged
a
partnership
with
Regent
Surgical.
Traditional
hospital-to-hospital
M&A
is
expected
to
recover
slowly
—
but
general
partnership
activity,
especially
in
outpatient
care
and
rural
access
models,
will
likely
intensify
as
the
industry
adapts
to
new
fiscal
and
care
delivery
realities.
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