Hospital Mergers & Acquisitions Slow, Potential Revival Expected in 2025

&A deals in which the annual revenue of the smaller party exceeds $1 billion – during the first half of the year.

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 peopel, hospitals now face clearer – though harsher – financial realities.

“this may lead to an engaging 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 notably 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 recieve 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.

Conventional 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.

Photo: SB, Getty Images

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What impact is increased FTC scrutiny having on teh timeline and success rate of hospital consolidation deals?

The M&A Landscape in Healthcare: A Mid-Year Check-Up

The first half of 2025 has seen a noticeable deceleration in hospital mergers and acquisitions (M&A) activity compared to the frenetic pace of 2023 and early 2024. Several converging factors are contributing to this slowdown, impacting both large health systems and smaller, independent hospitals. Understanding these dynamics is crucial for healthcare investors,administrators,and stakeholders navigating this evolving landscape. Key terms driving searches include healthcare M&A, hospital acquisitions, and merger and acquisition trends healthcare.

Key Drivers Behind the Slowdown

Several interconnected issues are dampening the enthusiasm for healthcare mergers:

Increased Regulatory Scrutiny: The federal Trade Commission (FTC) is taking a more aggressive stance on hospital consolidation, closely examining potential antitrust implications. This heightened scrutiny adds time and cost to deals, and increases the risk of outright rejection.

Rising Interest rates: Higher borrowing costs make financing hospital acquisitions more expensive, reducing the appeal of leveraged buyouts and large-scale transactions.The cost of capital is a meaningful barrier for many potential acquirers.

financial Distress & Valuation Gaps: While many hospitals are facing financial pressures, particularly those in rural areas, a significant gap persists between buyer and seller expectations regarding valuation. Sellers are often reluctant to accept lower offers, while buyers are hesitant to overpay in an uncertain economic climate. Hospital financial performance is a key consideration.

Labor Shortages & Rising Labor Costs: The ongoing healthcare staffing shortage and associated wage inflation are impacting hospital profitability and making it more challenging to integrate acquired entities.

Economic Uncertainty: Broader macroeconomic concerns, including inflation and potential recessionary pressures, are contributing to a more cautious investment surroundings.

Sector-Specific Trends in Healthcare M&A

The slowdown isn’t uniform across all healthcare sub-sectors. Here’s a breakdown of current trends:

Physician Practice Acquisitions: Remain relatively active, driven by health systems seeking to expand their outpatient networks and improve care coordination. Physician group acquisitions are frequently enough smaller and less subject to intense regulatory review.

Specialty Hospitals: Facilities specializing in areas like orthopedics, cardiology, and oncology continue to attract interest, particularly from private equity firms.

Rural Hospital Challenges: Rural hospital mergers are increasingly driven by necessity, as smaller facilities struggle to remain financially viable. These deals frequently enough involve larger systems absorbing smaller, struggling hospitals. The case of Josephs-Hospital Warendorf,while specific to Germany,exemplifies the challenges faced by regional hospitals needing to adapt and possibly consolidate.

Behavioral Health: Demand for behavioral health services remains high, driving continued M&A activity in this sector.

Home Healthcare & Hospice: These segments are also experiencing robust activity, fueled by the shift towards value-based care and the aging population.

Potential Catalysts for a 2025 Revival

Despite the current headwinds, several factors suggest a potential rebound in healthcare M&A activity in the latter half of 2025 and into 2026:

Pressure to Achieve Economies of Scale: Hospitals are facing increasing pressure to reduce costs and improve efficiency. Hospital consolidation can offer economies of scale and operational synergies.

Value-Based Care Transition: The ongoing shift towards value-based care models is driving hospitals to seek partnerships and integrations to improve care quality and reduce costs.

Private Equity Interest: Private equity firms remain active in the healthcare sector, seeking opportunities to invest in and consolidate fragmented markets.

Potential for Regulatory Changes: A shift in political climate or FTC leadership could lead to a more favorable regulatory environment for hospital mergers.

Distressed Asset Opportunities: Continued financial pressures on some hospitals could create opportunities for strategic acquisitions at attractive valuations.

Benefits of Hospital Mergers & Acquisitions

When executed successfully,hospital M&A can deliver significant benefits:

Improved Financial stability: Consolidation can strengthen financial performance and provide access to capital for investment.

Enhanced Care Quality: Larger systems can invest in advanced technologies and attract specialized expertise, leading to improved patient outcomes.

Expanded Service Offerings: Mergers can broaden the range of services available to patients, particularly in rural areas.

Increased Bargaining Power: Consolidated systems have greater leverage in negotiating with payers and suppliers.

Operational Efficiencies: Synergies can be achieved through streamlined operations and reduced administrative costs.

Practical Tips for Navigating the M&A Landscape

For hospitals considering a merger or acquisition, here are some key considerations:

1. Conduct Thorough Due Diligence: A comprehensive assessment of financial performance, legal compliance, and operational capabilities is essential.
2. Develop a Clear Strategic Rationale: Define the specific goals and objectives of the transaction.
3. Engage Experienced Advisors: Seek guidance from legal, financial, and regulatory experts.

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