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As hospitals manage continued financial pressures and watch competitors grow, experts predict merger and acquisition activity will increase in 2024.
Hospital merger activity increased significantly in 2023 for the first time since the Covid pandemic.
By the numbers: Data from consultancy Kaufman Hall found 53 proposed transactions in Q3 2023. That’s more than a 50% increase from the prior year.
Deal activity was active among midsized health systems, ranging from $1 billion to $5 billion in annual revenue.
Driving the news: Many hospitals and health systems want to expand their service offerings and patient base. Increasing their size through M&A means hospitals can potentially extract higher reimbursement rates from payers.
Additionally, as pressures from higher labor and supply costs continue, organizations want to reduce the cost of operations such as information technology and supply chain.
Distress drives deals: According to Kaufman Hall, 18 proposed hospital deals announced in the third quarter were because of financial distress.
Industry observers say many executives see the scale of operations as a financial buffer.
“The capital crunch and overall balance sheet health is driving most of the concern at the board level of health systems, creating some merger and acquisition opportunities,” Nathan Ray, a partner at West Monroe who leads healthcare M&A for the consultancy, told Modern Healthcare.
What to watch: The regulatory landscape around hospital M&A activity is changing. Many state attorneys general are increasing scrutiny of hospital consolidation.
Meanwhile, the FTC and Justice Department finalized new merger guidelines, signaling that the regulators may try to limit hospital consolidation. Industry observers say it will take time to see how regulators will enforce the guidelines.
Go deeper: Check out some health system deals slated to close by the end of Q1 2024 at Modern Healthcare.
