Q2 2023 Hospital Merger and Acquisition Activity Hit Pre-Pandemic Levels

Hospital merger and acquisition activity in the second quarter of 2023 returned to pre-pandemic levels, with 20 transactions generating $13.3 billion, a Kaufman Hall report indicated.

The 20 deals announced in Q2 2023 marked the highest number since Q1 2020 and were comparable to the 19 transactions in Q2 2019 and the 21 transactions in Q2 2018. The trends seen in Q2 2023 continue the merger and acquisition momentum that occurred in 2022.

The number of transactions announced in the second quarter of 2023 increased from 13 deals in Q2 2022 and 14 deals in Q2 2021. The number also increased from the first quarter of 2023, when 15 deals were announced.

The average size of the seller or smaller party in Q2 2023 transactions was $664 million, a historically high figure but down from the 2022 year-end average of $852 million.

Similarly, the $13.3 billion generated from the transactions was down from $19.2 billion in Q2 2022 but surpassed the quarter two pre-pandemic figures of $3.0 billion (2018), $11.3 billion (2019), and $12.0 billion (2020).

The total transacted revenue was also higher than the $12.4 billion generated in Q1 2023.

The acquiring or larger party in the 20 transactions included eight not-for-profit health systems, four invest-owned health systems, four academic/university-affiliated organizations, two religiously affiliated organizations, one governmental organization, and one academic organization partnering with multiple not-for-profit organizations.

Three mega-mergers were announced in Q2 2023, in which the seller or smaller party had annual revenues of over $1 billion. Froedtert Health and ThedaCare announced merger plans, Kaiser Permanente announced plans to acquire Geisinger Health, and BJC HealthCare and St. Luke’s Health System signed a letter of intent to form an integrated health system.

The Froedtert Health and ThedaCare deal and the Kaiser and Geisinger deal continue the trend of entities combining or expanding to optimize organizational capabilities, Kaufman Hall noted.

Through its creation of the non-profit organization Risant Health, Kaiser Hospital Foundation aims to expand access to value-based care. The healthcare giant intends to add Geisinger as the first member of Risant Health through the acquisition.

Mergers and acquisitions have also prioritized organizing regional markets as labor expenses rise and operating margins remain low. The deal between BJC HealthCare and St. Luke’s aims to establish a better financial foundation that will allow the merged health system to improve care delivery.

Some health systems have turned to divestitures to reposition their portfolios. For example, in Q2 2023, Community Health System sold the Medical Center of South Arkansas to South Arkansas Regional Hospital and Ascension sold Ascension Providence Hospital to the University of South Alabama.