Q1 2023 Healthcare Merger and Acquisition Activity Generated $12.4B

Healthcare merger and acquisition activity generated $12.4 billion in the first quarter of 2023, marking a significant year-over-year increase, according to a Kaufman Hall report.

The M&A Quarterly Activity Report revealed there were 15 transactions in Q1 2023, down only slightly from the post-pandemic high of 17 in Q4 2022. The number of transactions increased compared to Q1 2022, when 12 deals were announced.

The seller or smaller party had an average revenue of $827 million in Q1 2023, falling below the average size of $852 million in Q4 2022. One mega-merger was announced in Q1 2023—a transaction where the smaller party has an annual revenue exceeding $1 billion. This year’s mega-merger was between New Mexico-based Presbyterian Health Services and Iowa-based UnityPoint Health.

The 15 transactions generated $12.4 billion, falling just below the Q1 record of $12.7 billion achieved in 2018. This marked an increase from Q1 2022 when all transactions generated a total of $3 billion.

In 14 of the transactions, the acquirer was a not-for-profit health system, the report noted. Among those acquirers, three were academic/university-affiliated and five were religiously affiliated organizations.

Before the COVID-19 pandemic hit, smaller independent hospitals and health systems typically sought opportunities to stabilize their finances. This trend continued during the pandemic as expenses increased, volumes declined, and staffing shortages persisted.

However, mergers and acquisitions are looking a little different in a post-pandemic world, according to the Kaufman Hall report. Mid-size regional health systems in good financial positions are frequently looking for partners to boost their healthcare delivery by utilizing the capabilities of larger health systems.

The size of the smaller party in transactions has been increasing over the past few years, with more transactions including smaller parties that have between $250 million and $750 million in annual revenues.

Cross-regional partnerships are also becoming more common, the report noted. For example, in 2022, Advocate Aurora Health, based in Illinois and Wisconsin, merged with North Carolina-based Atrium Health.

These deals usually involve large regional health systems. They may be driven by the high level of market regulatory scrutiny that makes it difficult to merge in a health system’s existing service area.

The realignment of for-profit health system portfolios continued in 2023, with several sale announcements from for-profit systems. For example, Community Health System announced the sale of two North Carolina hospitals to Novant Health and the sale of Plateau Regional Medical Center in West Virginia to Vandalia Health.

Steward Health Care also announced the sale of its Utah care sites, including five hospitals and over 35 medical group clinics, to CommonSpirit Health/Centura Health.

“These sales represent for-profit health systems’ ongoing efforts to focus their resources on core markets with good growth potential,” the report stated. “For-profit systems are facing the same operational and financial headwinds as not-for-profit systems, and these headwinds are affecting decisions on which assets should remain in the portfolio.”

Kaufman Hall researchers projected that merger and acquisition activity will continue its upward trend as hospitals and health systems look to partnerships for financial stability.

Financial challenges for hospitals and health systems are likely to persist this year, experts said. According to Deloitte, 85 percent of health system leaders expect staffing challenges to impact their 2023 strategies, while 76 percent expect inflation and affordability issues to cause problems.