Hospital mergers and acquisitions grew significantly this past quarter, according to Kaufman Hall's "M&A Quarterly Activity Report: Q3 2024."
With 27 announced transactions, the third quarter of 2024 had the highest level of merger and acquisition (M&A) activity so far this year, in line with pre-pandemic activity levels. Announced sales from the Steward Health Care bankruptcy made up a significant amount of this activity, with 11 of the 27 announced transactions involving Steward hospitals.
One of the 11 transactions connected to the Steward bankruptcy -- Health Care Systems of America's assumption of operations at eight hospitals in Florida, Louisiana and Texas -- was among four "mega merger" transactions announced in Q3 2024 (transactions in which the annual revenue of the seller, or smaller party, exceeds $1 billion).
The other three mega mergers were:
Orlando Health's announced acquisition of Alabama-based Brookwood Baptist Health from Tenet Healthcare.
Prime Healthcare's planned acquisition of eight Ascension-owned hospitals in Illinois.
The planned combination of South Dakota-based Sanford Health and Wisconsin-based Marshfield Clinic Health System
Overview of Q3 M&A activity
Activity related to the Steward Health Care bankruptcy increased Q3 2024 announced transactions to the highest level since Q3 2017. Even with the 11 Steward transactions excluded, the 16 remaining announced transactions are similar to levels seen in 2018, 2020, and 2023.
While there were four mega mergers in Q3 2024, the high overall transaction volume brought down the average size of the seller (or smaller party) by annual revenue from a high of $984 million in Q2 2024 to $492 million in Q3. This amount is consistent with recent year-end averages (excluding the very high year-end averages seen in 2021 and 2022).
At the same time, high transaction volume drove up total Q3 transacted revenue to $13.3 billion, the highest Q3 total seen in the past eight years.
Seven of the 27 announced transactions involved for-profit acquirers, three involved academic acquirers, three involved religiously affiliated acquirers and two involved governmental acquirers. The remaining 12 transactions involved other not-for-profit acquirers.
Steward transactions illustrate market conditions
The Q3 announced transactions involving Steward Health Care include hospitals across multiple states and markets and demonstrate a growing separation of assets within the current market for M&A transactions.
The Steward Health Care bankruptcy raised the prospect of hospital closures, and state governments in Arizona and Massachusetts expressed gratitude that established health systems in their communities were willing to take on hospitals that needed a partner to survive.
Kaufman Hall's 'M&A Quarterly Activity Report: Q3 2024'
Despite the economic challenges facing all Steward facilities after the parent company's bankruptcy, attractive assets are finding buyers in established, regional not-for-profit health systems. Buyers include CHRISTUS Health in Texas; Orlando Health in Florida; Honor Health in Arizona; and Lifespan, Lawrence General Hospital and Boston Medical Center in Massachusetts.
Other assets have been more difficult to sell. In several of Q3's announced transactions, for-profit health systems are being named as interim managers of Steward facilities in agreements between Steward and Medical Properties Trust, which owns a significant share of Steward's real-estate assets and is also a minority investor in the Steward parent company that declared bankruptcy.
These systems might assume full ownership pending licensing and other regulatory requirements. At least two hospitals in Massachusetts failed to find a buyer and have closed.
Two other Q3 transactions illustrate the challenges that financially struggling hospitals in less favorable markets face in finding buyers:
After seeking a buyer for four-hospital system Crozer Health since 2022, Prospect Medical Holdings has announced plans to sell the system to real estate company CHA Partners.
The County of Santa Clara Health System in California has agreed to acquire Regional Medical Center in east San Jose, a hospital owned by HCA Healthcare that has made cuts to trauma, stroke, cardiac and labor and delivery services in recent years. Santa Clara County plans to restore these services post-acquisition.
Portfolio realignment continues
Large, national health systems continued portfolio realignment efforts in Q3. Community Health Systems (CHS) is exiting the Pennsylvania market with an announced plan to sell three-hospital system Commonwealth Health to recently formed not-for-profit WoodBridge Healthcare. The divestiture is part of CHS' plan to raise $1 billion to lower its debt.
Other instances of portfolio realignment include Tenet's planned sale of Birmingham, Alabama-based Brookwood Baptist Health, a five-hospital health system, to Orlando Health, and Ascension's announcement that it will sell eight Illinois hospitals to Prime Healthcare.
In a blog posted earlier this summer, Eduardo Conrado, Ascension president, noted that its divestitures are part of a plan to make Ascension "a more consolidated and integrated health ministry."
New market expansion
Health systems continue to find opportunities in new markets and by combining forces across geographically distinct markets:
In Q3, Emory Healthcare announced plans to grow its geographic footprint in central Georgia through its planned acquisition of Houston Healthcare, located just south of Macon in Warner Robins, Georgia.
Orlando Health announced its intention to expand into the Alabama market through its acquisition of Birmingham-based Brookwood Baptist Health.
South Carolina-based Prisma Health plans to enter the Tennessee market, announcing that Blount Memorial Hospital will join its health system.
Sanford Health -- with locations in the Dakotas, Minnesota, Iowa, Nebraska, and Oregon -- will combine with the Marshfield Clinic Health System, which serves rural Wisconsin and Michigan's Upper Peninsula.
The report indicated that beneath the high level of announced transactions in Q3 2024 is a more alarming message underscoring the high level of financially struggling organizations that are having trouble finding a partner.
"The Steward Health Care bankruptcy raised the prospect of hospital closures, and state governments in Arizona and Massachusetts expressed gratitude that established health systems in their communities were willing to take on hospitals that needed a partner to survive," the report authors wrote.
"There is a much larger universe of struggling hospitals beyond Steward, as illustrated by other Q3 transactions," they continued. "In most instances, approving a combination -- even with a hospital or health system in the same market -- is likely to be a better solution than closure."
Hannah Nelson has been covering news related to health information technology and health data interoperability since 2020.
