After a drop in hospital deals, merger activity expected to rise

While only a few hospital mergers and acquisitions took place in the first six months of the year, industry analysts expect to see more health systems pursuing deals in the near future.

In the first half of 2025, there were only 13 announced hospital mergers, according to data from Kaufman Hall, a healthcare consulting firm. There were five mergers in the first quarter, and eight deals in the second quarter. During the first half of 2024, there were 31 announced mergers.

Still, analysts say they expect to see more health systems looking at mergers in the coming months, for a variety of reasons.

Anu Singh, a managing director at Kaufman Hall, tells Chief Healthcare Executive® that more health systems will be ready to move forward with mergers and acquisitions, now that they have a better sense of what to expect in Washington.

Singh says some organizations began slowing down some strategic plans even late last year as they wanted to assess the landscape with the election of President Trump.

“I think it set a tone for a lot of organizations ... if there's going to be this significant amount of change, what we ought to do is pause on some of our strategic execution here, and let's see what it's going to look like,” he says.

But Singh says he is seeing signs of an uptick in activity, which is even seen in more deals taking place in the second quarter.

“I think that trajectory continues now that we have clarity,” Singh says. “Clarity is good because it takes away that uncertainty, and now it allows us to refocus on either new, complimentary or perhaps … double down on the strategy that they initially laid out prior to some of these changes."

Singh says the slowdown in hospital mergers in the first half of the year reflects some initial caution during a time of change in Washington.

“Temporary suspension and a blip is common, and what we see with significant policy changes and industry transformation, so it wasn't too big of a surprise,” he adds. “And I think the anticipated return of activity is real, and it's palpable right now.”

(Kevin Holloran and Mark Pascaris of Fitch Ratings discuss the merger outlook in this video. The story continues below.)

Impact of Medicaid cuts

Some of that clarity comes with the passage of the massive tax package last month, which includes major cuts and changes to Medicaid programs. Analysts project that Medicaid spending will be cut by nearly $1 trillion over the next decade, and nearly 12 million Americans could lose coverage. Hospitals have warned that some facilities may have to cut services, and some vulnerable facilities could end up shutting down.

While the legislation brings some potentially troubling changes for health systems, Singh says hospitals at least now recognize what’s coming.

“I think that's what we're seeing right now, is that there's been a return to strategy, and there clearly is more visibility, which is good,” he says. “But as people interpret, okay, well, what does this mean for the long term, that's when I think we're going to see that transaction activity actually accelerate.”

Mark Pascaris, a senior director of Fitch Ratings who studies nonprofit hospitals, says he expects that there will be more hospital mergers and acquisitions in the near future.

Especially as some of the cuts in Medicaid unfold in the coming years, rural hospitals may be looking to join health systems to help stay afloat.

“I think, as a result of this, even partly as a result of this, we'll start to see more M&A activity in the sector,” Pascaris tells Chief Healthcare Executive®.

With more hospitals facing financial pressures from pending Medicaid cuts, larger health systems may also be looking at the landscape to acquire other providers, he says.

“I think a lot of the very well off health systems, that are diversified, their revenue streams have deep balance sheets, are highly rated … They're going to look at all these challenges as an opportunity, maybe to bolster their position within their existing markets, maybe to grow into some new markets,” he says.

“I think the reality is that we're going to see some health systems, some regional players, and some of the large nationals look at this as an opportunity to bolster and grow their position,” he says.

Moving thoughtfully

Health systems are taking a more considered approach when it comes to mergers and acquisitions, says Kevin Holloran, senior director and leader of the U.S. nonprofit hospital sector at Fitch Ratings.

He expects some systems may look to divest some facilities in markets where they are less competitive and aim to acquire other facilities in areas where they are stronger.

“I think you're going to see people shedding some assets, but also growing some assets at the same time in markets where they've got some dominance,” Holloran says.

Following the passage of the tax package, hospitals and health systems at least have a better understanding of federal funding, even if it isn’t what they want. But Singh says organizations are now better positioned to make plans.

“What is important is that now we have a clear position of what it's going to look like going forward,” Singh says. "Organizations of any type and any size should now take that data and reevaluate, okay, what does our forward looking trajectory look like?"

“And those who do that in an honest, unbiased way are going to see very clearly what their strategic initiatives should be going forward. We anticipate a lot of organizations are going to pursue partnerships and M&A activity as a solution, or part of the solution, to get through that transformation and to overcome some of the challenges that are coming from the bill.”

For some hospitals that are facing mounting cost pressures, Pascaris says there may be merit in pursuing partnerships sooner than later.

“If I'm on a hospital or health system board, I'd want to look for a partner before finances are really in trouble,” Pascaris says. “You'd want to do that when you're an attractive pickup.”

While Pascaris says he expects to see more mergers take place, he also says some systems may remain cautious during a time of federal spending cuts and other challenges, including the impact of tariffs raising the prices on medical supplies.

“I think the flip side, there'll be plenty of organizations that are going to hunker down for the next couple of years, really focus on the blocking and tackling of what we do, and build the balance sheet,” he says. “Because they know what's coming, and they want to make sure that their cash on hand is very robust.”

Whether they’re pursuing mergers or simply working to boost revenues, health systems need to be taking thoughtful steps, analysts say.

“The most consistent thing we're hearing right now is strategy has to be very well thought out, and strategy has to be near perfectly executed for organizations to continue to thrive,” Singh says.