Fewer hospital mergers, but bigger deals, may be a growing trend

The number of transactions in the second quarter was the lowest in years, Kaufman Hall reports. But the small number of deals involved some big players.

The number of hospital mergers continued to be modest in the second quarter of 2022, according to a new Kaufman Hall report.

However, the second quarter saw the continuation of another trend: the deals that are happening are bigger.

There were 13 transactions involving hospitals and health systems in the second quarter, the smallest number for a second quarter since 2016, according to Kaufman Hall's July 13 report. It was fairly consistent with the second quarter of 2021, when 14 transactions were announced.

It’s been a fairly quiet year for hospital mergers. In the first quarter of 2022, there were only 12 mergers announced, which was the smallest first quarter number since 2016.

The trend of fewer - and bigger - mergers may continue, Kaufman Hall projects.

“The full return this quarter to the trend of fewer but larger hospital and health system transactions signals what may be a long-term shift in hospital and health system transactions,” Kaufman Hall said in its report. “We expect continued activity in this space, but believe that the emphasis on transformative combinations, strategic rationale, and heightened selectivity will only grow.”

Still, the size of some mergers has gained the attention of the healthcare industry.

Atrium Health and Advocate Aurora Health announced plans to merge in May, and if approved by regulators, the deal would create one of America’s largest hospital systems.

The two systems plan to form a new organization with a combined $27 billion in annual revenue. The merged organization would operate 67 hospitals with more than 1,000 ambulatory sites and more than 148,000 employees.

Some analysts say the Atrium-Advocate Aurora deal could spur similar mergers if it wins regulatory approval. The systems don’t operate in competing markets, often a sticking point for the Federal Trade Commission. Atrium serves North Carolina, South Carolina, Georgia, and Alabama, and Advocate Aurora operates in Illinois and Wisconsin.

Trinity Health, the Michigan-based Catholic system operating 88 hospitals, has moved to acquire MercyOne, a health system in Iowa. MercyOne, the smaller partner, nonetheless boasts $3 billion in revenue.

Trinity and CommonSpirit Health reached an agreement in April for Trinity to become the sole parent. Trinity and CommonSpirit, formerly Catholic Health Initiatives, have jointly operated MercyOne for more than two decades.

In two other deals announced in the second quarter, the smaller parties bring in more than $500 million in annual revenue.

The Bellin Health System and Gundersen Health System are planning a merger; the smaller party brings in $800 million. Universal Health Services has also reached a deal to become the sole owner of George Washington University Hospital (the hospital has $600 million in revenue) after having a majority stake for years.

Kaufman Hall also noted a growing trend of partnerships extending beyond mergers, such as healthcare providers finding partners to operate skilled nursing facilities. Hackensack Meridian Health announced a deal with Complete Care in March to acquire a majority of the New Jersey system’s long-term care facilities.

Analysts such as KPMG have previously said that they expect the pace of hospital merger activity to pick up over the next year or two. Some predict that smaller healthcare organizations that are struggling financially may need to find a partner to stay afloat.

Some proposed mergers have collapsed due to the opposition of the Federal Trade Commission. The FTC took action to block three proposed hospital mergers so far this year, arguing the deals were anti-competitive. All three deals were abandoned in the face of regulatory opposition.

Care New England had planned to merge with LifeSpan, but the FTC opposed the deal and the two systems dropped their plans. Care New England’s board recently voted to stay independent, but is also looking at increasing partnerships with other organizations.

President Joe Biden’s administration has directed regulators to give more scrutiny to planned hospital mergers. Last July, President Biden issued an executive order directing federal agencies to look closely at healthcare consolidations, including hospital deals, to promote competition and help protect against higher costs and reduced services.

Nonetheless, deals involving systems that aren’t managing facilities in the same markets have won approval.

Intermountain Healthcare completed the merger with SCL Health in April. Intermountain, based in Utah, now operates 33 hospitals.

Related story: Intermountain Healthcare CEO Marc Harrison talks about SCL Health merger