Hospital mergers rose in 2024, driven by ‘record’ number of distressed providers

More hospitals and health systems engaged in mergers and acquisitions in 2024, and many of those deals involved an organization in financial distress, according to a new report by Kaufman Hall.

There were 72 announced hospital mergers in 2024, up from 65 announced deals in 2023. For more perspective, there were 53 hospital mergers and acquisitions in 2022.

Nearly one in three hospital mergers (30.6%) involved a party in distress, which represents a record, according to Kaufman Hall, the healthcare consulting firm. In 2023, 27.7% of hospital deals involved a provider in financial distress, and that was a record, albeit a short-lived one.

Many of those distress-driven deals involved Steward Health Care, the for-profit firm that filed for bankruptcy and moved to sell its 31 hospitals. Insight Health System purchased two Steward hospitals in Ohio that had been slated to shut down.

In addition, 2024 also witnessed a peak percentage of deals involving a health system divesting some of its hospitals, with some systems leaving certain markets. Many of those deals involved Steward facilities, but other systems shifted strategies. In 2024, Tenet Healthcare Corp. sold six of its hospitals in California.

More than half (62.5%) of the hospital deals in 2024 involved divestitures, Kaufman Hall said.

Many hospitals continue to struggle financially in the wake of the COVID-19 pandemic, and the hospital mergers offered more evidence of the difficulties of some providers.

The percentage of deals involving the smaller party with a credit rating of “A-” or higher fell to an all-time low, Kaufman Hall said. Only 2.8% of the deals in 2024 involved a smaller party with a rating of at least “A-”, down from 12.3% in 2023.

In previous years, many deals involving hospitals in financial trouble have been smaller hospitals, but there are larger hospitals in distress seeking partners, Kaufman Hall notes. In 2024, the average size of a distressed hospital in a merger rose to $401 million, nearly double the figure just two years earlier ($219 million in 2022).

The past year has seen some large mergers, including mega-mergers where even the smaller party in the deal has more than $1 billion in revenue. Sanford Health and Marshfield Clinic Health System announced plans to come together last summer, and they completed their merger last week, creating a $10 billion system.

But Kaufman Hall says another trend is emerging, judging from the deals seen in 2024. More hospitals and systems are striking deals with much larger partners. Even some that aren’t exactly distressed are looking for larger systems to maintain their viability, Kaufman Hall notes.

Such deals include Northwell Health’s planned acquisition of Nuvance Health, a deal which was announced last year. Northwell, New York’s largest health system, operates 21 hospitals. Nuvance owns seven hospitals, with four in Connecticut and three in New York. Nuvance has struggled with financial losses.

Risant Health, a subsidiary of Kaiser Permanente, completed its acquisition of Cone Health, a North Carolina hospital system. The deal follows Risant’s purchase of the Geisinger health system in Pennsylvania.

Greg Adams, CEO of Kaiser Permanente, has said Risant is looking to acquire more hospital systems in the coming years. However, he has said Risant is not looking to acquire hospital systems in financial trouble.

“We’re looking for organizations that on their own can be financially sound,” Adams said at the HLTH Conference in October.

In another merger that’s gained attention, General Catalyst, the venture capital firm, reached a definitive agreement to buy Summa Health in Ohio in a $485 million deal. A subsidiary of General Catalyst, Health Assurance Transformation LLC, dubbed HATCo, and Summa Health announced the agreement in November.

While hospital mergers have risen for the third consecutive year, it’s worth noting that hospital M&A activity still hasn’t returned to pre-pandemic levels.

There were 92 mergers in 2019, and 79 in 2020, the first year of the COVID-19 pandemic, although work on some of those 2020 transactions had begun the previous year. Hospital mergers fell to a record low of 49 in 2021.

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