Hospital M&A has braked – but the activity can be carried out in the second half of 2025
Hospital M&A activity has been slow so far this year, according to a report released by Kaufman Hall on Thursday.
In the first quarter of 2025, there were only five hospital mergers and acquisitions, while there were 20 and 15 deals in the first quarter of 2024 and 2023, respectively. The depression is largely attributed to the Trump administration's scope of the new policy and the widespread economic uncertainty arising from it.
In the ambiguity, the hospital is rolling out strategic decisions, but the situation in the second quarter has facilitated and eight M&A deals were announced.
The average seller size for these eight transactions was relatively low at $175 million – an average seller price of $984 million compared to last year’s second quarter.
The report noted that about half of the mergers and acquisitions in the second quarter of 2025 were divestitures of smaller facilities.
Kaufman Hall also noted that in the first half of the year, there were zero M&A deals with smaller parties that earned more than $1 billion in annual revenue.
Overall, the seller's smaller size and low transaction volume resulted in total transaction revenue of $1.4 billion in the second quarter. In the second quarter of 2024, this figure was $10.8 billion.
As the slowdown in M&A in the first half of this year is largely due to economic uncertainty and changes in health care policies to be determined, transactions are likely to increase in the second half of 2025. The passage of a large beauty bill, which includes about $1 trillion in health care cuts and provides some clarity.
Hospitals are now facing clearer (albeit more severe) financial reality as Medicaid spending will drop $665 billion and underwrite a contraction of 8.7 million.
“This may lead to an interesting dichotomy in health system M&A activities, and the acceleration of organizations is to seek partners to address new financial challenges, but good health systems take a careful and measured approach,” the report reads.
Rural hospitals that usually rely heavily on Medicaid are particularly vulnerable. The profit margins of small rural hospitals fell by 12.3% year-on-year, and closures continued to decline. Nearly 100 rural hospitals have been forced to close over the past decade.
These conditions may lead to more absorption of rural emergency hospital (REH) models. The model, launched by CMS in 2023, allows hospitals to abandon inpatient services and focus on emergency and outpatient care. In exchange, REHS gained enhanced Medicare reimbursement rates, as well as monthly facility payments to help maintain basic care.
The report notes that the model is slowly gaining appeal. Only 41 hospitals have had conversations, but several recent announcements suggest an increasing interest in the model to maintain rural access.
One of these announcements comes from North Carolina-based ECU Health, which recommends reopening one of its closed hospitals to REH. Tennessee-based Jellico Regional Hospital and Georgia-based Randolph County Hospital also recently announced plans to reopen the facility and transform it into a REH identity.
As for larger, well-resourced health systems, more and more attention is paid to outpatient care. The report notes that health systems such as the Cleveland Clinic are investing heavily in outpatient surgical centers, indicating a broader trend from inpatient care to low-cost outpatient services. Ascension does this with the acquisition of Amsurg, and Cleveland Clinic has a partnership with Regent Surgical.
Traditional hospital-to-hospital M&A is expected to recover slowly – but general partner activities, especially in outpatient and rural access models, may be intensified as the industry adapts to new financial and nursing delivery reality.
Photos: SB, Getty Images
