In the first quarter of 2025, hospital mergers and acquisitions activities fell sharply. There were only five deals in the quarter, while Zero Mega-Mergers (the smaller parties earn $1 billion or more deals). Comparing it to the first quarter of 2024 and 2023, there are 20 and 15 M&A deals, respectively.
The downturn in hospital mergers and acquisitions activities is attributed to the fact that the main factors are outside its control: the Trump administration’s scope of the new policy and the broad economic uncertainty arises.
In ambiguity, hospitals are delaying strategic decisions – but experts say that ongoing financial distress could eventually stimulate more M&A deals as survival strategies driven by rising costs and stagnant reimbursement.
for the time being, Hospitals are avoiding traditional mergers, although some are forming joint ventures as a defense mechanism to defend against financial uncertainty. Instead, many are raising assets to deal with the current macroeconomic environment created by President Trump’s policies.
“Title Overload” is a trading killer
Michael Abrams, managing partner of Numerof & Associates, noted that there has been a “title overload” in the past three months referring to a large amount of information emerging from the White House and related agencies.
He explained that the Trump administration’s messaging and new policies have led to many ambiguities on hospitals that are important to areas such as Medicaid, 340B discounts, on-site payment reforms, price transparency enforcement, drug pricing rules and NIH funding. But nothing puts more pressure on hospitals than President Trump’s ever-changing tariff policies.
Abrams noted that Providence, a Washington-based health system, estimates that tariffs will increase its costs by $10 million to $25 million a year. He added that once Trump raises the 90-day tariff pause, the uncertainty surrounding which countries and commodities will be affected, making it difficult for the system to budget or plan.
“How do you plan something that could be $10 million, $20 million or $25 million? It’s hard to make plans when you’re working with the uncertainty of it.”
In his opinion, the hospital M&A market is in a holding state. Potential buyers will not be willing to act until they are more clear about trade deals and policy directions.
Another healthcare expert – Kaufman Hall managing director Anu Singh pointed out that hospital finance uncertainty could worsen if the Trump administration uses more efficient slogans to turn its attention to more healthcare policies.
Singh said the federal government has made comprehensive changes to impacting NIH funding and the country’s public health infrastructure – reimbursement and payments may be areas that the government will address next.
“If the intention of the program is efficiency, I think we all acknowledge the opportunity to be more efficient in health care, whether it’s how we deal with claims or how we deal with reimbursement,” he said.
Health care-specific problems are harder to solve than macroeconomic problems, Singh said. Hospitals can seek other industries to understand how they handle the tariff situation, but the healthcare industry will be reluctant to follow the script if there is a widespread change in reimbursement.
Financial difficulties remain rampant
Uncertainty doesn’t kill strategic thinking – it delays it, Singh said.
He said: “You want to know what a new rule set might be.
Singh believes that the decline in the current hospital merger and acquisition may be short-lived and may even accelerate merger and acquisition transactions.
He said one of two things could happen. Singh explained that uncertainty could end with clear decisions and allow mergers and acquisitions to resume, or ongoing turmoil could push smaller or resilient organizations to seek scale and financial support through acquisitions.
He also noted that hospitals are increasingly financially stressed, mainly due to their rising labor and supply chain costs without corresponding increase in reimbursement.
Singh said all but one of the five hospital mergers and acquisitions that took place in the first quarter of this year involved an economically difficult party. This is a trend that Kaufman Hall found in its end-2024 M&A report, which shows that 31% of transactions this year were motivated by financial troubles.
For example, Sanford Health and Marshfield Clinic completed the merger on January 2. The deal is driven in part by Marshfield’s financial distress – a Wisconsin-based system facing increasing losses and seeking stability by merging with the larger, more economically safer Sanford.
It is worth noting that navigating this wave looks very different from the way hospitals recover after the pandemic — and may take longer, noting that it may take longer for EY’s health department leader Mike India.
He said the last time the hospital dealt with widespread financial uncertainty they could get subsidies, repayment of interest and low-cost capital. These support has retreated, revealing the hospital’s basic financial vulnerability.
What’s the deal now
India notes that traditional M&A transactions may have been greatly reduced, but this does not mean that hospitals are completely out of the deal.
He said many hospitals are not undergoing massive mergers with other health systems, but instead shifting their focus inward and relocating or restructuring their assets.
He said these transactions often involve outpatient clinics, outpatient surgical centers, acute care facilities and employed physician groups – business units may no longer be strategically appropriate or too expensive to manage in the current financial environment.
In some cases, these assets are directly divested to raise cash. India explained that in other cases, assets are transitioning to joint ventures with third-party operators such as private equity-backed professional groups or national nursing platforms.
For example, the financially troubled Butler Healthcare announced plans to sell its National Physician Group to Optum last year, and in recent years, including the Baptist Health System, has opened a joint venture rehabilitation hospital with Kindred Healthcare.
India said we will see more of these deals as hospitals continue to struggle with financial pressure and uncertainty. He hopes to keep small asset-specific transactions this year and next, rather than the big McGellers.
India declares: “What you will see is a continuing assessment of the asset portfolio and finding capital partners that can help you run these assets more effectively.”
He said the shakyness of providers’ financial situation, coupled with the country’s violent financial climate, forced hospitals to focus on sustainability. India believes that hospitals will survive the storm by making their assets profitable, collaborate to improve efficiency and leave markets where the market lacks a competitive advantage.
For now, survival (not scale) is driving hospital strategies.
Photo: Philip Rozenski, Getty Images
