New data shows strategic portfolio realignment driving early-year activity as organizations gain confidence and incentives to pursue transactions.
The sluggish pace of hospital and health system dealmaking that defined much of last year appears to be in the rearview mirror.
Kaufman Hall’s latest analysis found 22 transactions announced through the first three months of 2026, marking the highest level of first-quarter activity since 2020 and a sizeable rebound from the first half of 2025, when the volume of transactions was slowed by financial strain and policy uncertainty.
Rather than being fueled by financial distress, as was the case in 43.5% of all deals last year, M&A in the first quarter was largely the result of portfolio rationalization.
Divestitures announced for 15 of the 22 deals (68%), reflecting organizations’ growing appetite to shed underperforming assets and narrow the focus on profitable markets. A major motivator of that approach is the One Big Beautiful Bill Act and its anticipated financial impact, Kaufman Hall noted.
That positioning is evident among independent hospitals, which are increasingly seeking partnerships as a proactive strategy to improve access to resources and capital.
At the same time, only four transactions in the quarter (18%) involved a distressed seller.
“This quarter’s trends reflect an industry undergoing transformation,” Kris Blohm, managing director and co-leader of Kaufman Hall’s M&A practice, said in a statement. “Health systems are repositioning by withdrawing from underperforming or non-core markets, building capital to invest in new capabilities, proactively seeking partners to increase resilience or enhance access to care and services, and placing big bets on new combinations of resources and capabilities.”
The jump in dealmaking in the quarter was matched by a rise in scale as total transacted revenue reached $14.5 billion, up significantly from $1.4 billion during the same period last year.
Much of that growth was spurred by larger deals. The quarter included three mega mergers, defined as transactions involving an acquired organization with more than $1 billion in annual revenue, bringing the average seller size to $657 million, the highest quarterly average since 2022.
The largest deal announced in the first quarter was Sutter Health’s planned acquisition of Allina Health to form a 39-hospital, $26 billion system. Though the organizations stopped short of calling the move a “merger,” the potential deal is the latest example of a trend toward more cross-market mergers. By pursuing these acquisitions, it allows organizations to expand to new regions while sharing capabilities with well-positioned systems in their respective markets.
Overall, the strong start to the year for M&A follows a challenging 2025, which featured 46 total transactions and $18.5 billion in transacted revenue, both representing multi-year lows.
Kaufman Hall’s report suggests that the forces driving first-quarter activity are unlikely to subside in the near term. As health systems continue to face margin pressure and shifting reimbursement dynamics, the need for significant investment in technology and care delivery transformation remains high.
As such, M&A is expected to remain a central strategy, with organizations refining their portfolios and seeking partners that can help them navigate a complex environment.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Hospital M&A volume in the first quarter reached a post-2020 high with 22 transactions, nearly halfway to 2025’s full-year mark of 46.
Divestitures dominated by accounting for 68% of deals as systems shed non-core assets.
Independent hospitals are increasingly pursuing partnerships proactively rather than out of distress.