Skip to main content

More Hospitals Seeking M&A Due to Financial Pressures

Analysis  |  By Jay Asser  
   January 22, 2024

Transactions were on the rise in 2023 and much of the momentum is expected to continue this year.

Hospitals and health systems are increasingly pursuing mergers and acquisitions (M&A) to stabilize their financial situation, which is partly driving more dealmaking, according to a report by Kaufman Hall.

With hospitals continuing to deal with financial headwinds, consolidation should remain a sought-after avenue for many organizations in the foreseeable future, while regional market development will also be an area of focus.

Per Kaufman Hall, 65 transactions were announced in 2023, an uptick from the 53 seen in 2022. The total transacted revenue of those deals was $38.4 billion and the average size of the smaller party by annual revenue was $591 million.

More than a quarter of the total transactions (28%) involved a financially distressed partner, which was nearly double the amount in 2022 (15%) and the highest percentage since the data started being tracked.

“While many of these financially distressed organizations are smaller hospitals and health systems, the presence of larger systems in the mix has now resulted in average size of a financially distressed partner by annual revenue of over $160 million for the past two years, again, the first time that figure has been reached in recent history,” the consulting firm wrote.

Hospital margins are slowly inching forward after returning to positive territory early in 2023 but have yet to hit pre-pandemic levels. Kaufman Hall’s latest National Hospital Flash Report found the median calendar year-to-date operating margin index was 2.0% through the end of this past November, “still well below the 3% - 4% range often cited as a sustainable operating margin for not-for-profit hospitals and health systems.”

As hospitals search for M&A partners, Kaufman Hall believes “these trends underscore the need for organizations to, whenever possible, attempt to work from a position of strength when seeking partnership alternatives before financial distress impacts a hospital or health system’s flexibility.”

Another trend factoring into transactions is health systems prioritizing portfolio realignment and organizing regional markets. Examples of this in 2023 included Froedtert Health and ThedaCare combining, as well as the merger between BJC HealthCare and Sait Luke’s Health System.

Going forward, Kaufman Hall also projects more interest in dealmaking by independent community health systems, along with new partnership models motivated by a desire to remain independent and regulatory challenges.

Many deals are eventually being stopped in their tracks by regulators, with FTC enforcement having hit its highest level in 20 years.

Jay Asser is the contributing editor for strategy at HealthLeaders. 


Kaufman Hall’s M&A report reveals that of the 65 announced transactions this past year, 28% involved a financially distressed partner, which is the highest percentage in recent history.

As the year-to-date operating margin hovers around 2.0%, many more hospitals are likely to pursue dealmaking this year to alleviate financial struggles.

Health systems are also focusing on expanding their portfolios in key regional markets.

Get the latest on healthcare leadership in your inbox.