- Hospital and health system mergers and acquisitions increased in the second quarter this year, according to a new Kaufman Hall report. The second quarter had 20 announced transactions, including three megamergers where the seller or smaller party had revenues exceeding $1 billion.
- The megamergers included Froedtert Health and ThedaCare; Kaiser and Geisinger Health's plan to launch Risant Health; and BJC HealthCare and St. Luke’s Health System.
- The 20 transactions in Q2 are the most in a single quarter since the COVID-19 pandemic began — a sign the authors say reflect the M&A market “regaining momentum.”
With $13.3 billion in total transacted revenue, Q2 2023 was down from the high of $19.2 billion observed a year ago, but above pre-pandemic levels.
Sellers continue to be larger in size, with an average of $664 million in revenue. The average was down from a historic high of $852 million in 2022.
One driver behind larger health systems submitting to deals is a desire for synergy: Organizations are selecting partners that “complement, expand and optimize organizational capabilities,” the report said.
For example, the megamerger between Froedtert Health and ThedaCare was not based on “financial pressures” but instead on the CEOs’ mutual understanding that a merger would allow the companies to deliver better, further-reaching healthcare by expanding into additional markets — those south of ThedaCare’s headquarters in Appleton, Wis., and north of Froedtert’s headquarters in Milwaukee.
Likewise, Kaiser Hospital Foundation’s plan to acquire Geisinger Health aims to seize upon Geisinger’s “deep expertise in both clinical care and health plan management.”
The report noted deals within regional markets as another emerging acquisition trend, suggesting that health systems can deliver more coordinated care by combining in adjacent geographies. For example, BJC HealthCare and St. Luke’s Health System collaborated on cost-saving measures for years as members of the BJC Collaborative, and their merger could create what the report called “an even stronger financial foundation.”
The authors expect that other players will take a similar approach to mergers and acquisitions moving forward.
“We anticipate more portfolio optimization from large, multi-market health systems as they look across the geographies in which they operate and determine where scarce resources can be best deployed,” researchers wrote.
The acquiring parties in the second quarter included eight not-for-profit health systems, four investor-owned health systems, two religiously affiliated organizations, four academic/university-affiliated organizations, one government organization and one academic organization partnering with multiple not-for-profit organizations.