Dive Brief:

• With 14 transactions in the second quarter of this year, health system mergers and acquisitions are still below recent historical averages from before COVID-19, according to a Thursday report from Kaufman Hall. Even so, revenue from the deals is the second-highest in recent years at $8.5 billion.
• A number of transactions involved sellers with revenues above $500 million, including a megamerger between Beaumont and Spectrum Health, with both Michigan-based companies notching over $1 billion in annual revenue.
• Health systems in general are shifting their focus from acquisitions of small, independent hospitals to regional partnerships, and for-profit chains are focusing on building strong regional markets and divesting hospitals outside their core scope of business, the report found.

Dive Insight:

The deals so far this year are certainly larger than this time last year.

In the first two quarters of 2021, deal revenue was at $17.2 billion with 27 transactions, according to Kaufman Hall's report. During that same period last year, revenue was $17 billion with 43 transactions.

While Kaufman Hall expects the deals to continue, some could be challenged under the Biden administration.

On Friday, President Joe Biden announced he's issuing an executive order directing the Department of Justice and Federal Trade Commission to review and update hospital merger guidelines, citing rural hospital closures that have limited patient access to care and domination of the market from the largest health systems.

"Since 2010, 139 rural hospitals have shuttered, including a high of 19 last year, in the middle of a healthcare crisis. Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors," the White House said in a press release.

HCA is planning to sell a fifth Georgia hospital — Redmond Regional Medical Center — to Florida-based Advent Health, according to the report.

In May, Piedmont Healthcare announced plans to acquire four Georgia hospitals from HCA, and later said it also planned to acquire University Health Care System and its three hospitals.The merger between Spectrum and Beaumont Health was a major one in the second quarter, though a significant portion of activity actually happened in the Southeast region. Georgia alone accounted for three transactions involving eight hospitals and about $1.5 billion in transacted revenue, according to the report.

And Tenet announced its selling five hospitals in Florida to Steward Health Care system.

Nonprofit systems were the acquirer in eight transactions, while for-profits were in two. Academic medical centers or university affiliates were acquirers in three and religiously sponsored systems were in one.

The focus on strong regional partnerships and market presence in part comes out of the pandemic, as the ability to share resources across certain geographies proved valuable during shortages, according to the report.

At the same time, "a robust regional market presence positions health systems to partner with health plans and local employers by offering the necessary scale for population-health-focused initiatives and cross-market access for employees at work and at home," according to the report.

Other Q2 deals include a planned merger between Mississippi-based Rush Health Systems and Louisiana-based Ochsner Health.

And the Medical University of South Carolina plans to buy three hospitals from LifePoint Health.

Average seller size by revenue was also up in the second quarter and well above historical averages at $604 million, the report found.