Which Trends Dominated Hospital M&A Activity Last Year?

Office workstation top view of business people working around M&A, keyboard, calculator, phablet and money on wooden table - merger and acquisition concept

Merger and acquisition activity among hospitals and health systems picked up last year after 2021’s recent historic low. Key trends included cross-market mega-deals and academic medical centers expanding their community hospital networks. Despite tough economic conditions, Kaufman Hall experts expect this activity to continue growing in 2023, according to a report released Thursday. 

In 2022, 53 M&A deals were announced among hospitals and health systems, resulting in more than $45 billion in total transacted revenue, the report said. This is an increase from the 49 deals announced in 2021.

Last year, the average annual revenue among the smaller party was $852 million. For the larger party, the average annual revenue was $4.13 million. Fifteen percent of 2022’s deals fell into the category of mega merger, which means the smaller party’s annual revenues exceeded $1 billion. 

Some of the biggest M&A deals in 2022 were cross-market transactions (deals that combine health systems located in different areas, with little or no market overlap). The mega-merger between Atrium Health and Advocate Aurora Health took the top spot — the deal created the fifth-largest nonprofit integrated health system in the U.S. 

There are also some major cross-market transactions announced last year that may close in the coming months, including University of Michigan Health’s plan to combine with Sparrow Health System, Essentia Health’s proposed merger with Marshfield Clinic Health System, and the merger plan announced by Sanford Health and Fairview Health.

Cross-market mergers were a major trend in the deals announced last year because they spread the combined system’s operating risks across different markets and often allow organizations to play in both urban and rural markets. These mergers don’t actually change the competitive structure of the markets involved in the merger because they don’t increase the concentration of local hospitals, according to the report. 

Another key trend in 2022’s hospital M&A activity was academic medical centers’ focus on expanding their community hospital networks. University of Michigan Health’s planned merger with Sparrow Health, which serves rural Michigan communities, is an example of this. Other examples include UChicago Medicine’s acquisition of a controlling interest in AdventHealth’s Great Lakes Region (which includes four hospitals in the Chicago suburbs) and Thomas Health’s integration into WVU Health System in West Virginia.

Kaufman Hall’s analysts said that M&A activity will remain strong because many hospitals feel they need to restructure amid a bevy of challenges. For starters, hospitals are competing with highly capitalized health plans, retail giants and digital health companies. They are also dealing with a sweeping workforce shortage, and many patients are delaying care due to financial pressures. 

Earlier this month, Kaufman Hall analyst Erik Swanson told MedCity News that hospitals’ median operating margins are still below zero on a cumulative basis. To remedy their bleak financial situation, many hospitals are trying to build a more sustainable organization by seeking economies of scale, the report said.

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