Hospital mergers on track to outpace 2022

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Hospital analysts projected that there would be more mergers and acquisitions in 2023, and the predictions are proving to be accurate.

Through the first three quarters of 2023, there have been 53 announced hospital mergers, according to a report from health care consulting firm Kaufman Hall. That already equals the 53 hospital mergers reported in all of 2022. There were 49 hospital deals in 2021.

The third quarter of 2023 saw 18 announced mergers, according to the report. That compares to 10 deals in the third quarter of 2022 and seven transactions in the third quarter of 2021.

Several major deals have been announced this year, including Kaiser Permanente’s plans to acquire Geisinger Health, the Pennsylvania system. BJC HealthCare of St. Louis and Saint Luke’s Health System of Kansas City announced May 31 that they plan to merge and form an integrated academic health system.

In July, Tampa General Hospital announced plans to acquire three Florida hospitals from Community Health Systems. Aspirus Health in Wisconsin said in July it intends to acquire St. Luke’s in Duluth, Minn.

Two Wisconsin-based systems, Froedtert Health and ThedaCare, announced another key step in their merger plans, with their boards signing off on their consolidation. Essentia Health, based in Minnesota, and the Marshfield Clinic Health System, based in Wisconsin, announced in July that they’ve agreed to come together and hope to complete that merger by the end of the year.

Hospital merger activity slowed during the COVID-19 pandemic, as health systems were more focused on dealing with the unprecedented crisis than in pursuing deals. However, merger activity has been picking up this year, and analysts expect to see more deals in the months ahead.

Analysts project more hospitals may be pursuing partners due to financial needs. More than half of all hospitals had negative margins in 2022. Hospitals are seeing some modest gains in 2023, but some analysts expect weak margins to continue into 2024.

So far, nonprofit hospital operating margins have been around 1%, while margins of 3% are generally considered necessary for long-term financial strength, Kaufman Hall reported.

In a July interview Anu Singh, managing director and leader of partnerships, told Medical Economics’ sister publication Chief Healthcare Executive® that more hospital deals are likely.

“Whether it’s strategic in nature for accessing the capabilities, or whether it's financial in nature, because of viability, and all points in between those two extremes, that all leads to the logical conclusion, there's going to be more transaction and partnership activity going forward,” Singh said.

Transactions among nonprofit organizations accounted for 14 of the 18 deals in the third quarter, and 10 of the deals involved academic health systems, Kaufman Hall said.

Total revenue in the third quarter transactions was $8.2 billion, which is higher than the typical figures in the third quarter of previous years but down from the $13.3 billion of the second quarter.

The average deal of the smaller party, or seller, was $453 million in average revenue. That is above historical year-end averages before the pandemic. From 2015 through 2020, year-end averages ranged from a low of $272 million in 2019 to $409 million in 2018.

One potentially big deal is not coming together. UnityPoint Health and Presbyterian Healthcare Services said last week that they have dropped their merger plans.