High volume, high value hospital transactions kick off 2024

Hospitals and health systems have kicked off the calendar year with a flurry of merger and acquisition deals reflecting several different strategic trends driving providers in 2024.

Twenty transactions were unveiled in the first quarter, marking the highest volume of dealmaking Kaufman Hall’s seen within the sector since 2020, according to a report from the healthcare consulting firm released Thursday.

The deals involved organizations of varying sizes and types, the firm wrote, and appeared motivated by a combination of new and old health system trends — for instance, smaller community systems flocking to larger organizations with stable finances, or portfolio realignments among for-profit and non-profit systems alike.

“The level of activity we saw in Q1 is indicative of the imperative many health systems are experiencing to transform their business model,” Anu Singh, managing director and leader of the mergers and acquisitions practice at Kaufman Hall, as well as the report’s author, told Fierce Healthcare. “The wide variety of transactions demonstrates the many avenues organizations are pursuing to achieve that transformation. The strategic rationale for the transactions announced in Q1 furthers our view that collaborative models will continue to be an effective approach to addressing change in the industry.”

Among the quarter’s 20 deals, four were “mega mergers” in which the smaller party had annual revenues exceeding $1 billion, per the report. This pushed total transacted revenue “near historically high levels” at $12 billion, and brought average seller size to a $598 million that’s only been outpaced by the top-heavy pandemic years.  

The deals themselves featured a variety of buyer types. University-affiliated health systems made a splash as the acquirer in six deals, which Kaufman Hall said reflects trends from last year in which academic systems seek to build a network of community hospitals to shift lower acuity patients from their highly demanded flagship facilities.

Religiously affiliated systems in two, governmental health systems in two and a for-profit system in one. The remaining nine deals involved other nonprofit system buyers.

Several of these buyers benefited from large systems seeking to realign their portfolios. The report highlighted several selloffs by Tenet Health, as well as other divestitures by Quorum Health, HCA Healthcare, CommonSpirit Health and Ascension. Together, these realignments drove 40% of the quarter’s dealmaking, the firm wrote.

One of the quarter’s landmark deals, a merger between Northwell Health and Nuvance Health, was a cross-market transaction Kaufman Hall previously predicted would be prevalent as systems aim to diversify their revenue sources. Venture Capital Firm General Catalyst’s plan to acquire Sumna Health, meanwhile, appears to be the vanguard of “a new wave of creative partnership models” that could hit the sector, according to the report.

Underlying the quarter is the substantial portion of hospitals and health systems that are still losing money on operations. Similar to last year, the financial challenges led to a handful of deals in which independent community health systems sought out partnerships to eliminate the risk of unexpected disruption shuttering their organizations.

“We anticipate that continued financial headwinds will be a significant factor in M&A activity going forward,” Singh wrote in the report.