2024 Hospital and Health System M&A Remains Active

In the first quarter of 2024, we witnessed a significant rise in hospital and health system M&A deals compared to the previous three first quarters. This level of M&A activity is expected to continue to climb throughout 2024 and into 2025, mainly due to financial distress situations and hospitals’ goals to improve strategic business areas such as value-based care and digital healthcare services. Academic health systems were also more active in making deals in Q1. Large health systems, for-profit and non-profit, continue to realign their portfolios.
 
Q1 2024 saw twenty M&A deals announced, making it the highest Q1 total since Q1 of 2020 when 29 deals were completed. Such a large number of transactions compared to 2021-2023 shows that specific concerns of the past few years are waning, such as financial uncertainty after the pandemic, inflation, and staffing and volume issues. Hospitals and health systems are now more concerned with missing out on critical opportunities to grow market share by joining forces with the right partner. Inflation is also pushing some organizations to make M&A deals, focusing solely on survival and profitability.  
 
In this dynamic environment, the major hospital and health system players are strategically seizing opportunities to acquire organizations facing financial difficulties, thereby enhancing their portfolios. Health systems will also likely pursue more considerable cross-market merger opportunities to bolster their businesses without significant regulatory challenges. The focus is on mid-sized and smaller institutions that can bring strategic value to the table. 
 
Some of the most prevailing trends driving M&A activity in the hospital and health system industry include the impact of artificial intelligence on pharmaceutical development, the race to bring GLP-1 assets to market, strategic consolidation of healthcare systems, a greater focus on precision medicine, and the acquisition of niche MedTech solutions to expand and diversify capabilities. Private equity firms and venture capitalists also want to move into the hospital and health system space. 
 
Academic health systems continue to have high occupancy rates, and building a network of quality community hospitals allows higher academic organizations to outsource patient care to the community setting. This relieves occupancy pressure at the academic flagship while expanding residency opportunities, clinical research programs, and community hospital access to tertiary and quaternary care. 
 
New partnership models are emerging in the hospital industry, forming part of a comprehensive plan. For instance, one objective is to enhance population health by adjusting access to value-based care and coverage within health systems. Other goals include providing guidance to health systems on how to better deploy technology and develop interoperability models for tech solutions. An additional aim is to acquire and operate a health system to create a blueprint for digital transformation in the sector. Many players are banking on value-based care to offer a more sustainable path to healthcare delivery, a shift from the previously popular fee-for-service model. This theory is reinforced by the entry of more large retailers like Amazon into the sector. In fact, more and more non-traditional healthcare companies are responding to shifting consumer preferences and disrupting care delivery with innovative solutions. 
 
Another area of activity is management services companies partnering with specialty physician groups to help improve the group’s ability to serve patients, better utilize space, and provide assistance with certain administrative functions.  
 
Supply chains are also a driving factor in the decisions hospitals and health systems make. As organizations become more prominent, their supply chain needs to become more strategic. There is more emphasis on lowering non-labor expenses while improving technology, integration efforts, and a transparent supply chain journey. 
 
Experts in the sector believe that more strategic partnerships will occur shortly. These mergers combine two organizations doing well but still need complementary resources, capabilities, or intellectual property. Scale and market presence are becoming less critical, while the ability to deliver new healthcare delivery solutions is becoming more of a priority and motivating factor for M&A deals. There is growing emphasis on the ability to excel in value-based care and digital healthcare delivery. Additionally, some health systems will still face financial challenges, with ongoing distress leading to more deals. Hospitals and health systems can be expected to be more selective about who they partner with based on capabilities and resources that fit their particular needs rather than just trying to grow their physical presence and footprint. 

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