The first quarter of the year marks the strongest merger and acquisition activity among hospitals and health systems since 2020, according to analysis from Kaufman Hall. 

The 20 transactions announced in Q1 significantly exceed the number announced in the first quarters of 2021 (13), 2022 (12) and 2023 (15), marking the continuation of steady climb out of the pandemic-induced slowdown in M&A activity. In 2020, 29 deals were announced in Q1. 

While the deal count is higher, the average size of the seller — or smaller party — remains level to what it was in Q1 2023 at $598 million. Of the 20 announced transactions, four were mega- mergers, in which the smaller party has annual revenues of $1 billion or more. 

Kaufman Hall noted in its April 11 report that no single theme was dominant in the wide variety of transactions announced in Q1, but several trends are continuing. These include cross-market transactions (which Kaufman Hall says is exemplified by New Hyde Park, N.Y.-based Northwell and Danbury, Conn.-based Nuvance Health’s pursuit to combine); community health systems seeking larger partners (see Morristown, N.J.-based Atlantic Health System’s plans to acquire New Brunswick, N.J.-based Saint Peter’s Healthcare System); and portfolio realignments among nonprofit and for-profit systems. 

Worth noting is that academic health systems were the acquirers in approximately 30% of Q1’s announced transactions, an emerging trend that Kaufman Hall expects to continue. 

“As we noted in 2023, academic health systems have continued to see high occupancy rates, and developing a network of high-quality community hospitals enables the academic flagship to shift treatment of lower acuity patients to the community setting,” Anu Singh, managing director and M&A practice leader with Kaufman Hall, wrote. “This can alleviate occupancy pressures at the academic flagship, while providing expanded opportunities for residency programs, clinical research trials, and access to tertiary and quaternary services in the community hospitals.” 

Widening disparities in financial performance between hospitals and health systems, coupled with precarious operating margins, raise questions for health system mergers and acquisitions following the rebound in Q1. “Stability, in other words, may not be enough to ensure long-term sustainability,” Mr. Singh wrote, “and we anticipate that continued financial headwinds will be a significant factor in M&A activity going forward.”