Hospital M&A activity has been sluggish so far this year, according to a report released Thursday by Kaufman Hall.
There were only five hospital M&A transactions during the first quarter of 2025 — compared to the first quarters of 2024 and 2023, which had 20 and 15 deals, respectively. This slump is due mainly to the Trump administration’s flurry of new policies and the resulting widespread economic uncertainty.
Hospitals were putting off strategic decisions amid the ambiguity, but things picked up a bit in the second quarter, with eight M&A deals announced.
The average seller size across these eight deals was relatively low at $175 million — in comparison to the second quarter of last year, when the average seller size was $984 million.
The report noted that about half of the M&A transactions in the second quarter of 2025 were divestitures of smaller facilities.
Kaufman Hall also pointed out that there were zero mega mergers — M&A deals in which the annual revenue of the smaller party exceeds $1 billion — during the first half of the year.
Overall, the small size of the sellers and the low deal volume led to a modest $1.4 billion in total transacted revenue for the second quarter. For the second quarter of 2024, this figure was $10.8 billion.
Since the M&A slowdown that occurred in the first half of this year was largely caused by economic uncertainty and pending healthcare policy changes, deals may increase during the second half of 2025. The passage of the One Big Beautiful Bill Act, which includes roughly $1 trillion in healthcare cuts, has provided some clarity.
With Medicaid spending set to fall by $665 billion and coverage to shrink by 8.7 million people, hospitals now face clearer — though harsher — financial realities.
“This may lead to an interesting dichotomy in health system M&A activity, with the acceleration of organizations looking for partners in response to new financial challenges, but a careful and measured approach being taken by well-positioned health systems,” the report read.
Rural hospitals, which are typically heavily dependent on Medicaid, are particularly vulnerable. Margins for small rural hospitals have dropped 12.3% year-over-year, and closures continue to mount. Nearly 100 rural hospitals have been forced to shutter over the past decade.
These circumstances could lead to greater uptake of the Rural Emergency Hospital (REH) model. This model, which CMS launched in 2023, allows hospitals to shed inpatient services to focus on emergency and outpatient care. In exchange, REHs receive enhanced Medicare reimbursement rates, as well as a monthly facility payment to help sustain access to essential care.
The report noted that this model is slowly gaining traction. Only 41 hospitals have undergone the conversation, but several recent announcements suggest growing interest in the model as a way to maintain rural access.
One of these announcements is from North Carolina-based ECU Health, which has proposed the reopening of one of its closed hospitals as a REH. Tennessee-based Jellico Regional Hospital and Georgia-based Randolph County Hospital have also recently announced plans to reopen shuttered facilities and transition them to REH status.
As for larger, more well-resourced health systems, there is an increasing focus on outpatient care. Health systems like Ascension and Cleveland Clinic are investing heavily in ambulatory surgery centers, which indicates a broader trend of pivoting from inpatient care to lower-cost, outpatient services, the report pointed out. Ascension is doing this through its acquisition of Amsurg, and Cleveland Clinic forged a partnership with Regent Surgical.
Traditional hospital-to-hospital M&A is expected to recover slowly — but general partnership activity, especially in outpatient care and rural access models, will likely intensify as the industry adapts to new fiscal and care delivery realities.
Photo: SB, Getty Images