Hospitals experienced a severe drop in M&A activity during the first quarter of 2025. There were only five transactions during the quarter — and zero mega-mergers (deals where the smaller party’s revenue is $1 billion or more). Compare this to the first quarters of 2024 and 2023, which had 20 and 15 M&A deals, respectively.
The slump in hospitals’ M&A activity is due to factors largely outside of their control: the Trump administration’s flurry of new policies and the resulting widespread economic uncertainty.
Hospitals are putting off strategic decisions amid the ambiguity — but experts say ongoing financial distress, driven by rising costs and stagnant reimbursement, may ultimately spur more M&A deals as a survival tactic.
For the time being, hospitals are avoiding traditional mergers, though some are forming joint ventures as a defense mechanism against financial uncertainty. Many are instead shedding assets to cope with the current macroeconomic environment created by President Trump’s policies.
‘Headline overload’ is a deal-killer
There’s been a “headline overload” in the past three months, pointed out Michael Abrams, managing partner of Numerof & Associates, referring to the sheer volume of information emerging out of the White House and related agencies.
The Trump administration’s messaging and new policies have led to ambiguity across a number of areas that are important to hospitals — such as Medicaid, 340B discounts, site-neutral payment reform, price transparency enforcement, drug pricing rules and NIH funding, he explained. But nothing has caused more stress on hospitals than President Trump’s ever-shifting tariff policies.
Washington-based health system Providence estimates that the tariffs will increase its costs by $10 million to $25 million each year, Abrams noted. Uncertainty around which countries and which goods will be affected once Trump lifts his 90-day pause on tariffs makes it difficult for systems to budget or plan ahead, he added.
“How do you plan for something that could be $10 million, $20 million or $25 million? It’s hard to get down to having a plan when that’s the uncertainty that you’re working with,” Abrams declared.
In his eyes, the hospital M&A market is in a holding pattern. Until there is more clarity on trade deals and policy direction, potential buyers will be reluctant to act.
Another healthcare expert — Anu Singh, managing director at Kaufman Hall — noted that the uncertainty surrounding hospital finance could worsen if the Trump administration uses the slogan of greater efficiency to turn its attention to more healthcare policies.
The federal government has already made sweeping changes affecting NIH funding and the country’s public health infrastructure — and reimbursement and payment is likely the area that the administration will tackle next, Singh said.
“If the intent of the program is efficiency, I think we would all concede that there’s opportunities to be more efficient in healthcare, whether it’s how we deal with claims or how we deal with reimbursement,” he stated.
Healthcare-specific issues are harder to resolve quickly than broader macroeconomic ones, Singh remarked. Hospitals can look to other industries to see how they’re handling the tariff situation — but if broad changes are made to reimbursement, the healthcare industry won’t have a playbook to follow.
Financial distress remains rampant
Uncertainty doesn’t kill strategic thinking — it delays it, Singh said.
“You want to wait to understand what the new rule set could be. You want to know that the aims that you’re pursuing in a potential transaction can actually be implemented in a new operating environment — and you want to know that the underlying strategic and business rationale is still relevant and still appropriate for what you’re trying to accomplish,” he stated.
Singh thinks that the current hospital M&A downturn is likely short-lived — and that it might even accelerate M&A dealmaking.
He said that one of two things could happen. The uncertainty could end through clear policymaking, allowing M&A transactions to resume, or ongoing turbulence could push smaller or less-resilient organizations to seek scale and financial support through acquisition deals, Singh explained.
He also noted that hospitals’ financial pressures are mounting, mainly due to the fact that they are facing rising labor and supply chain costs without a corresponding increase in reimbursement.
Of the five hospital M&A transactions that occurred in the first quarter of this year, all but one involved a financially distressed party, Singh said. This follows a trend that Kaufman Hall uncovered in its 2024 year-end M&A report, which showed 31% of the year’s deals were motivated by financial distress.
For instance, Sanford Health and Marshfield Clinic finalized their merger on January 2. This deal was driven in part by Marshfield’s financial distress — the Wisconsin-based system faced mounting losses and sought stability through consolidation with the larger, more financially secure Sanford.
It’s worth noting that navigating this wave of distress will look very different from how hospitals recovered after the pandemic — and it may take longer, pointed out Mike India, health sector leader at EY.
The last time hospitals were dealing with widespread financial uncertainty, they had access to subsidies, reimbursement hikes and low-cost capital, he stated. Those supports have been rolled back, exposing hospitals’ underlying financial fragility.
What dealmaking looks like now
Traditional M&A transactions may have dropped significantly, but that doesn’t mean that hospitals have disengaged from dealmaking altogether, India remarked.
Rather than pursuing large-scale mergers with other health systems, many hospitals are turning their focus inward and making moves to shed or restructure their assets, he stated.
He said these deals often involve outpatient clinics, ambulatory surgery centers, post-acute care facilities and employed physician groups — business lines that may no longer fit strategically or are too expensive to manage amid the current financial landscape.
In some cases, these assets are being divested outright to raise cash. In others, assets are being transitioned into joint ventures with third-party operators like private equity-backed specialty groups or national care platforms, India explained.
For example, financially troubled Steward Health Care announced plans to sell its nationwide physician group to Optum last year, and health systems including Baptist Health South Florida and Tampa General Hospital have opened joint-venture rehabilitation hospitals with Kindred Healthcare in recent years.
India said we’ll see more of this type of dealmaking as hospitals continue to grapple with financial stress and uncertainty. Instead of mega-mergers, he expects smaller, asset-specific deals to persist through this year and next.
“What you are going to see is a continued evaluation of the portfolio of assets — and finding capital partners that will help you run those assets more efficiently,” India declared.
The shakiness of providers’ financial state, coupled with the country’s tempestuous financial climate, has forced hospitals to focus on sustainability, he said. India believes hospitals will weather this storm by monetizing their assets, partnering for efficiency and exiting markets where they lack competitive advantage.
As it stands now, survival — not scale — is driving hospital strategy.
Photo: Philip Rozenski, Getty Images