Mergers and acquisitions in health care surge in 2023

Mergers and acquisitions in health care surge in 2023

A Kaufman Hall year-end analysis revealed a substantial increase in merger and acquisition activity within the health care sector in 2023, with 65 announced transactions compared to the previous year's 53. The report highlighted the prominence of financial distress as a key factor influencing these transactions, marking 28% of deals, up from 15% in 2022. The analysis illustrates the challenges faced by hospitals and health systems in 2022, including sustained negative median operating margins, which continued to drive M&A decisions in 2023.
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A year-end analysis by Kaufman Hall reveals a significant rise in merger and acquisition (M&A) activity in the healthcare sector in 2023, with 65 announced transactions compared to the previous year's 53. Financial distress emerged as a key factor, accounting for 28% of deals, up from 15% in 2022, reflecting challenges faced by hospitals, such as sustained negative operating margins.

Key findings include the prominence of "mega mergers" (involving parties with revenue exceeding $1 billion), constituting 12% of total transactions, and the average size of smaller parties remaining high at $591 million. Health care markets experienced reorganization due to the realignment of for-profit health system portfolios and regional market organization.

The report anticipates trends in 2024, emphasizing health systems' focus on regional market development, balancing scale advantages with regional agility. Despite stabilizing financial performance, organizations facing ongoing financial challenges are advised to enhance attractive partnership attributes. Independent community health systems, impacted by market headwinds, are expected to seek partnerships for sustainability. Anticipated in 2024 is a surge in creative participatory partnership models driven by desires for independence and regulatory challenges.

The report also notes the potential impact of political outcomes in the 2024 general election on healthcare and partnership activities, adding a variable to the evolving landscape.

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