In the first quarter of 2025, the landscape for mergers and acquisitions (M&A) within the hospital sector saw a stark decrease, marking a significant decline in activity compared to previous years. Only five transactions were recorded during this period, and notably, there were no mega-mergers, which are typically defined as those involving a smaller party with revenues of $1 billion or more. To put this in perspective, the same quarter in 2024 saw 20 deals, while the 2023 figure stood at 15 transactions. This downturn can be attributed to numerous external factors, creating an environment where hospitals choose to delay strategic decisions in the face of uncertainty.
Amid an unpredictable economic backdrop shaped in large part by former President Donald Trump’s policy decisions, hospitals are acting cautiously. The current financial strain within the healthcare industry—characterized by rising operational costs and stagnant reimbursement rates—compels many institutions to consider mergers as vital strategies for survival. However, the prevailing atmosphere of uncertainty is making traditional mergers less appealing; instead, some hospitals are seeking out joint ventures to defend against financial instability while often divesting from less profitable assets to navigate this complex landscape.
Michael Abrams, managing partner at Numerof & Associates, noted that an overwhelming deluge of news from the White House and other government agencies has contributed to a “headline overload” affecting hospital strategy. This information saturation has instilled a sense of ambiguity around numerous critical factors for healthcare providers, including Medicaid policies, pricing transparency initiatives, and drug pricing regulations. Among these, the frequent changes in tariff policies have emerged as particularly daunting. For instance, Washington-based health system Providence anticipates an increase in costs between $10 million and $25 million annually due to these tariffs. The sheer unpredictability surrounding which goods may be impacted once the current tariff pause is lifted poses significant challenges for hospital financial planning.
The reluctance to move forward with M&A transactions is a direct result of these uncertainties. Without clarity regarding trade policies and government regulations, many potential buyers are hesitant to proceed, effectively putting the hospital M&A market in a state of stagnation. Anu Singh, managing director at Kaufman Hall, warned that if the administration emphasizes efficiency and turns its attention to healthcare policies, the financial uncertainty for hospitals could worsen. The federal government’s previous sweeping changes targeting National Institutes of Health (NIH) funding and public health frameworks already indicate a trend toward more stringent oversight, and further alterations to reimbursement structures loom as a probable next step.
Despite the current hiatus in M&A activity, the presence of financial distress among hospitals remains unrelenting. Singh explained that while uncertainty can slow strategic initiatives, it does not eliminate them entirely. Instead, stakeholders may decide to pause their decision-making processes until the regulatory environment becomes clearer. The current downturn in hospital M&A is likely to be temporary, with two potential outcomes: either improved policymaking will restore confidence, enabling a resurgence in transactions, or continuous economic turbulence will drive less resilient hospitals towards consolidation for financial stability.
Notably, financial pressures faced by hospitals have surged, driven largely by escalating labor costs and supply chain expenses, without a corresponding uptick in reimbursement rates. Of the five transactions reported in early 2025, four involved parties that were experiencing severe financial distress. This trend mirrors findings from Kaufman Hall’s M&A report for 2024, which highlighted that 31% of that year’s transactions were primarily motivated by financial struggle. The merger between Sanford Health and Marshfield Clinic on January 2 exemplifies this pattern, with Marshfield pursuing consolidation as a means to stabilize a precarious financial situation.
The current environment differs markedly from the post-pandemic recovery period when hospitals had access to various forms of government relief, including reimbursement enhancements and low-cost capital. Mike India, health sector leader at EY, noted that the previous supports have dwindled, revealing deeper vulnerabilities within many healthcare institutions.
While large-scale mergers have slowed significantly, this does not imply a complete withdrawal from deal-making among hospitals. India pointed out that many healthcare providers are instead focusing on internal adjustments, such as shedding non-core assets or restructuring operations. These transactions frequently involve outpatient clinics, ambulatory surgery centers, and employed physician groups that may no longer align with strategic goals amid the ongoing financial turmoil.
In many instances, hospitals opt to divest these assets outright to generate much-needed liquidity. Alternatively, some entities are transitioning specific business lines into joint ventures with third-party operators, such as private equity-backed specialty groups or national care platforms. A notable case is Steward Health Care, which announced plans to sell its national physician group to Optum last year. Similarly, partnerships have emerged, such as those between Baptist Health South Florida and Tampa General Hospital with Kindred Healthcare to create joint-venture rehabilitation hospitals. The trend of smaller, asset-focused transactions is expected to continue through 2025 and into the next year as hospitals remain under financial duress.
With sustainability being paramount, hospitals are increasingly reevaluating their portfolios to identify capital partners that can enhance operational efficiency rather than pursuing expansive growth through traditional mergers.
The overarching theme is clear: the pressing need for survival is now driving hospital strategies. As the healthcare landscape continues to evolve amid uncertain economic conditions and regulatory changes, hospitals are likely to prioritize their financial stability over ambition. Attention is shifting toward forging alliances, monetizing assets, and ensuring operational efficiency to weather the ongoing challenges.
As the intricacies of the hospital M&A landscape continue to unravel, stakeholders within the industry remain vigilant. By closely monitoring developments in policy, economic pressures, and financial health, observers may gain insights into how hospitals will navigate their next steps in a rapidly changing environment. The current landscape serves as a reminder that while uncertainty may impede progress, it also spurs innovation and flexibility, forcing healthcare institutions to adapt and survive in a time of extreme change.