Hospital M&A Outlook: Remainder of 2022 and Beyond


Hospital M&A Outlook: Remainder of 2022 and Beyond

Copyright 2022, American Health Law Association, Washington, DC. Reprint permission granted.

2022 began with a significant level of uncertainty, and the same uncertainty looms over the hospital M&A market. COVID continues to be unpredictable, and it is unclear what “normal” volume levels will look like, especially in certain statistics such as emergency department activity. Contract labor costs skyrocketed at the end of 2021 and early 2022 due to labor shortages, although there are signs of such costs beginning to moderate. Inflation pressures and supply chain disruptions are impacting a range of costs in healthcare systems, and interest rates have risen dramatically through the first four months of the year, impacting healthcare systems’ cost of borrowing. And the prospects of new major government influxes of COVID funding seem low. All of these conditions make it very challenging for health systems to gauge their outlooks and budgets for 2022-2023. This uncertainty makes decisions regarding strategic options and alignments equally challenging.

Hospital M&A continued at low levels in 2021 as reflected in the chart below. Despite the continued lower level of activity, there are several underlying compelling dynamics that warrant a closer examination. These factors are helping to shape the trajectory of hospital consolidation, and even more broadly, signaling how providers are expected to meet the challenges of delivering care in a rapidly evolving environment.


Annual Announced Hospital Change of Control Transactions

Annual Announced Hospital Change of Control Transactions

Ponder records transactions upon announcement of a definitive agreement, or letter of intent if the transaction involves a for-profit system. If no announcement was made prior to closing of the transaction, the effective date is recorded.


As displayed in the above chart, the annual volume of announced M&A transactions among hospitals and health systems over the past decade averaged 104 announced transactions with certain years exceeding or underperforming the average by significant margins. The reduced volume in 2019 followed a trend of integration periods and reduced volume coming on the heels high volume years, although the further decline in volumes in 2020 and 2021 suggests that factors other than COVID are at play.

Direct facilitations between strong systems continue to gain momentum

A typical health system M&A transaction is initiated by a competitive partnership search process in which likely health system partners put forth non-binding partnership proposals for the stakeholders of the target health system to evaluate. In a deviation from the typical process, strong and well-positioned health systems are increasingly seeking other similarly well-positioned health systems to pursue facilitated or sole-negotiated M&A transactions. Systems that seek out these targeted alignments often start strategic alignment discussions considering a wider range of structures including joint ventures and minority equity interest transactions since there is not an immediate desire for either organization to relinquish control and typically are not compelled by a “burning platform”. As discussions evolve and the potential benefits of more fully integrated alignments are considered, in some cases the parties will ultimately pursue a more integrated alignment structure such as a membership substitution. However, contributing to the slowdown in transaction volumes, pursuit of these alignments often takes longer, and these talks are therefore susceptible to loss of momentum if goals and objectives deviate or are difficult to define without the catalyst of a burning platform. Also, during these extended discussions, other factors can change driving a different approach to structure. In Florida, for example, Certificate of Need (CON) regulations for acute care services were repealed, resulting in new alignments such as that between UF Health and Central Florida Health to land on the more integrated end of the spectrum.

Increasingly, the mergers between healthy systems are more forward looking and aim to better position the combined entity for population health and make investments in clinical and digital innovation. As such, while certain elements such as complementary geographic footprints still retain importance, the cultural alignment of the merging organizations is becoming paramount. Several recent mega-mergers illustrate this point, including the merger of SCL Health and Intermountain Healthcare, in which Intermountain’s progress in value-based care through its insurance arm, SelectHealth, aligns well with SCL Health’s interest in moving away from fee-for-service models.1 Similarly, the merger of Beaumont Health and Spectrum Health expanded the reach of the merged system across Michigan and enables transformative investments in the communities served.2 With distinctly separate markets, Advocate Aurora Health and Atrium Health announced a joint operating company focused on the evolving digital world, workforce pressures, cost challenges and health inequities, all with the goal of doing more, being better and going faster.3 It will be interesting to see how regulators view the transaction which is projected to be the sixth largest health system in the county despite the lack of overlapping service areas. In the end, these forward-looking transactions are focused on meaningful governance participation by both parties, leveraging the best of both systems and significantly accelerating their competitive position in the healthcare landscape and their ability to invest in and deploy emergent care delivery models and technologies.

Mid-sized Independent systems ($350 million – $2.5B) have bought time; now what?

The rapid onset of the pandemic and the resulting effects on healthcare systems led many to pause major strategic decisions as they retrenched to focus on fighting COVID, juggling staffing challenges and maximizing the effectiveness of their core operations. Grant funding and advance payment programs significantly bolstered balance sheets and mitigated a portion of the lost revenue from the cessation of elective procedures. After an uncertain to negative outlook during the initial phases of the pandemic, many strong independent hospitals and mid-sized systems improved their operating performance4 and are now in soul-searching mode as the pandemic appears to be waning. With operations stabilizing and the repayment of advanced funding, mid-sized systems that are favorably positioned to withstand the impact of COVID may take the next year to 24-months to grapple with their future ability to remain viable/thriving health systems. These organizations may consider dual-tracking their focus by beginning to evaluate their potential strategic options, in addition to remaining inwardly focused on shoring up their organization’s core health care functions. For these entities, a wider range of structures may be considered, and therefore, it could take several years for these systems to fully evaluate their strategic options.

One example is the ongoing partnership search by Genesis Health System, with revenue over $700 million in FY2021 and rated A1 by Moody’s Investor Service, which was announced in December 20215. The partnership search has a stated goal of only considering those that are well positioned to advance Genesis’ proven dedication to clinical excellence and can help to address key areas of opportunity in growth, culture and local investment and will allow Genesis to make an informed decision on their path forward either with a partner or as an independent health system.

As an illustration of the opportunity that some well-positioned systems may realize in a partnership search despite the challenging environment, New Hanover Regional Medical Center, a county-owned hospital with $1.5 billion in annual revenue and consistent double digit operating cash flow margins, ran a competitive partnership process that initiated in late 2019 and ran through the height of the pandemic in 2020. Several leading regional and national health systems submitted partnership proposals, with Novant Health closing an asset acquisition consisting of a $1.5 billion purchase price and over $3 billion of capital commitments.

National systems are shifting their M&A appetite from acquiring hospitals to acquiring outpatient and other non-acute providers

With the continuing pressure on controlling healthcare costs, a large focus of healthcare M&A has shifted to the outpatient care setting. Outpatient care has grown faster than inpatient care with a growth rate of 16% between 2016 and 2019 as opposed to the inpatient growth rate of 6% over the same period6 and is poised to continue that growth as it offers an intrinsically lower cost setting than inpatient care. Catalyzing investments include Tenet’s acquisition of USPI in 2015 to create the nation’s largest ambulatory surgery platform and Ascension’s recent partnership with Regent Surgical Health to develop and operate a nationwide network of ambulatory surgical centers. Another transaction that illustrates the growth of investments in non-inpatient care is the merger of LifePoint Health and Kindred Healthcare which combined LifePoint’s traditional inpatient footprint with Kindred’s rehabilitation, long-term care, home health and hospice service lines. Following the closing of the merger in December, a spin-off organization, ScionHealth, was formed including 18 of LifePoint’s inpatient hospitals and all of Kindred’s 65 long-term acute care hospitals, with LifePoint retaining the former Kindred rehab, home health and hospice operations.

Major regional health systems like Geisinger and HonorHealth have recently entered into synergistic joint ventures with behavioral health operators to optimize pursuits for growth across the care continuum. These joint ventures allow health systems to relieve emergency department pressure and increase access to more appropriate settings of care for their patients, and the facilities are often positioned for expansion to allow for capacity growth with the needs of the community.

Systems are looking to grow, diversify revenue streams and gain scale through innovation

Health systems are increasingly looking to investments in both clinical and digital innovation to help bend the cost curve and diversify revenue streams. Health systems are clearly concerned that growth in traditional revenue streams is stagnating and will be unable to outpace expense inflation. In national surveys, innovation is consistently cited as a top strategic focus for health system CEOs7. Nationwide, an example of a digital innovation gaining increasing adoption rates is remote patient monitoring. RPM technology allows caregivers to view regular physiologic parameters to help better manage chronic conditions. Metrics that include CPT codes for new initial set-up of RPM equipment in 2021 indicate growth rates of 39% from 2020 and over 570% from 2019.8

Health systems of all sizes are exploring ways to participate in healthcare innovation through direct investment, private equity funds and commercialization of internal resources. Bon Secours Mercy Health realized a large gain on its investment in Ensemble Health Partners, which it had acquired for $60 million in 2016 before selling 51% to Golden Gate Capital for $1.2 billion in 2019. A recent investment by Berkshire Partners and Warburg Pincus has valued the company at a reported $5 billion valuation.9

OSF Ventures, the investment arm of OSF Healthcare, maintains 28 direct investments (19 of which are still active) and four fund investments. Founded in 2016, OSF Ventures has evaluated over 1,500 potential investment opportunities from tech companies worldwide10. OSF Healthcare also deployed an Office of Innovation Management to help identify and accelerate the commercialization of internally developed tools and resources. This unit has evaluated over 125 concepts, with almost 20 currently progressing through various stages of development and one patent filed in the US, Canada and Europe11.

In light of the need to develop alternative sources of revenue and capitalize on the value health systems offer to emerging healthcare offerings, many health systems are grappling with what exactly is included in innovation, what opportunities should be pursued and what talent and resources are needed. The upside can be very significant and much more alluring than low margin, capital intensive healthcare services. But the resources, culture and appetite for high-risk ventures needed are often very different from those embedded in traditional healthcare.

Regulatory landscape in flux

An executive order in July directed the FTC to review healthcare mergers on the basis that they will not harm quality or increase prices, and an update from the agency in August noted a “tidal wave of merger filings” were straining the agency’s ability to comply with the statutory review deadlines. The previously mentioned Beaumont-Spectrum merger was announced in June 2020, and in September the organizations issued a statement noting they were complying with a second request for information from the FTC despite the legacy systems having no geographic overlap.

As the FTC continues to work through a backlog of merger applications, the agency is issuing letters of non-review to potential merger applications that are nearing the end of the statutory waiting period. The letters note that the Commission’s investigation remains open and ongoing and further states the merging parties consummate the merger at their own risk. The ambiguity in regulatory approvals and the challenges and expenses of a post-closing injunction are expected to slow the pace of announced transactions in the current regulatory environment. Additionally, legislative bodies in several states are enacting legislation relating to hospital merger oversight.

As FTC scrutiny on consolidation has expanded its view of anti-competitive market consolidation from “two-to-one” to now to routinely challenge “three-to-two” consolidations, systems considering mergers in these conditions are increasingly looking to state legislation to enable their transactions. Recent legislation in Indiana enables a state-COPA process to avoid federal review and legislation in Michigan reinterprets previous statute to eliminate the need for a public vote for a merger involving a former health authority-owned hospital.

The heightened scrutiny is not only impacting the outcome of transactions, such as recent abandoned mergers like that between Care New England and Lifespan or Hackensack Meridan and Englewood Health, but also how health systems are approaching M&A, and this greater caution is also contributing to the slowdown in activity. In Columbia, SC, regulators stopped Prisma Health’s in-market acquisition of three LifePoint hospitals, necessitating a very deliberate reexamination of the market before entering into a sale agreement with Charleston-based MUSC.


In conclusion, while each of these themes are contributing to the slowdown in hospital M&A activity, and their convergence has accelerated the downturn, understanding these drivers themselves is critical to assessing the expectations for how we think about hospital consolidation moving forward. Also, as we emerge from the latest COVID wave and the financial trajectory of healthcare becomes clearer, the focus on consolidation may return as the traditional industry pressures return to focus, including the threat of the overall cost of healthcare, reimbursement pressure from all payors, disruption from private equity and new market entrants and low-to-flat growth rates in traditional services.


1Denver Post, SCL Health, “Intermountain promise lower costs and better quality, but most hospital mergers haven’t helped patients.” April 12, 2022

2Letter to the Community: Our Shared Vision: Health Care By Michigan, For Michigan. June 17, 2021.

3Atrium Health website, “Advocate Aurora Health and Atrium Health to Combine”, frequently asked questions and press release dated May 12, 2022

4Moody’s Sector Profile– Margins at the smallest hospitals inched ahead of the largest. September 9, 2021

5Genesis Press Release, GHS Explores Potential Partnership Opportunities. December 1, 2021

6Definitive Healthcare, ClaimsMX data

7Deloitte Insights, Trends in health tech investments: Funding the Future of Health

8Definitive Healthcare, ClaimsMX data

9BizJournals, “Months after suspending IPO, Greater Cincinnati company acquired in blockbuster deal.” March 28, 2022

10OSF Healthcare, OSF Ventures. Retrieved April 2022

11OSF Healthcare. Retrieved April 2022