Merger and acquisition activity among hospitals and health systems increased in the second quarter of 2023 — there were 20 deals in Q2 compared to 15 deals in Q1, according to a new report published by Kaufman Hall.
This surge brought Q2’s M&A activity levels in line with those observed before the pandemic. Q2’s 20 deal marks the highest number of announced transactions for hospitals and health systems since Q1 of 2020.
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Not only did the number of announced transactions rise, but the total revenue generated from these transactions also mirrored pre-pandemic levels. Q2 saw $13.3 billion in total transacted revenue. This has decreased from the very high $19.2 billion total the sector saw in Q2 of last year, but Q2 of 2023 still boasts a higher total deal revenue than those recorded in the second quarter of 2017, 2018, 2019 and 2020, the report showed.
For transactions announced in Q2 of this year, the average size of the smaller party, as measured in annual revenues, was $664 million. This was down from last year’s record-breaking average of $852 million.
This decrease reflects the higher number of transactions in Q2. The higher number of total deals slightly diluted the impact of the three megamergers that were announced, according to the report.
A megamerger refers to a transaction in which the smaller party’s annual revenue exceeds $1 billion. The first megamerger announced in Q2 came on April 11 when Froedtert Health and ThedaCare declared their intent to combine as a single healthcare organization in Wisconsin. The two health systems have teamed up on initiatives in the past to expand care access across the state, the report noted.
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Later on in April, Kaiser Permanente announced its plan to acquire Pennsylvania-based Geisinger Health. This megamerger was part of a bigger plan, though. Geisinger will be the first health system to join Risant Health — a new company Kaiser launched to operate nonprofit health systems.
When the deal was announced, Nathan Ray, partner at consulting firm West Monroe, told MedCity News he thinks that the Kaiser-Geisinger deal could “be a first play in a new mid-tier system consolidation wave.”
The final megamerger announced in Q2 came at the end of May when BJC HealthCare and St. Luke’s Health System said they plan to form an integrated health system in Missouri.
BJC and St. Luke’s have been collaborating on cost-saving measures for years as members of the BJC Collaborative, the report pointed out. The two health systems said that their new union will produce “an even stronger financial foundation,” that will enable them to invest more in staffing, technology and data analytics.
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