Hospital M&A climbs as rural, outpatient shifts reshape care strategies

Editor's Note

Hospital mergers and acquisitions saw a slight increase in Q2 2025, but broader shifts in healthcare affiliations and delivery models continue to gather momentum, according to a July 10 Kaufman Hall analysis of M&A activity for the second quarter of 2025.

The report recorded eight hospital and health system transactions in Q2, up from five in Q1 but still below recent historical averages. Half of the transactions involved divestitures, “part of a market realignment process for large regional and national health systems—both for-profit and not-for-profit—that has been going on, and recently accelerating, over the past several years,” the outlet reports.  With no mega-mergers—defined as those involving sellers with annual revenue over $1 billion—the average seller size was $175 million, and total transacted revenue reached $1.4 billion. All acquirers were not-for-profit organizations; three were religiously affiliated, and one was government-owned. Among the acquired entities, two were for-profit, while three were religiously affiliated and two government-owned.

In Q1, Kaufman Hall reportedly linked the slow M&A pace in early 2025 to economic volatility and policy uncertainty. As detailed in the report, this uncertainty began to lift with the passage of the One Big Beautiful Bill Act on July 4, which will cut an estimated $1 trillion in healthcare spending over the next decade. The legislation includes nearly $665 billion in reduced Medicaid payments to hospitals—a projected 18.2% decrease—and could leave 8.7 million fewer people covered by Medicaid. The analysis suggests this new policy environment could prompt some hospitals to pursue partnerships in response to financial pressure, while others may adopt a more cautious approach.

Rural hospitals, many of which rely heavily on Medicaid, may be especially vulnerable. Kaufman Hall’s May 2025 National Hospital Flash Report found a 12.3% year-over-year decline in operating margins for hospitals with 25 or fewer beds. Since 2005, the UNC Sheps Center reports 196 rural hospital closures or conversions.

While up to 1,500 facilities may qualify for Rural Emergency Hospital (REH) status, only 41 had converted as of July 1, 2025. However, recent developments indicate renewed interest in the REH model. For example, the report cites North Carolina’ ECU Health, which has proposed reopening the closed Martin General Hospital as an REH. Other examples of the program gaining traction include Georgia’s Randolph County Hospital and Tennessee’s Jellico Regional Hospital.

Outpatient-focused transactions continue to gain prominence, Kaufman Hall reports. Though not counted in the outlet’s Q2 transaction total, Ascension’s acquisition of AMSURG added more than 250 ambulatory surgery centers (ASCs) across 34 states to its network, reflecting a strategic pivot toward non-acute care. Cleveland Clinic also announced a partnership with Regent Surgical, which operates ASCs in 13 states.

Looking ahead, Kaufman Hall expects hospital M&A activity to gradually pick up as health systems respond to the implications of new federal policies. More broadly, the firm notes strong momentum behind affiliations and partnerships aimed at expanding access, lowering costs, and shifting more services to outpatient settings across both rural and urban markets.