As financial pressures mount and competition intensifies, hospitals and health systems are increasingly pursuing mergers and acquisitions to diversify their portfolios, strengthen bargaining power and pursue economies of scale.
From rural communities to major metropolitan areas, hospital consolidation is expected to gather momentum in the coming quarters. Yet as consolidation accelerates, so too does the debate over its effects on pricing, competition and patient outcomes.
Here are 50 things to know about hospital consolidation and what it means for the future of healthcare:
1. Hospital mergers and acquisitions have increased steadily over the last two decades, and at an accelerated pace since 2010. While the COVID-19 pandemic temporarily slowed hospital consolidation, the trend has rebounded this year and is expected to continue to gather momentum.
2. Consolidation can occur vertically (hospitals acquiring outpatient clinics, pharmacies, provider groups) or horizontally (hospital systems merging with other hospitals).
3. Rising healthcare costs, reimbursement cuts and the continued shift to value-based care are driving hospitals to consolidate.
4. Hospitals and health systems need to grow to stay healthy, but there is a shrinking field of independent providers to join them.
5. Many health systems are expanding into new geographic areas to diversify their portfolios, strengthen bargaining power with payers and vendors and pursue further economies of scale.
6. The Federal Trade Commission also has challenged several recent in-market hospital deals, which is driving health systems to increasingly look outside their traditional service areas to expand.
7. Three recent examples of health systems pursuing out-of-market hospital acquisitions:
- Kansas City-based University of Kansas Health System acquired Liberty Hospital, its first hospital in Missouri, in July. Notably, 35% of KU Health's patients come from Missouri, making it "a perfect opportunity to partner with another independent hospital in a prime area for our health system," Bob Page, president and CEO of the system, told Becker's.
- Dalton, Ga.-based Vitruvian Health, formerly Hamilton Health Care System, acquired Tennova Healthcare-Cleveland (Tenn.) from Franklin, Tenn.-based Community Health Systems in August. Vitruvian purchased the 351-bed for $160 million, marking its entry into the Tennessee hospital market.
- Greenville, S.C.-based Prisma Health, an 18-hospital system, plans to enter Tennessee by acquiring Blount Memorial Hospital, a 304-bed community hospital in Maryville, Tenn. "Expanding to desirable nearby markets with respected regional hospitals like Blount Memorial strengthens our scale, capabilities, relevance, resources, and attractiveness to top talent and industry partners," Prisma President and CEO Mark O'Halla said.
8. The hottest market for hospital consolidation is Pennsylvania, which has seen more M&A activity than any other state in 2024.
9. One of the most significant transactions that was completed in Pennsylvania this year was Philadelphia-based Jefferson Health's combination with Allentown, Pa.-based Lehigh Valley Health Network. The merger closed Aug. 1 and created one of the 15 largest nonprofit health systems in the U.S., with 32 hospitals and more than 700 sites of care.
10. With regulators increasingly clamping down on proposed transactions in similar geographic regions (in-market deals), cross-market deals are likely to be at the helm of future healthcare M&A.
11. Cross-market mergers and acquisitions are also becoming more prominent as healthcare moves towards a multi-region model.
12. Cross-market mergers are between health systems that operate in separate geographic areas and do not eliminate competition to attract patients since the systems provide services to distinct patient populations.
13. However, these types of transactions can lead to competitive effects when the merging systems have common payer and employer customers and are competing to be in the same payer and employer networks.
14. Cross-market deals spread combined organizations' operating risks across multiple markets while also expanding access to an academic medical center or widening the opportunity to experiment with innovative approaches because of more diverse markets resulting.
15. Health system mergers appear to be increasingly driven by leverage with commercial payers, rather than significant cost savings or increasing market share.
16. St. Louis-based BJC HealthCare and Kansas City, Mo.-based Saint Luke's Health System merged into a 28-hospital system in January. The transaction was not about reducing costs — since the two systems have been part of a buying collective for a decade — and not about a rapid gain in market share, since St. Luke's and BJC will largely stick to their respective areas, Charlie Shields, CEO of Kansas City, Mo.-based University Health, told the Kansas City Business Journal. Instead, he argues, the merger, and similar ones like it, aims to leverage a better seat at the table when negotiating care rates with payers.
17. Regional and cross-market mergers are more prevalent for health systems that want to expand but face few opportunities in their already crowded markets, according to a recent study by KFF.
18. The latest example of this trend is Marshfield (Wis.) Clinic Health System's proposed merger with Sioux Falls, S.D.-based Sanford Health. The transaction would create a 56-hospital system across six states: South Dakota, North Dakota, Wisconsin, Michigan, Minnesota and Iowa.
19. A combined Sanford and Marshfield would be slightly smaller in size to Advocate Health, a 69-hospital system formed by the combination of Charlotte, N.C.-based Atrium Health and Advocate Aurora, dually headquartered in Milwaukee and Downers Grove, Ill.
20. The $27 billion Atrium–Advocate Aurora merger was completed in December 2022 and created the third-largest nonprofit health system in the U.S.
21. An emerging trend is likely to take flight in the coming years as health systems begin to consider geographically noncontiguous transactions.
22. Risant Health, part of Oakland, Calif.-based Kaiser Permanente, is leading the charge here after acquiring Danville, Pa.-based Geisinger Health in April. It also plans to acquire Greensboro, N.C.-based Cone Health.
23. Risant, which is headquartered in Washington, D.C., aims to acquire four or five more health systems and get to a total revenue of $30 billion to $35 billion over the next five years.
24. Competing with disruptors was part of the reason for launching Risant Health, according to Greg Adams, chair and CEO of Kaiser Permanente.
"As healthcare emerges from the worst effects of the pandemic, we are not seeing sufficient movement toward coming together, but rather a resumption of the pre-pandemic business trends of consolidation, volume-driven care and a worsening of the fragmentation and gaps in our healthcare system," Mr. Adams told Becker's. "While some new players share our vision of integrated value-based care for all, we see other new and disruptive market entrants whose business models seem aimed at serving just the healthiest people, which increases fragmentation and ultimately increases the cost of care for everyone."
25. The trend to merge two or more systems either in the same region or in different markets opens up many more opportunities for consolidation.
26. But a growing number of markets are now dominated by a few large health systems, limiting competition.
27. As cross-market mergers become more common, so does the debate around their benefits to organizations and patients.
28. Critics argue that consolidation increases hospital pricing power, leading to higher healthcare costs for patients and insurers.
29. Large-scale hospital consolidation may lead to regional monopolies, where one system dominates a market — particularly in rural or underserved areas. This could lead to reduced access to care in these regions and the closures of smaller hospitals.
30. Multiple studies have shown that hospital mergers have led to higher prices for commercially insured patients, but research about effects on care quality is limited.
31. An analysis of 1,164 mergers among the country's 5,000 acute-care hospitals between 2000 and 2020 found that those transactions increased healthcare prices by 5.2%. The study, published in American Economic Review: Insights, found that 90% of hospital markets are highly concentrated.
32. The study demonstrates that hospital consolidation can decrease competition and drive up healthcare costs for patients, limit provider choice and reduce care quality. Health systems may need to consider ways to maintain competition and patient choice, even as they merge.
33. Mergers often result in the elimination of redundant or underperforming services at smaller hospitals, which can limit access to specialized care — especially in rural or underserved areas.
34. Consolidation frequently leads to layoffs, particularly in administrative and nonclinical roles, as organizations seek to cut costs by reducing duplicative positions and departments.
35. Independent, community-based hospitals are disappearing as they are acquired by larger systems. This can diminish the personal, local focus these facilities provide, and potentially reduce community involvement in healthcare decision-making.
36. Consolidation can also lead to the closure of smaller hospitals or the centralization of services in larger, urban centers, forcing patients — especially in rural areas — to travel longer distances to receive care.
37. Those in favor of hospital consolidation argue that it can also maintain access to care by keeping financially distressed hospitals open.
38. For rural hospitals at risk of closure, merging with a larger system can provide the financial backing necessary to remain operational and continue serving local communities.
39. Larger systems can afford to invest in advanced technologies, such as EHR systems, artificial intelligence tools and data analytics, improving patient care and operational efficiency.
40. With a larger network of facilities and specialists, consolidated systems can offer better care coordination across the continuum, reducing gaps in patient care.
41. Mergers often result in more robust workforce development programs, offering employees better career advancement opportunities and more extensive training.
42. Larger health systems are generally more resilient to changes in healthcare regulations and policies, ensuring they can adapt more effectively than smaller, independent hospitals.
43. The FTC and Justice Department's antitrust division has increased their scrutiny of healthcare transactions, including ramping up its post-merger investigations and looking into attempts to illegally monopolize healthcare markets.
44. The FTC argues that if one large health system was to gain a major market share or essentially have a monopoly in a certain market, that could significantly reduce competition among other providers in the area and lead to increased costs and reduced access to care in a particular market.
45. Between 2000 and 2020, the FTC challenged only 13 hospital transactions — an enforcement rate of about 1%.
46. Since 2020, under the leadership of Chair Lina Khan, the FTC challenged and prevented several health system transactions from closing, including deals involving:
- John Muir Health and Tenet Healthcare
- Steward Health Care and HCA Healthcare
- RWJBarnabas Health and Saint Peter's Healthcare System
- Hackensack Meridian Health and Englewood Health
- Care New England and Lifespan
- Crouse Health System and State University of New York Upstate Medical University
47. The FTC has yet to interfere with any cross-market mergers, although recent movement from the agency suggests that is open to change.
48. The American Hospital Association expects academic research on cross-market mergers will continue to grow. While the FTC has not yet formally challenged a cross-market hospital merger in court, it has raised questions about such models in its investigations — a line of inquiry the AHA believes will persist.
49. The outcome of the presidential election could significantly influence how the FTC evaluates health system M&As. Under Democratic administrations, the FTC typically takes a stricter stance on M&A, focusing on concerns around market consolidation, increased prices and reduced competition. Under the current FTC leadership, at least seven major healthcare deals have been blocked.
50. A second Trump administration could take a more permissive view toward major mergers and acquisitions. The administration approved CVS Health's $69 billion acquisition of Aetna in 2018. A Republican administration may favor a more lenient regulatory approach, emphasizing market freedom and potentially easing some of the current restrictions. This could mean a higher likelihood of approval for health system mergers, especially if they can demonstrate potential benefits such as operational efficiency, expanded access to care and improved health outcomes for patients.