Overall Assessment
So, what is the 30,000-foot view of the overall health of the hospital industry in 2025? Well, according to Kaufmann Hall (KH)—a leading financial advisory firm within the healthcare sector—financial distress was a recurrent theme of the 2025 hospital and health system story. In a January report, they noted that all three rating agencies (Moody’s, Fitch and S&P) had issued stable or neutral outlooks for not-for-profit hospitals and health systems in 2025 (and have maintained those outlooks for 2026). However, “financial distress continued to be a persistent driver of transaction activity throughout the year, with the percentage of transactions involving a financially distressed party hitting a new record high of 43.5%,” according to KH researchers.
It is felt by some that uncertainty in the market, due to a number of government-related measures, led to a significant cooling of M&A activity in the first half of 2025, with the number of announced transactions in Q1 and Q2 reaching record lows. Activity began to rebound in Q3 and Q4 but not enough to salvage what would turn out to be overall listless year. There was a total of 46 M&A transactions, representing a low going back at least 15 years. The activity that did occur involved moves in ambulatory care, behavioral health and laboratory services through acquisitions, divestitures and partnerships.
Specific Metrics
In order to better describe the year that was—at least in terms of hospital industry M&A—it might be good at this point to take a deeper dive into the numbers. The below list of numerical notes comes from the KH report:
- Transaction activity grew in Q4 2025, with 17 announced transactions, including four “mega mergers” (transactions in which the annual revenue of the smaller party exceeds $1 billion). Following a subdued first half of the year, this activity level suggests that M&A activity is beginning to return to levels more consistent with recent historical averages.
- Financial distress persisted—and even intensified—as a driver of transactions in 2025, with the percentage of transactions involving a financially distressed party reaching a new high of 43.5%. Financial distress was also reflected in the percentage of announced transactions in which the smaller party had a credit rating of A- or higher. That percentage fell from 12.3% in 2023, to 2.8% in 2024 and to 2.2% in 2025.
- The size of the seller in financially distressed transactions remained high, at $345 million. While slightly below last year’s figure of $401 million, this year’s figure is still high compared to recent historical averages and suggests that financial distress is affecting not only community hospitals, but also mid-sized and large health systems.
- The low number of transactions, combined with a continuing decrease in the size of the smaller party since 2022, resulted in the lowest figure for total transacted revenue—$18.5 billion—in recent history. More than half of that figure, $9.8 billion, came from Q4 transactions.
- For-profit organizations were the seller in 11 transactions in 2025 but were the acquirer in only one transaction. This is a signal of the financial challenges facing hospitals in the current environment and illustrates a shift in for-profit entities’ investments to other healthcare services sub-sectors or an exit in general.
Surveying the Future
So, where does all this leave us as it concerns 2026? Well, according to the researchers at KH, there are a few trends we are likely to see in this new year. First, the trend of seeing transactions involving financially distressed organizations is likely to continue into 2026. Second, there is the involvement of local states in the M&A process. State governments played an increasingly active role in hospital and health system transactions in 2025, reflecting a growing “soft landing” approach in which public-sector priorities play a central role in shaping transaction outcomes. Third, KH expects to see an increase in health systems partnering with non-acute and capability-based entities (e.g., labs). And, fourth, divestiture of non-core assets among larger health systems is expected to continue in 2026.
It will behoove hospital and health system decision-makers to consider these recent trends and future takes as they continue to strategize for the coming year. For the full KH report—complete with helpful graphs and charts—you click on the following link: Hospital and health system M&A in review - Uncertainty transitions to continued momentum in 2025 | Kaufman Hall.