Hospital dealmaking reached a six-year high during the opening months of 2026.
Per healthcare advisory firm Kaufman Hall, the first quarter saw 22 merger and acquisition transaction announcements, the most seen within the sector since early 2020.
Those deals combined for $14.5 billion in transacted revenue (annual revenue of a deal’s smaller party), which is the most logged by the firm since it began tracking hospital deals in 2018.
Average annual revenue of the smaller party was $657 million, the second-highest since 2018 and boosted by a trio of mega mergers including, the proposed deal between Sutter Health ($20 billion in revenue) and Allina Health ($6 billion in revenue).
The firm said the quarter’s activity cements the rebound in hospital transactions since policy and market-related upheavals brought a near-freeze on dealmaking in the first half of 2026. Activity has been steadily increasing since Q3 2025.
The deals themselves also reflect a continuation of the strategic thinking that dominated those recent quarters. Portfolio rationalization, or systems selling off assets in less desirable or fleshed-out markets, continued with more than two-thirds of the announced deals involving a divestiture. For-profit and large Catholic systems have participated in the selloffs, though Kaufman Hall also noted a new uptick in for-profit systems acting as purchasers—six during the quarter, as opposed to just one across all of 2025.
“At the same time, divestitures by large and national health systems have created opportunities for regional health systems to build scale and increase strategic investment within their geographies,” the report reads.
Efforts to get ahead of healthcare cuts beginning in 2027 due to the One Big Beautiful Bill Act have also spurred activity among independent health systems. These organizations may be relatively well-positioned, but are now proactively seeking strategic partnerships with larger systems to strengthen access to care, services and specialists, the firm said.
“This quarter’s trends reflect an industry undergoing transformation,” Kris Blohm, managing director and co-leader of Kaufman Hall’s M&A practice, said in a statement. “Health systems are repositioning by withdrawing from underperforming or non-core markets, building capital to invest in new capabilities, proactively seeking partners to increase resilience or enhance access to care and services, and placing big bets on new combinations of resources and capabilities.”
Hospitals face tight margins, diluted volumes in February
Kaufman Hall’s latest monthly benchmark of hospitals’ operating performance outlines the tightrope organizations are walking in 2026. Following a start-of-the-year stumble, February data for over 1,300 hospitals (including health system allocations for the cost of shared services) paints a picture of persistent cost and revenue pressure hampered by uneven volumes.
The firm’s calendar year-to-date operating margin index was 1.9% (including health system allocations for the cost of shared services), well below the 3.7% with which the sector closed out 2025. On a monthly basis, the operating margin index was 2.1% in February, up from January’s 1.0%.
Revenues and expenses were both up from January, though the latter has grown faster when looking at changes from early 2025.
February’s daily net operating revenue, for instance, increased 5% month over month and 4% from the prior year, whereas total daily expense rose 5% from January but 6% from the prior year.
Outpatient revenue saw particular gains, as did non-labor expenses like supplies and purchased services. On a per adjusted discharge basis, net patient service revenue was flat from the prior month and rose 3% from February 2025, whereas total expense rose 1% month over month and 3% from the prior year.
The report noted that hospital revenues “are pressured by an eroding payer mix and remain below sustainable levels.” Bad debt and charity metrics also continue to rise.
Volume metrics again brought some modest improvements from January, while outlining a bigger picture issue for hospitals. Year over year, discharges were 2% lower, adjusted discharges 2% higher, adjusted patient days 1% lower, average length of stay 4% lower and ED visits 5% lower.
“Hospitals are off to a relatively soft start in 2026,” Erik Swanson, managing director and leader of the Data and Analytics Group at Kaufman Hall, said in a statement. “Outpatient care strategies offer a potential path forward, though hospitals must manage both revenue dilution and a greater concentration of high-acuity patients as a result.”