The healthcare sector is experiencing a significant slowdown in hospital mergers and acquisitions (M&A) activity in 2025, according to the latest report from Kaufman Hall. The first quarter of the year saw only five M&A transactions involving hospitals, a stark contrast to the 20 and 15 transactions recorded during the same periods in 2024 and 2023, respectively. This downturn can be largely attributed to the economic ambiguity stemming from the Trump administration’s new policies, which have left many healthcare institutions hesitant to make strategic decisions.

However, there appears to be a slight uptick in M&A activity in the second quarter, with eight transactions announced. Despite the increased number of deals, the average size of the sellers remains relatively modest at $175 million. This is a significant drop from the second quarter of last year, where the average seller size was $984 million. Notably, around half of the transactions in the recent quarter involved divestitures, particularly among smaller facilities, and there were no so-called mega mergers — transactions in which the smaller party has annual revenues exceeding $1 billion — in the first half of the year.

In total, the second quarter of 2025 yielded a mere $1.4 billion in total transacted revenue, a dramatic decrease from the $10.8 billion reported in the same period the previous year. This downturn underscores the impact of economic uncertainty and pending healthcare policy changes on hospital decision-making and strategic growth.

While the M&A slowdown has created challenges, it may also pave the way for an increase in activity during the latter half of 2025. The recent passage of the One Big Beautiful Bill Act, encompassing roughly $1 trillion in healthcare cuts, has introduced an element of clarity, albeit along with tougher financial realities. With anticipated Medicaid spending reductions of $665 billion and an expected decrease in coverage impacting approximately 8.7 million individuals, hospitals are now more acutely aware of their financial situations.

As the report from Kaufman Hall notes, this environment may lead to an intriguing dichotomy in M&A activity: some health systems will seek partnerships to navigate new financial challenges, while others, particularly those with robust resources, might adopt a more measured approach. Rural hospitals, in particular, could be at significant risk as they heavily rely on Medicaid funding. Over the past decade, nearly 100 rural hospitals have closed, and margins for small rural hospitals have dropped by 12.3% year-over-year.

In light of these challenges, the Rural Emergency Hospital (REH) model introduced by CMS in 2023 may gain traction as a viable solution for maintaining access to essential care in underserved areas. This model allows hospitals to transition away from inpatient services to focus on emergency and outpatient care in exchange for enhanced Medicare reimbursement rates and financial support for sustainability. Currently, only 41 hospitals have made this transition, but recent announcements—such as ECU Health’s plan to reopen a closed hospital in North Carolina and similar intentions from Jellico Regional Hospital in Tennessee and Randolph County Hospital in Georgia—signal growing interest in the REH model.

Larger health systems are characteristically pivoting their focus toward outpatient care as well. Organizations like Ascension and Cleveland Clinic are heavily investing in ambulatory surgery centers, reflecting a broader trend aimed at reducing costs and improving patient access to lower-cost outpatient services. Ascension’s acquisition of Amsurg and Cleveland Clinic’s new partnership with Regent Surgical encapsulate this shift in strategy.