Hospital Divestitures Increased Dramatically in 2024: Kaufman Hall
A new report from the Chicago-based consulting and advisory firm Kaufman Hall, a Vizient company, is highlighting the significant financial pressures that hospitals and health systems are facing nationwide, as last year saw a record number of hospital divestitures, as hospitals and health systems were forced to sell off assets, as they entered into mergers and acquisitions.
As managing director Anu Singh wrote in a commentary posted to the company’s website on Jan. 9, “At the surface, 2024 appeared to be a year of industry stabilization. Operating margins showed sustained improvement, and all three rating agencies issued stable or neutral outlooks for not-for-profit hospitals and health systems in 2025 (Moody’s Ratings adjusted its outlook from negative to stable at the end of 2023, and Fitch and S&P Global Ratings made similar adjustments at the end of 2024). It was not necessary to dig too deeply, however, to find signs of ongoing distress below the surface. The title of S&P’s 2025 outlook noted that the industry was ‘stable but shaky for many amid uneven recovery.’ Moody’s reported that although the industry outlook is stable, with a median operating cash flow margin approaching 7 percent, ‘the pace of margin improvement is slowing, and not all hospitals have reached this level of profitability.’ Fitch described an ongoing trend of what it describes as a ‘trifurcation’ in credit quality, with a small percentage of rated organizations doing well, the largest percentage showing mixed results, and the remaining portion continuing to struggle.”
Very significantly, Singh wrote, “The numbers from hospital and health system M&A activity in 2024 confirm the unevenness of recovery and the challenges that many organizations continue to face. The percentage of 2024 announced transactions involving a financially distressed party hit a record high.” And, very significantly, “45 of the 72 announced transactions in 2024 (62.5 percent) involved a divestiture (i.e., a health system or governmental entity selling off a portion of its assets), the highest percentage the industry has experienced and more than double the percentage recorded in 2023. The percentage of announced transactions in which the smaller party had a credit rating of A- or higher plunged, reaching an all-time low.”
Meanwhile, to add further context, Singh noted in his report that, “In most years, approximately 30-40 percent of announced transactions involve a divestiture; in 2023, for example, that percentage was 31.1 percent. The percentage skyrocketed in 2024, reaching 62.5 percent and breaking the recent record of 56.2 percent seen in 2020.
The full report is available here.
