Hospital and health system mergers and acquisitions picked up steam in the first quarter of 2026. The 22 announced transactions exceeded first-quarter results for the past five years, according to a new report from the consulting firm KaufmanHall.
"With three 'mega mergers' (transactions in which the smaller party has annual revenue in excess of $1 billion) among the 22 announced transactions, both average size of the smaller party and total transacted revenue for the quarter also rebounded," the report said. "The first quarter's $14.5 billion in transacted revenue was the highest Q1 figure we have seen in recent years."
The report listed three highlights for the quarter:
Continued portfolio rationalization. More than two-thirds of the announced transactions involved a divestiture, compared with 46% in all of 2026. Factors that can drive divestitures include underperforming markets, inadequate market scale, inability to execute on strategic initiatives or the need to redirect resources for investment in other core markets or new system initiatives. 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.
Positioning for the future. The high percentage of divestitures also indicates proactive positioning for the future as systems seek to improve financial performance and balance sheet strength in advance of the anticipated impacts of the One Big Beautiful Bill. Another indicator of this proactive positioning is the continued movement of well-positioned independent health systems into strategic partnerships with larger systems. Some of the most significant examples of independent health systems seeking partners involved systems of varying sizes that are operating from a position of current strength.
The return of cross-market mergers. The biggest transaction announced in the first quarter was the planned merger of California-based Sutter Health and Minnesota-based Allina Health, which would create a system generating approximately $26 billion in annual revenue. Under the plan, Allina would form the upper Midwest division of Sutter Health but would maintain the Allina Health name and brand, and a regional headquarters based in Minneapolis.
"We first called out cross-market transactions as a significant trend in our 2022 year-end report, when the merger of Advocate-Aurora Health and Atrium Health, along with several smaller cross-market transactions, were announced," the report said. "Will the Sutter/Allina transaction reignite a cross-market merger trend in which well-capitalized, geographically dispersed health systems come together?"
First-quarter trends reflect an industry undergoing transformation. 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.
"A return to more robust levels of dealmaking is a sign that organizations remain well aware of the need to seek combinations and partnerships to face the challenges and opportunities that lie ahead," the report concluded.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.