Following the launch of General Atlantic and Hospital for Special Surgery’s new platform focused on ambulatory surgery centers, we examined where health systems have been directing their attention in the M&A market. The chart above shows how, from Q3:24 to Q3:25, health systems were much more aggressive in their push into alternative healthcare sectors outside of Hospitals, with 58% of their acquisitions in Q3 focused on non-hospital healthcare entities. The data doesn’t weigh the impact of the outpatient networks usually involved in health system mergers, but we thought this chart gives a clear visual to show the direction health systems are going in their M&A strategies.
There were 48 Hospital deals (including health system mergers) announced since the third quarter of 2024, but nearly as many deals focused on Physician Medical Groups (47). Orthopaedic practices are the most popular targets for health systems, and there’s good reason for that. According to a 2020 survey by Merritt Hawkins, orthopaedic surgeons generate an average revenue of $3.29 million, and with demographic tailwinds, that revenue stream is likely to remain stable for years to come.
Health systems are also entering the behavioral health market, likely to decongest emergency departments by delegating patients with behavioral health issues to these lower-cost settings. There’s also an abundance of evidence that shows blending mental health care with clinical care leads to improved patient outcomes, one of the central tenets of value-based care.
We’re seeing this trend play out in deals like Iredell Health System‘s acquisition of Davis Regional Psychiatric Hospital, or The Queen’s Health System‘s purchase of Kahi Mohala, Hawaii’s only free-standing, nonprofit psychiatric hospital, specializing in behavioral health care for the people of Hawaii and throughout the Pacific Rim area.
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