Financial distress was present or a factor in 28% of transactions last year, up from 15% in 2022. Overall, there were 65 transactions last year, compared to 53 the previous year, and 16 of the 2023 transactions occurred in the fourth quarter.

“We are seeing an increasing number of larger systems citing financial distress, a change from the historical concentration of distress in smaller hospitals and health systems,” wrote Anu Singh, managing practice leader of partnerships, mergers and acquisitions, in the report. “At the same time, we are seeing the percentage of transactions in which the smaller party has a credit rating of ‘A-‘ or higher holding steady.”

Zeroing in on the fourth quarter transactions, the average annual revenue of the smaller party was $647 million and the total transaction revenue was $10.4 billion.

Hospital financial performance “stabilized” in the last year, according to Kaufman Hall, but the average hospital margin in November was 2%, below the 3% to 4% range nonprofit hospitals consider sustainable, according to the report. Financial pressures are expected to continue over the next 12 months, which will drive even hospitals and health systems to seek creative solutions.

“Many organizations continue to struggle, and the search for partners for these organizations is likely to continue,” wrote Mr. Singh. “These trends underscore the need for organizations to, whenever possible, attempt to work from a position of strength when seeking partnership alternatives before financial distress impacts a hospital or health system’s flexibility.”