Last year, we described 2017 as “the year M&A shook the healthcare landscape.” These tremors continued into 2018 and are beginning to fundamentally reshape the healthcare landscape.

• The size of transacting parties continues to grow. The average size in revenue of sellers (defined as the smaller of two organizations in a transaction) has grown at a compound annual growth rate (CAGR) of 13.8 percent since 2008, reaching $409 million in 2018. This is the highest figure seen since Kaufman Hall began tracking this metric in 2008.
  
• The big are getting bigger. Seven transactions announced in 2018 involved sellers with net revenues of $1 billion or greater.
  
• The percentage of announced transactions involving financially distressed sellers continues to decline, down to 20 percent in 2018 from 21 percent in 2017.
  
• Not-for-profit systems remain active as acquirers.  A not-for-profit system was the acquirer in 75 percent of transactions in 2018, tracking closely with the numbers from 2015 and 2016 (75 percent) and 2017 (76 percent). In 23 percent of deals, a not-for-profit acquired a for-profit, up from 16 percent in 2017.
  
• Consolidation in some states is moving faster than in others. Texas, with eight deals, saw the most transactions in 2018, followed by Florida (seven deals), Pennsylvania (six deals), and Louisiana and Tennessee (five deals each) .
  
• Texas and Florida led the way in terms of transacted revenue for announced deals in 2018. But distribution of revenue across deals differed significantly between the states. Transacted revenue in Texas is anchored largely by Baylor, Scott & White Health and Memorial Hermann Health System's planned merger. In Florida, transacted revenue is more evenly distributed across several deals, including those involving Boca Raton Regional Hospital, Martin Health System, and Health First.
  
• Sixteen states saw no announced transactions in 2018. These include states that in recent years have seen relatively high volumes of transactions (for example, Kentucky, with five transactions in 2017) or large deals (for example, Massachusetts, with one deal representing $5 billion in combined revenue announced in 2017).
  

These figures point to a continued focus on strategic over opportunistic growth. Health system leaders are seeking to acquire organizations that bring embedded expertise and resources to the deal, making these transactions more of a strategic partnership than an asset acquisition. Health systems that have developed strong operational or clinical capabilities are looking beyond their home markets to bring their expertise to systems that have built a strong presence in another market. At the same time, new combinations across healthcare verticals and new market entrants are creating competitors that dwarf the scale of even the largest health systems. The forces that are reshaping the industry affect not-for-profit and for-profit health systems alike, and are causing not-for-profit and for-profit strategies to converge.

In the remainder of this report, we look behind the numbers at trends that are reshaping the healthcare landscape and offer our perspectives on the implications of these trends for hospital and health system strategies. The four trends discussed in this report include: