Hospitals Services Margin game vs Inflation, M&A small Rebound

Good morning, ! This week we’re diving into the general inflation vs healthcare costs conundrum, the M&A landscape selective rebound, the number of employees in California healthcare and the White House bet on AI.

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DATA DIVE

Margin Magic: Hospitals’ Inflation vs. Reality

Hospitals Inflation has skyrocketed—up 58.5% more than general inflation since 2004—but that’s only half the story. A growing 75.6% margin gap between revenue and cost inflation means hospitals are pulling off the rare trick of higher prices without proportional cost pain. Think: pricing power, volume recovery, and federal cushioning post-COVID. But here’s the kicker: while hospital CFOs flex their spreadsheets, patient wallets are getting crushed—60%+ of Americans fear unexpected medical bills. It's a financial success story, yes, but also a trust liability waiting to detonate.

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TREND OF THE WEEK

M&A Rebounds... But Only Selectively

After a brutal dip in H2 2024 ($88B), health industries deal value bounced to $104B in H1 2025 — but don’t call it a comeback.
Global M&A volumes dropped 22% YoY, and values slid 25%, dragged down by shrinking deal size in pharma and life sciences (values down 33% despite a modest 19% drop in volume).

Meanwhile, healthcare services quietly flipped the script: volume down 25%, but deal value surged 50%, driven by a growing cluster of $1B+ transactions re-entering the market.

Also notable: no billion-dollar deals were announced in H1 2024 — a statistical anomaly now reversed across the last two halves.

Regional power shift: The Americas lost share, while EMEA picked up momentum.

Bottom line? M&A isn’t dead. It’s just pickier, pricier — and finally showing signs of life. (More)

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MARKET MOVERS

HEALTHTECH CORNER

White House Bets Big on AI—and Healthcare is on Notice

The Trump administration's newly unveiled AI Action Plan is deregulation-first—and healthcare may be one of its biggest test beds. While the 28-page document barely mentions healthcare directly, the implications are clear: regulatory sandboxes, open-source incentives, and a national AI productivity push are squarely aimed at industries slow to adopt.

Healthcare, called out for its “distrust” and “complex regulatory landscape,” is a top target. The plan calls for AI Centers of Excellence within federal agencies and commits NIST to developing domain-specific standards—healthcare included. This move could accelerate FDA-cleared models and nudge health systems toward a more permissive, try-first culture.

Why it matters: For investors, this is a directional signal. Expect AI-native startups to benefit from looser federal friction, and for incumbents to face pressure on speed and standards. If implemented, this could erode traditional moats around clinical validation and compliance—and reward agility over pedigree.

Bottom line: Deregulation isn’t subtle. AI in healthcare is no longer just an innovation story—it’s becoming an infrastructure bet. Ignore at your own risk. (More)

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DEAL OF THE WEEK

Waystar Goes Deeper Into the Revenue Cycle 

Waystar is acquiring Iodine Software for $1.25B, a move that extends its AI dominance from payment automation into clinical intelligence.

With IodineIQ’s proprietary AI engine, trained on a third of all U.S. inpatient discharges, Waystar is doubling down on the painful gap between care delivery and billing—a stage responsible for $440B in admin costs and millions of denied claims.

This deal not only expands Waystar’s total addressable market by 15%, it also strengthens margins, deepens provider ties, and boosts cross-sell potential across top health systems.

If healthcare payments are the bloodstream, Waystar just bought a brain to make it smarter. (More)

REGIONAL FOCUS

Golden State, Golden Paychecks? Depends on Who You Ask

Hospital employment in California has surged past 435,000, but behind the record job growth is a high-stakes wage shake-up. While RNs pull in ~$124K (the highest nationally), adjusted pay drops to ~$106.5K after factoring in the state’s sky-high living costs. Support staff, meanwhile, average $18.50–$26.50/hour—until SB 525 kicks in this October. The new law phases in a $25/hour healthcare minimum wage, impacting 426,000+ workers with first-year raises averaging $6,400. With sharp increases in both employment and policy attention, California is betting big that wage equity will shore up a workforce strained by burnout and turnover. (More)

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