Hospital Reform and Healthcare Transactions

Germany's hospital reform at a glance

Germany's hospital reform is the most far-reaching restructuring of inpatient care in decades. The Hospital Care Improvement Act (Krankenhausversorgungsverbesserungsgesetz, KHVVG) of 5 December 2024 introduced service groups (Leistungsgruppen) with quality criteria, a new remuneration component for maintaining capacity (Vorhaltevergütung) and a transformation fund to finance structural change. After the change of government, the Hospital Reform Adjustment Act (Krankenhausreformanpassungsgesetz, KHAG) modified the reform: the Bundestag adopted it on 6 March 2026, and the Bundesrat subsequently allowed it to pass without calling the mediation committee. The goals remain the same: concentration of services, more specialisation and better quality, while securing basic and emergency care in rural areas.

For hospital operators, investors, medical care centres and buyers of healthcare assets, the reform changes the economics of hospitals and creates a wave of mergers, cooperations, closures and conversions. This briefing explains the main elements of the hospital reform and what they mean for healthcare transactions.

Service groups and quality criteria

At the heart of the reform are service groups. Under § 6a of the Hospital Financing Act (Krankenhausfinanzierungsgesetz, KHG), the state authority responsible for hospital planning can assign service groups to an approved hospital for a specific hospital site if the hospital meets the quality criteria relevant for these service groups at that site. The criteria cover personnel, equipment and the availability of related specialties. Only hospitals that have been assigned a service group may provide and bill the corresponding services, and only they receive the capacity-based remuneration for it.

According to the Federal Ministry of Health, the KHAG fixes the service groups at the 60 groups used in North Rhine-Westphalia's hospital plan plus a group for special trauma surgery. Compliance with the nurse staffing minimums applicable at the site becomes a quality criterion for the assignment of all service groups. The federal states receive more room for exceptions and cooperation arrangements, in particular to secure care in rural areas, and specialist hospitals are to be defined uniformly at federal level, with the states enjoying wide discretion until then.

Capacity-based remuneration

The reform reduces the dependence of hospitals on case numbers. Part of the remuneration, previously paid entirely through diagnosis-related groups (DRGs), will be paid as capacity-based remuneration for the service groups assigned to a hospital. The KHAG postpones the introduction of this remuneration by one year, so that it will become fully effective financially only from 2030; the existing supplements for paediatrics and obstetrics continue for an additional year. Hybrid DRGs, which pay the same amount for certain services whether provided on an inpatient or outpatient basis, are intended to promote the shift to outpatient care.

Many observers expect that the capacity-based remuneration will still depend largely on past case volumes, which has been criticised by several federal states. For transaction planning, the key point is that revenue projections for a hospital depend on which service groups it will be assigned and on the transitional rules, which creates uncertainty in valuation.

The transformation fund

To finance the structural change, § 12b KHG establishes a transformation fund at the Federal Office for Social Security for the years 2026 to 2035. According to the current version, the federal government contributes EUR 3.5 billion a year from 2026 to 2029 and EUR 2.5 billion a year from 2030 to 2035; the Federal Ministry of Health explains that the share originally to be borne by statutory health insurance is now financed from the special fund for infrastructure and climate neutrality.

The federal states must co-finance projects, generally with at least half of the respective amount, and each state can apply for funds in proportion to its share under the Königstein key.

The fund supports projects such as the concentration of acute inpatient capacity across sites, the conversion of hospitals into facilities for cross-sectoral care, the formation of networks and the closure of sites. For hospital operators, the fund can make mergers and restructurings financially feasible, but funding decisions depend on the state's planning and application procedures. Transaction documents should therefore address how funding applications are made, what happens if funding is refused or must be repaid, and who bears the related risks.

Hospital reform and healthcare transactions

The hospital reform is driving consolidation. Municipal and non-profit operators merge or cooperate to meet quality criteria, private operators acquire sites or sell those that no longer fit their portfolio, and loss-making hospitals are converted or closed. Typical transaction types include share deals for hospital operating companies, asset deals, often in insolvency, joint ventures between operators and the transfer of individual departments.

Several legal issues require special attention. The hospital's inclusion in the state hospital plan and the assignment of service groups are linked to the operator and site, so the effect of a transaction on these administrative decisions must be clarified with the authority. In asset deals and transfers of departments, § 613a of the Civil Code applies to the transfer of employees, and municipal hospitals often have obligations to supplementary public-sector pension funds that can trigger significant exit payments. For municipal sellers, the sale may have to follow a transparent procedure under public procurement and state aid principles, and approvals from supervisory authorities may be required.

Merger control also plays a role. Under § 187(9) of the Act against Restraints of Competition (GWB), the merger control provisions do not apply to a hospital merger involving the cross-site concentration of hospitals or departments if the state confirms in the funding application that no other competition rules stand in the way, the conditions for funding from the hospital structural fund or the transformation fund have been established and the merger is completed by 31 December 2038. Other hospital mergers remain subject to review by the Bundeskartellamt, which looks closely at regional markets for hospital services.

Where a transaction is not exempt, the parties should plan for a possible in-depth investigation and prepare economic arguments early, for example on patient flows and the availability of alternative hospitals in the region. Even where the exemption applies, the transaction must be notified to the Bundeskartellamt after completion, and the parties must inform it whether funding has been applied for when they notify a merger in the normal procedure. Coordination between the funding application and the merger control strategy is therefore essential for the timetable of a hospital transaction.

Due diligence after the hospital reform

The hospital reform changes the focus of due diligence. In addition to the usual corporate, contractual, real estate and employment reviews, buyers should examine the regulatory position of each site in detail. Key questions include which service groups have been applied for and assigned, which quality criteria the site meets today and which it can meet with reasonable investment, whether exceptions or cooperation agreements are needed, and how the state hospital plan is expected to develop in the region.

Further topics are past and pending audits by the medical service of the health insurers, which can lead to repayment claims, the status of state investment funding and any repayment obligations if subsidised assets are used for other purposes, compliance with nurse staffing minimums, and the state of IT security and digitalisation. Because many of these risks cannot be fully quantified, purchase agreements often combine specific indemnities, price adjustment mechanisms linked to the assignment of service groups and conditions precedent relating to regulatory approvals. Warranty and indemnity insurance may be available for parts of the risk, but regulatory and funding risks are frequently excluded.

Medical care centres and outpatient care

Medical care centres (Medizinische Versorgungszentren, MVZ) are an important part of healthcare investments. Under § 95(1a) of Book V of the Social Code (SGB V), they can be founded only by approved physicians, approved hospitals, providers of non-medical dialysis services (for specialist centres), recognised practice networks, certain non-profit providers and municipalities, and only in the legal form of a partnership, registered cooperative, limited liability company or a public-law form. Investors therefore often acquire a hospital in order to found MVZ, which has led to political debate about investor-owned MVZ and calls for further restrictions.

The hospital reform reinforces the shift from inpatient to outpatient care through hybrid DRGs and cross-sectoral facilities. For investors, this creates opportunities in outpatient surgery and specialised care, but also regulatory risk, because the rules on MVZ ownership and transparency may be tightened in future legislation.

Hospitals in financial distress

Many German hospitals are in financial difficulty, and the number of hospital insolvencies has increased in recent years. Self-administration (Eigenverwaltung) under the Insolvency Code is often used, because it allows management to continue operating the hospital under the supervision of a custodian and to implement a restructuring plan. Buyers of hospitals from insolvency benefit from the ability to acquire assets free of most liabilities, but must coordinate with the state planning authority to secure the hospital's place in the hospital plan and its service groups. See our notes on insolvency plan proceedings and buying assets from an insolvency administrator.

Outlook for the hospital reform

The adjustment of the hospital reform is unlikely to be the last word. The federal states have called for further changes, especially regarding nurse staffing minimums as a quality criterion and the design of the capacity-based remuneration, and the federal government has committed to review the effects with the states. The assignment of service groups by the states, the implementation of the transformation fund and the introduction of capacity-based remuneration will take place over several years. For investors and operators, this means continued regulatory uncertainty, but also opportunities for well-positioned operators that can meet the quality criteria and benefit from consolidation.

How TRW & Co helps

We advise hospital operators, municipal and non-profit owners, private investors and medical care centres on the hospital reform and healthcare transactions. We support mergers, acquisitions, joint ventures and restructurings, advise on hospital planning, transformation fund applications, merger control and employment matters, and represent clients in proceedings with authorities. Our work connects with our life sciences and healthcare and mergers and acquisitions practices. Please contact us to discuss your project. This briefing is general information, not legal advice.