The current nursing home market has its share of positives and negatives midway through 2025, with operators enjoying Medicare and Medicaid reimbursement increases as well as a decline in facility supply, creating higher competition among buyers.

Buyers are being more aggressive in the acquisition process, he said, with fewer facilities available. Brokerage firms are seeing competitive bidding arenas due to this “scarcity premium,” said Roger Rhomberg, underwriting and valuation associate for Evans Senior Investments (ESI).

“The shrinking supply is significant for two main reasons,” said Rhomberg. “Number one, the demand for skilled nursing care continues to rise as the aging population grows, particularly among high acuity seniors who can’t really be taken care of in lower levels of care. And number two is the supply constraint is driving increased demand from buyers.”

Rhomberg on Wednesday spoke on the skilled nursing market along with Jana Harris, vice president of valuations at ESI.

A possible rollback of the federal staffing mandate is another tailwind, he said. Market negatives, meanwhile, include the growth of managed care, notably Medicare Advantage, and federal budget policy risks as the Congressional reconciliation budget is still being discussed.

Despite this mixed bag of trends for the nursing home market, the market does seem to be on an upward trend, Harris said. Occupancy is currently at 78% compared to 70% coming out of the pandemic. There’s also been a 12.2% increase in Medicare reimbursement since 2019, while price per bed increased by 53% in the last six years.

Several positives for the nursing home market

When it comes to Medicaid reimbursement, about 75% of all states increased rates in 2024, going into 2025, reflecting a concerted effort to address increasing operational costs, workplace shortages and financial pressures that have led to facility closures in many regions, Rhomberg said.

Medicare, meanwhile received a 4.2% rate increase that took effect on Oct. 1, 2024, marking the beginning of the federal fiscal year of 2025; the Centers for Medicare and Medicaid Services (CMS) proposed another increase of 2.8% which would take effect Oct. 1, 2025.

Rhomberg said these blanket increases may not necessarily translate to a rate bump for each facility, since a facility’s final reimbursement is adjusted by its geographical wage index, reflecting local labor costs at a county level.

“If a facility is located in a county where the wage index has been reduced, it could actually see an overall reimbursement rate decline, even in a year where CMS announces a national increase,” noted Rhomberg.

Rhomberg considered an increase in closures between 2019 and 2025 – about 1% each year during this timeframe – to be a positive for remaining operators, far outpacing new developments.

As for the staffing mandate, Rhomberg said it’s a good thing that the rule hasn’t been finalized or implemented amid widespread opposition particularly from Republican lawmakers, and a Texas court decision to toss the requirement. And most recently, the House GOP called for a moratorium on the mandate.

“From the standpoint of a current owner or operator in the industry, the removal of that mandate would be a clear positive,” Rhomberg said. “It would eliminate things like regulatory risk, restore deal confidence, and really relieve the pressure of potentially unsustainable wage inflation.”

Shelving the mandate or withdrawing it completely has spurred a renewed wave of acquisition activity, he added. This is especially true for mid-performing assets that might have been previously considered too risky for buyers to pursue.

Headwinds tied up in the Congressional budget

A major risk to the nursing home market is tied in with ways Congress is seeking to address the growing national deficit, Harris said. President Donald Trump and aligned Republicans have said they won’t touch social security or Medicare, leaving Medicaid on the chopping block, as operators have well known.

Congress has signaled they don’t want to reduce Medicaid rates, instead focusing on provider taxes – it’s a cut that has nursing home associations, including the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), concerned since budget discussions began this year. However, there may be some breathing room with a proposed moratorium on new or increased provider taxes.

“Any federal cap or restriction on provider taxes is a big deal,” said Harris. “It doesn’t just affect state budgets, but it directly shrinks the amount of Medicaid funding available to providers. The good news is that the most recent proposal doesn’t reduce base reimbursement rates, but instead it mainly targets who can qualify for Medicaid.”

ESI expects a 1% provider tax cut and funding freeze, meaning no inflation adjustments or rate increases despite wage pressures and climbing operational costs.

Medicare and Medicaid together make up the largest share of the federal budget at 28%, Harris noted, even more than social security or defense. That makes it a prime target for future cuts, she said.

There is a proposed 10% reduction in federal Medicaid funding related to undocumented immigration, which could have a major financial impact on states with higher immigrant populations like California, Illinois and New York, she said.

Potential Medicaid cuts related to immigration are in the billions for these states, potentially impacting provider reimbursement and access to care.

The other major risk to the nursing home market has to do with the continued rise of managed care, Harris said, particularly that of Medicare Advantage. Over half of all Medicare beneficiaries are enrolled in these plans, she said, and MA reimburses 52% less than traditional Medicare.

“Even as volume grows, revenue per patient actually shrinks,” Harris said.

In some states, Medicaid pays more than MA, and that has “flipped the script” for a lot of operators who see a long-term care Medicaid resident as more financially viable than a short stay MA patient.

“From a buyer’s perspective, that means payer mix matters now more than ever,” said Harris. “It’s really not just about occupancy anymore. It’s about who’s paying and how much.”