The nursing home sector’s ‘scarcity premium’ trend is driving market conditions, as closures exceed new developments annually, especially in rural areas. At the same time, buyer demand has grown, from new entrants into the industry, driving up nursing home valuations.

Overall, a unique combination of limited supply, growing demand and variable state incentives have created a rare opportunity for sellers right now – but this window may close if regulatory headwinds intensify, finance experts said, with the Trump administration’s so-called One Big, Beautiful Bill Act (OBBBA) being signed into law on July 4. 

Hank Fuller, director with Evans Senior Investments (ESI), told Skilled Nursing News that closures have been rising in extremely rural areas that are seeing a population decline. But, he added, closures have also been happening as a result of regulatory issues. These conditions have led to less supply amid and a dramatic increase in the number of buyers, he said.

Another consideration creating a scarcity of SNFs has to do with the certificate of need (CON). States in which CONs are required, have been restricting supply, and in some cases adding a moratorium on new licenses for certain communities, Fuller said. Closures could give a more sophisticated operator the chance to thrive in a CON state if there are licenses available to buy, he said.

“It’s not that there’s more groups wanting to bid. It’s that there’s actually just more groups who have started in the last five to six years in our industry, and need to grow through acquisitions. They’ve become more competitive and that’s growing demand and limiting supply,” Fuller said.

Other financial experts in the nursing home sector see the scarcity premium trend as being driven more so by Medicaid rates than by sheer scarcity in the number of facilities. The future of this trend depends heavily on upcoming federal legislation and state-level funding decisions, said David Young, managing director at real estate finance and investment company Greystone.

“The reason people are bidding up nursing home valuations per bed is largely because in the last two years you’ve seen a lot of states support their Medicaid programs in a big way,” said Young.

Some states are putting in a double digit percentage increase to Medicaid, he added.

“It’s like dropping meat in a pool of piranhas. It’s a feeding frenzy of deal flow. It stokes deal flow. I think the scarcity premium is due to states supporting their Medicaid programs,” said Young.

Josh Vander Plaats, managing director with VIUM Capital, sees some moderation, not necessarily calling today’s market a seller’s market. Financing remains a hurdle, he said and high interest rates continue to weigh on pricing and deal structure.

Despite these challenges, Vander Plaats agreed demand for quality assets is strong.

“For facilities that are performing well, brokers are consistently seeing a deep pool of buyers, multiple offers, and even several rounds of ‘last and final’ bids,” said Vander Plaats. “This has become the norm for performing assets. This trend really started to accelerate in 2024 and has carried through into 2025.”

Policy headwinds ahead

Brendan DeSilvia, director of mergers and acquisitions for ESI, doesn’t see this scarcity premium trend going away any time soon, at least not in states where ESI is helping facilitate deals.

“Almost every single day we’re having a call with a new group that’s entering the market. You’ll have a regional director or an administrator, somebody that decides to break off from their existing role,” said DeSilvia.

It’s an extra offer that’s often not expected by brokers in the sector, he said. ESI has about 55 active transactions, all primarily skilled nursing, he said.

But potential negative impacts from legislation and regulation are normalizing expectations among those in the sector, added Fuller.

Young echoed these concerns, especially since so much of the trend hinges on robust Medicaid programs. Providing a financial model for a given state with Medicaid funding up in the air is complicated, he said, referring to the Congressional reconciliation bill that passed the Senate today.

“States over the last two years have supported their Medicaid programs, but what happens to [these programs] with this bill? The federal government funds a bunch of add-on payments states make under their Medicaid provider provisions,” said Young. “Hopefully it’s a neutral outcome for reimbursement and then for nursing home margins.”

Scarcity could be even more central with Medicaid cuts in the GOP bill – close to 600 nursing homes across the country could close under such cuts, disproportionately affecting high-risk facilities in urban areas and concentrated in states like Illinois, Texas, California, Georgia and Ohio, according to a study conducted by researchers at Brown University School of Public Health at the request of Democratic ranking members of the Senate Finance Committee.

“I think that’s overblown, though. That analysis was done from 2011 to 2023 which was a totally different regime, your Medicaid rate increases then were pretty terrible,” Young said. He expects closures to continue at the same rate they are now.

Since 2020, at least 774 nursing homes have closed, according to an August 2024 report from the American Health Care Association and National Center for Assisted Living (AHCA/NCAL). About 20% of nursing homes have downsized since 2020 as well, reducing the number of nursing home beds by 62,567.

Market dynamics per state

It’s not just mom- and- pop operations that are selling anymore either, he said. It’s operator groups that have grown over the years and they start to have outliers in their portfolio, or they bought homes in a state where they were looking to grow but plans didn’t come to fruition.

DeSilvia said competitive bidding for nursing home property is common now, with 12 to 15 offers being submitted on some deals, like one managed by ESI for a half-occupied property in Arizona.

The market is highly state-dependent, Fuller noted, driven by Medicaid reimbursement rates and behavioral health add-ons. Nevada and Arizona offer behavioral payment add-ons that significantly boost revenue compared to states like Missouri, he said.

Other states like Indiana, meanwhile, offer supplemental programs like upper payment limit, which allows states to bridge the gap between Medicaid and what Medicare would have paid for the same services.

“Obviously with Medicaid, there are states that are better than others. That really starts to shape the bidding arena,” said DeSilvia, referring in particular to states in the Southwest. “A home that was 50% full still leaves significant upside for somebody to be able to come into that market and really capture the upside of that home and pricing there. We’ve certainly been blown away by where that pricing is coming in at.”