Amid economic uncertainty and a phased rollout of significant federal funding cuts over the next three to five years, future reimbursement projections appear grim, and nursing homes shouldn’t delay dealmaking, especially if operators are planning to sell.

This view is held by financial experts who note that while the so-called One Big Beautiful Bill Act (OBBBA) provides immediate tax benefits and preserves Medicaid rates in the short term for nursing homes, the long-term outlook is clouded by funding limitations, shifting state priorities, and fallout from hospital provider taxes.

And so, the time to act is now – before the full impact of the bill takes shape, said Hank Fuller, director at Evans Senior Investments (ESI), at a webinar held Wednesday.

The bill’s freeze on tax increases for nursing homes will result in modest Medicaid reimbursement rate increases – closely resembling pre-pandemic hikes – and significantly lower than the double-digit gains some states have become accustomed to, Fuller said.

Provider taxes are a funding mechanism that allow states to raise money for health care institutions, including nursing homes. Planned cuts in provider taxes – even if it’s just hospital provider taxes – will lower funding that states can provide. And a freeze, while better than cut in provider taxes, also means limited funding, he noted.

Prior to 2019, average Medicaid rate increases for nursing homes across states in the range of 1% to 2% were considered “very standard” in the industry, said Fuller. And in the years after, some states got as much as a 20% Medicaid rate increase.

“If we had to set a prediction, we will see a much smaller growth of Medicaid rate increases for our industry from now and into the future,’ Fuller said. “We’re not going to receive funding reductions, hopefully, but as opposed to seeing 15% [rise in Medicaid rates], they’re going to be significantly lower, because the state has to figure out where the money comes from to pay for those funds, and they can’t just get the federal government to foot the bill…they can’t use the provider tax.”

For nursing homes the freeze in provider taxes is expected to reduce the Medicaid spend by $89 billion, with the federal government’s calculation based on projections for future growth if this freeze hadn’t been put in place, he explained.

“So this is really not a cut [but] it’s really fixing a portion of the rates and how states receive federal funding,” Fuller said.

Moreover, the phased out provider tax increases for hospitals – which would spell $102 billion in federal Medicaid funding cuts for hospitals beginning in 2028 – would put an overall strain on the health care system, he said.

Hospitals and nursing homes rely on each other, and with hospital funding cuts across 41 states, and with Medicaid eligibility narrowed, more people will be uninsured.

“When those individuals walk into an ER and need care, the hospital doesn’t turn them away.”

This would leave hospitals absorbing more non-reimbursed care amid Medicaid rollbacks, with reverberations felt across the broader health care system, leading to what Fuller called a “halo effect.” In the end, states would likely divert Medicaid funds from nursing homes to support struggling hospitals, weakening both sectors instead of letting one fail.

“If a state needs to come up with additional funds to fund their Medicaid system, and they don’t have elsewhere to look well, [states could go], ‘Nursing homes didn’t get cut. Nursing homes are doing well. Take a pool of the pie from the nursing home Medicaid fund and put it towards hospitals’,” he explained. “And their reasoning would be, we can’t have one fail and the other survive. We’d rather have both just be mediocre. We just won’t know what that full impact is for another few years, so there is still time before this actually takes effect.”

And on top of the Medicaid reductions, there are other funding cuts nursing homes must confront.

Medicare also faces reductions, albeit more quietly. While Trump repeatedly stated he would not cut Medicare, Fuller pointed out that the bill includes “a 4% Medicare spending reduction on behalf of the federal government” through an automatic provision known as PAYGO, or pay as you go. This cut is slated to begin January 1, 2026, unless Congress intervenes.

“If [lawmakers] do nothing, this will happen,” Fuller said, adding that the initial reduction will total $46 billion and could grow to $75 billion over a decade. With Congress in recess until September and a looming Oct. 1 government shutdown deadline, Fuller cautioned that “this is going to get even harder to squeeze Medicare in given the calendar year.”

M&A activity

One of the positives in the OBBBA for the skilled nursing dealmaking comes from the reinstatement and permanence of 100% bonus depreciation.

This provision allows real estate investors to realize 100% of the accelerated depreciation for the land improvements and the personal property within that real estate in the year they acquire a property, Fuller noted. This previously phased-out benefit had been reduced to 40% by 2025, but is now fully restored and made permanent, offering significant tax advantages, he said.

During previous periods when bonus depreciation was active, Fuller said, “we have had buyers numerous times buy properties for a higher price and close in a faster timeline, so that they can realize these benefits in a given year.”

This incentive is expected to boost transaction volume, and it comes at a time when the skilled nursing market has already seen explosive growth.

Compared to 2019, when there were around 200 transactions with average pricing at $80,000 per bed, nursing homes bed pricing is in the low $120,000 range on average due to higher Medicaid rates, Fuller said.

“Reimbursement was increased [and] it increased the number of transactions, and it increased the prices buyers were willing to pay,” he said.

Exit planning

Yet, the future remains uncertain. Several external factors could derail this trend, including hospital instability, tariffs that may drive inflation, and labor shortages exacerbated by aggressive deportation policies.

“We already have a labor shortage…but it still exists, and these baby boomers are still coming.” Deportations threaten to reduce the available caregiving workforce just as demand increases.

Given the three-to-five-year phase-in of major cuts and the uncertainty surrounding future reimbursement, providers should not delay exit planning, Fuller said.

“Do not wait until 2028 if you are even thinking about selling or an exit plan,” Fuller advised. “ I wouldn’t base decisions based on uncertainty. I would encourage basing decisions on what we know today – things are still very good … nursing home transactions take a long time. It doesn’t happen in 30 days,” he said.