Demographic pressure, policy reform and digital advances mark 2025 as a defining moment for the skilled nursing sector, and winners will be defined by quality, data-driven decision making, and alignment with value-based care models, according to CliftonLarsonAllen’s (CLA) latest analysis.

Operators would do well to realign with reimbursement models, understanding that quality is currency, and “maturing the business of the business,” CliftonLarsonAllen (CLA) said in its 40th annual SNF Cost Comparison and Industry Trends Report.

In other words, as operations and business practices become more complex, leadership in the sector will need to understand and negotiate for the best Medicare Advantage contract while also maintaining strong and timely accounts receivable collection processes and capturing data in real time to show value.

Overall, transformation will be required as operators care for patients with even more complex diagnoses, all while navigating the most consequential Medicaid policy trajectory seen in years, according to the report.

Nursing home operators will need to confront the full scope of the Baby Boomers’ long-term care needs and also harness AI and other technologies to fundamentally change how nursing homes, as a business, are run.

“It’s the beginning of a sustained period of pressure and opportunity unlike anything seen in recent U.S. senior care history,” CLA researchers said.

Major shifts expected in the next decade include: aging demographics, deeper penetration of Medicare Advantage and other risk-based payment models, and Medicaid remaining the dominant payer even as funding pressure intensifies. Technology and innovation will be more urgent endeavors for nursing homes in the next decade as well.

“Communities look different today than they did 40 years ago and will continue to look different 40 years from now. I have no doubt the industry will successfully transform itself again in the future, just as we’ve done over these past 40 years,” Mike Siegel, managing principal of industry for health care and life sciences for CLA, said in a statement.

Occupancy, reimbursement and policy nuance

Many operators have stabilized their occupancy numbers post-Covid, with the national median occupancy percentage for 2024 coming in at 83.3%. Operating margins increased to a median of 1.8%, while paid nursing hours per resident day remained stable over the last three years at 3.8 hours per resident day.

When it comes to payor mix, Medicaid still takes at least 62.2% of the pie. Medicare was at least 7.8% of a SNF’s payor mix in 2024, CLA found, and 30% was marked “other.”

The One Big Beautiful Bill Act (OBBBA) represents the most consequential Medicaid policy shift in decades. The legislation bakes in short-term relief from staffing mandates with a 10-year moratorium on new federal staffing rules, but with long-term pressures and eligibility changes for Medicaid, CLA said of OBBBA.

Operators should expect intensified rate pressure as a result of OBBBA, especially in Medicaid-heavy facilities and states, since there has been uneven state responses to the legislation.

And so, operators will need a deeper understanding of state Medicaid reimbursement, according to the report.

Other implications for the sector as a result of OBBBA: policy developments linked to home and community-based services will shift referral patterns for nursing homes, and quality and efficiency will be critical for maintaining referral network inclusion in the future.

As for Medicare Advantage, CLA argues that the evolution toward value-based care may represent the industry’s most promising pathway to controlling their own financial futures. Operators need a more sophisticated understanding of MA plans and how they can provide value to these plans. Nursing homes that have preferred provider status with MA plans have more of a chance at financial improvement.

Joining an institutional special needs plan (I-SNP) or creating their own I-SNP enables operators to incest in nurse practitioners and care model technologies, along with other clinical resources used to improve resident outcomes and capture financial benefits from improved and enhanced performance.

Quality as currency

The move toward value-based payments among all care settings will have a huge impact on the sector too, one example being the Transforming Episode Accountability Model (TEAM) effective Jan. 1, 2026. Under this model, hospitals will be responsible for the cost and quality of a 30-day surgical episode of care, including any visit to the skilled nursing facility.

Hospital partners will want facilities that can help them reduce unnecessary readmissions and emergency department visits while maintaining appropriate lengths of stay, CLA said.

The Five-Star Rating System primed nursing homes for an emphasis on quality, with star power translating to better referral relationships, staff retention and reimbursement rates across all payor types.

“CMS star ratings now shape underwriting, contracts, staffing, industry public relations, and reputation,” CLA researchers said in the report. “Quality = margin, market power, and access to partnerships and payors.”

Operating margins rise with each star rating, with 1-star facilities seeing a 0.4% operating margin, and 5-star buildings enjoying a 2.6% median operating margin. Staffing agency utilization declined as overall star ratings increased as well, CLA found, with 1-star buildings seeing 8.5% contract labor utilization and 5-star facilities seeing 4.4% contract labor.

CLA used annual SNF cost report data released by CMS as of July for the report, including about 11,700 cost reports for fiscal years ended 2024 and representing more than two-thirds of Medicare-certified nursing facilities.