From CMS’ LEAD to Labor and Capital: Inside Core Pressures Shaping Nursing Homes

Nursing home operators should keep an eye on which alternative care models states embrace if they want to maximize profits in 2026.

Notably, the Centers for Medicare and Medicaid Services’ (CMS) new Long-Term Enhanced ACO Design (LEAD) model, along with existing dual eligible special needs plans (D-SNPs) and institutional special needs plans (I-SNPs), are among programs promising to bear the greatest fruits, according to experts from Health Dimensions Group (HDG). 

Capitated care models that improve outcomes and control costs are rapidly expanding since they emphasize coordinated, person-centered care and aging in place, HDG experts noted during a webinar outlining these value-based care models. They also discussed other trends set to shake up the sector in the years to come. Other areas included the growth and impact of AI and a recovery happening in capital markets, meaning growth, development and restructuring are coming into focus.

LEAD appears to break down barriers between Medicaid-only and Medicare-only populations, both of which can be found in nursing homes.

“This model creates an interesting opportunity for PACE programs to expand their scope of services into the Medicare-only population. PACE programs serve mostly Medicaid and dual dual eligible participants … Medicare only participants have not traditionally been served by a PACE program,” Tom Stitt, senior vice president of consulting services for HDG, said of the LEAD model. “The road ahead is about scaling these integrated, outcome driven care models for providers and policy makers alike; the through line is unmistakable.”

Providers need to build operational capacity now to manage risk and meet these new alternative care models, Stitt said, and deliver flexible benefit structures. Policymakers, meanwhile, need to clear parameters by aligning enrollment, embedding quality measures and protecting consumers.

Stitt laid out trends for aging services, including nursing homes, along with HDG CEO and Principal Erin Shvetzoff Hennessey, HDG VP of Strategy and Policy Brian Ellsworth, HDG SVP of Workforce and Consulting Services Sarah Friede, and HSG EVP of Growth Paul Branin.

The sector’s biggest threats

Staffing for the next decade of care remains the nursing home sector’s biggest threat as well, Friede said, with millions expected to leave health care for more favorable industries. Flexible scheduling, internal staffing pools and improved onboarding and offboarding are some ways to improve retention and sustainability, along with expanded benefits, technology, outsourcing and workforce development.

“The most successful operators aren’t just relying on one solution,” said Friede. “They’re combining flexibility with career growth and operational innovation to be able to build a more resilient workforce.”

Pay strategies that align with workload, or aligning compensation with acuity, are common among successful operators when it comes to recruiting and retention, Friede said. Creating sustainable labor models with the help of AI-enabled scheduling, virtual interviews and mobile onboarding brings down time to hire “pretty dramatically,” Friede added, from weeks to a matter of days.

Medicaid transformation through the One Big Beautiful Bill Act (OBBBA) was touched on too, with $911 billion in cuts set to happen in the next decade. While some harmful proposals like changes to the provider taxes were avoided in part, and the nursing home staffing rule was repealed, nursing homes must acknowledge that states now face tighter budgets, said Ellsworth.

“State budget shortfalls could end up impacting skilled nursing providers as well as optional Medicaid providers as states go on the hunt for savings to replace these lost federal funds. Time will really tell on that,” noted Ellsworth.

There may be some initial limitations on non-skilled nursing provider taxes, Ellsworth said, particularly the managed care organization taxes that have been implemented in a handful of states such as New York and California.

States are feeling greater responsibility for program redesign, whether that’s with Medicaid or alternative payment models. Either way, providers need to plan strategically, optimize payment systems and keep up strong advocacy ties, Ellsworth said.

On a positive note, OBBBA’s rural health transformation grants will provide $50 billion over five years to enhance rural health care, $10 billion each year. Ellsworth said it’s unclear right now how states will be spending that money.

Exploring risks and rewards of AI, and stabilizing capital markets

Shvetzoff Hennessey ran through the risks and rewards of AI in aging services, including nursing homes; one major risk stems from the fact that everyone is implementing AI in some way, including insurance companies.

Data leaks are another real concern for internal AI use among operators.

“Other people are going to be using AI to be more efficient and to save money and time, and that includes insurance companies. What kind of AI are we going to see with claims, denials or managed care organizations?” said Shvetzoff Hennessey.

Security around software that has “open” in the name should give everyone pause too, she said. Operators need to consider how secure their AI software is, and determine what exactly is ok to upload in terms of confidentiality.

And for “distant care” nursing homes in particular – facilities often in rural settings where it may be hard to get a physical person in the building – operators need to look at each task and figure out what can be offloaded to AI.

“It’s really important, when we talk about AI, to figure out what tasks are not directly leading to that care and interaction, and take those off of folks’ plates so they can focus on that person-centered care,” said Shvetzoff Hennessey.

HDG found that 2025 was a record year for M&A activity, and momentum is expected into this year helped in part by three rate cuts from the Federal Reserve.

M&A is a lower risk for operators compared to new development, considering rising construction costs, labor uncertainty and slow lease-up, but easing interest rates and strong demographics may make new development a viable consideration in the near future.

Operators are encouraged to avoid overextending themselves into unfamiliar markets, and remain disciplined as prices continue to rise. If growth has slowed, operators can focus on stabilizing and optimizing existing portfolios via occupancy growth, revenue enhancement and expense management.

HDG leaders spoke briefly on demographics and development trends too, noting that more than 10,000 Americans are turning 65 daily, and that number is expected to rise to 11,000-plus during peak years between 2024 and 2027; this population supports long-term care growth, said Branin.

“We should start to see new development at least become a topic of serious interest in the next few years. The demographics certainly point in that direction,” said Branin.