There’s a correlation between agency use and change in ownership (CHOW) among nursing homes, with facilities that rely on agency staff substantially more likely to experience a CHOW within two years.
That’s according to a report published by 3G Healthcare Real Estate, which found that agency staffing is an early indicator of operational pressure that can lead to ownership transition or sale. But CHOW doesn’t always involve a real estate sale. The term applies to changes in who holds the license for a building as well.
Nursing homes that received 15% or more of their nursing staff hours from agencies had a Medicare change of ownership within two years 11.8% of the time, according to the report. And for buildings that received less than 2% of their nursing hours from agencies, Medicare change of ownership within two years happened 7.5% of the time.
Agency use and CHOW percentages mentioned above come from each building’s own payroll filing with the Centers for Medicare and Medicaid Services (CMS), said Stan Klos III, founder of 3G Healthcare Real Estate.
“[Using more agency labor] is the first thing an operator does when the schedule breaks,” Klos said. “That shows up months before survey findings, cost reports or a lender problem.”
Heavy-agency buildings also have more citations and higher turnover, even if their occupancy levels are similar, he said.
“It is a labor and cost problem, not a census problem,” Klos told Skilled Nursing News.
The effect agency has on cash flow can’t be underestimated, an Ohio-based provider of skilled nursing services and 3G client said, and staffing agency bills add another layer of complication.
“[I]f you’re bleeding money through operations and the agency is getting loud over past due invoices, the problem has to get resolved beyond assigning a ratio or some decision-making model,” the Ohio provider noted.
In other words, reassigning budget resources or seeking help through other sophisticated decision-making model is futile if the compounding costs from agency labor cannot be resolved, the Ohio provider said.
Moreover, the cyclical nature of agency worsens its impact on cash flow.
A screening signal, not a forecast
While high use of agency labor isn’t always a predictor that a facility will be up for sale, Klos found a strong link to agency and CHOW in his analysis of two publicly available federal datasets. Even if facilities maintained high occupancy or strong CMS star ratings, high agency use could still be associated with a greater likelihood of CHOWs, said Klos.
“[High agency use] is a screening signal, not a forecast, and it changes a lot by market,” said Klos.
In North Carolina and Pennsylvania in particular, heavy agency users changed hands at rates two to three times higher than the rate of operators who used agency staff sparingly.
Buyers taking over high agency use facilities often view agency staffing costs as an opportunity to reduce expenses after a closing, said Thomas Miller, CEO of staffing agency company Meda Health. Lenders want to see a credible labor plan as part of financing, and if data shows heavy agency buildings dropping from 28% to 17% in the first year after a sale, that says buyers can deliver.
“[Agency use] deserves real weight, but [a buyer’s due diligence process] should ask why the agency is there, whether it’s due to a vacancy issue, staff reliability or flex labor, because each means something different for the next owner,” said Miller. “Ownership transitions that go badly often cut agency overnight before a replacement staff is in place. Then, they buy it back at crisis rates.”
Future buyers also tend to underestimate how much workforce reliability influences whether a facility can remain financially viable after a change of ownership, Miller said. A building can be staffed on paper and still lean on agency every weekend. It points to culture and retention issues, which then drive survey results, census and margin.
Agency use in leadership roles like the director of nursing (DON) is one of the biggest red flags for lenders, he said.
State health departments publish agency data but need to distinguish between temporary and permanent staff in the star ratings for staffing, Klos said.
“States have gone after the agencies instead, with registration rules and, in a few states like Minnesota and Massachusetts, rate caps,” said Klos. “We have not found any state using a building’s agency number in licensing or ownership approvals, and counties do not regulate this.”
That may change though, said Miller, since demand for post-acute care is still outgrowing the workforce.
“Any tightening in the labor market will show up in agency hours first. That makes agency labor a leading indicator worth watching,” noted Miller.
Takeaways and national trends
Broader industry trends reinforce this concern that agency use and change of ownership are linked, with agency staffing rising from 3% in early 2019 to 10.52% in late 2022, before declining back to 5.31% in the latest financial quarter, according to Klos. It’s still substantially above pre-pandemic levels.
“The decline reflects more workers back in the field, and employers closing the pay gap with agency through higher wages and better benefit and more disciplined operators,” said Miller. “With the federal staffing minimums struck down, put under moratorium and repealed, that source of demand is off the table.”
The sector has experienced a bit of a reset too when it comes to agency margins, Miller said, with the SIA NATHO Travel Nurse Benchmarking survey showing gross margins fell from 25% pre-pandemic to just under 20% in 2025. Miller expects agency to settle near today’s levels as a normal flex tool.
On the flip side, an operator with no agency isn’t necessarily a sign of health by itself.
“Operators should look up their own number every quarter, by role and against their own state, the way a buyer or lender will,” added Klos.
By Klos’ estimates a good rule of thumb to avoid pitfalls is to treat 15% agency use for four quarters in a row as an alarm bell, although that percentage changes in rural settings. And facilities shouldn’t “chase zero” agency use either, he said.
“One bad quarter is noise. If you are buying, budget for more agency in the first year, not less. If you are selling, the trend matters more than the level,” said Klos.
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