U.S. Nursing Home Feasibility 2026: A $167 Billion Sector Where Demographics and Regulation Collide

The U.S. skilled nursing facility sector presents one of the most complex feasibility landscapes in commercial real estate. Total industry revenue ranges from $167.5 billion, with revenue stream analysis revealing the critical role of payer mix, and cap rate trends reflecting the sector's evolving risk profile (IBISWorld, 2025) to over $200 billion under broader definitions. Approximately 14,827 certified SNFs operated in 2024, down from 15,648 in 2015, a 5% decline representing 813 lost facilities over a decade. Since 2020, 774 nursing homes have closed, resulting in the loss of 62,567 beds and displacing 28,421 residents. The median SNF has 100 beds. For-profit facilities represent 70.3% of the total, with nonprofits at roughly 20% and government-run at approximately 6%. Approximately 1.2 to 1.3 million residents reside across all facilities. Yet the demographic tailwinds are enormous: the 85-and-over population will nearly triple by 2050. This guide explains the feasibility framework that lenders and developers must navigate.

Occupancy Recovery: Steady but Still Below Pre-Pandemic Levels

Occupancy plunged from a pre-pandemic 81% to 82% in 2019 to a COVID-era low of approximately 67% in 2021, then recovered steadily: 72% in 2022, 75% in 2023, and 77% nationally in 2024. NIC MAP data for 31 primary markets shows higher occupancy at 84.5% in Q3 2024, marking the 14th consecutive quarter of gains. The CLA 39th SNF Report places national median occupancy at 80.2% in 2023, up from 76.3% in 2022. REIT-reported occupancy for 2024 ranges from 80.9% (Omega Healthcare) to 87.0% (Ventas SHOP). Despite recovery, occupancy remains below pre-pandemic levels of 82% to 85%. Facility closures are paradoxically reducing supply and somewhat supporting occupancy gains. Critically, 85% of new nursing home deserts are in rural areas.

Medicare and Medicaid Reimbursement: The Engine and the Constraint

CMS finalized a 4.2% net increase ($1.4 billion) in Medicare Part A SNF payments for FY 2025, comprising a 3.0% market basket update plus 1.7% forecast error adjustment minus 0.5% productivity adjustment. For FY 2026, CMS finalized a 3.2% increase ($1.16 billion). The Medicare FFS margin for freestanding SNFs stood at approximately 22% in 2023, down slightly from 23% in 2022. MedPAC had recommended a 3% reduction in FFS Medicare rates for FY 2025, citing persistently high margins.

Medicaid is the primary payer for 62% of nursing home residents. Medicaid reimburses at approximately 70% of what private payers pay. Some states are projecting rate increases of 3% to 4%. Over 75% of states participate in Medicaid managed care across 302 approved plans. The gap between cost of care and Medicaid reimbursement can exceed $100 per day at struggling facilities. The Patient-Driven Payment Model (PDPM), implemented October 1, 2019, resulted in an unintended approximately 5% ($1.7 billion annual) payment increase; CMS phased in a 4.6% PDPM parity adjustment through 2.3% reductions in both FY 2023 and FY 2024.

Payer Mix and Revenue Per Patient Day

By patient days, Medicaid represents 60% to 65% (dominant by volume), Medicare 14% to 15%, and private pay/other 20% to 25%. Medicare accounts for a disproportionately high share of revenue relative to days due to much higher per-day reimbursement. Private room costs average $376 per day ($11,294 per month); semiprivate rooms average $328 per day ($9,842 per month). Geographic range spans from approximately $190 per day in parts of Texas and Louisiana to over $1,000 per day in Alaska. The all-payer total margin improved from negative 1.3% in 2022 to 0.4% in 2023.

Operating Expenses: Labor Dominates at 60% to 70% of Revenue

Direct care spending represents 66% of net revenues (including 27% on nursing), versus 34% on administration, capital, and profits. Administrative expenses represent 14% of net revenues; capital expenses approximately 10%; employee benefits 7%. Labor costs typically represent 60% to 70% of total operating expenses. Wage growth in the sector slowed to 3.3% in 2023 (the smallest since 2018), with preliminary 2024 data showing just 1.7% growth in the first half. Average annual CNA turnover stands at 50% nationally.

Approximately 45% to 50% of nursing homes operate at a loss in 2024. Margin bifurcation is stark: 36% of SNFs show margins at negative 4% or worse, while 34% perform at positive 4% or better. Well-managed facilities can achieve EBITDA of 20% to 25% and net profit of 5% to 10%.

The Staffing Mandate: Finalized, Litigated, Then Repealed

CMS finalized minimum staffing standards on April 22, 2024, requiring 3.48 hours per resident day (HPRD) total (0.55 RN plus 2.45 nurse aide) plus 24/7 RN requirements. A U.S. District Court vacated the mandate on April 7, 2025. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, prohibits CMS enforcement until after September 30, 2034. CMS formally repealed the numerical requirements via interim final rule effective February 2, 2026. The enhanced facility assessment process, requiring evidence-based staffing plans based on resident acuity, remains in effect. The previous standard was restored: RN on-site at least 8 consecutive hours per day, 7 days per week.

At the time of finalization, 79% of facilities would not have met the minimum staffing standards under full implementation; only 19% would have met the minimum HPRD standards. RN hours had dropped 21% since 2015. HRSA projects an RN shortage of 63,000 or more FTEs by 2030. Nearly 50% of nursing homes limit new admissions due to staffing constraints, and 23% turn away residents more than once a week.

Cap Rates and Transaction Activity

Healthcare REIT initial yields averaged 7.6% in 2023 and 8.2% in 2024. Sabra Healthcare REIT targets estimated initial cash yields of 7% to 7.5% on 2025 acquisitions, with some deals at 8.2%. Skilled nursing facilities generally carry higher cap rates than other senior care subsectors due to higher risk and operational complexity.

Transaction volume reached 708 publicly announced M&A transactions in 2024, up 37% from 518 in 2023, a record. Average SNF bed prices declined year-over-year in 2024 due to high volumes of distressed properties. The four major healthcare REITs (Welltower, Ventas, CareTrust, Omega) deployed $7.89 billion in investment capital through Q3 2024, up from $3.51 billion in the same period of 2023. Major SNF-focused REITs include Sabra Healthcare REIT with 363 to 364 properties and approximately 24,500 to 25,500 SNF/transitional care beds, CareTrust REIT pursuing SNF acquisitions, and Omega Healthcare Investors with a portfolio of 962 SNF and seniors housing communities.

Development Costs and Certificate of Need Requirements

New SNF construction costs range from $312 to $496 per gross square foot in 2024, up 3% to 6% from 2023. Hard costs represent $173 to $262 per SF (65.6% to 75.8% of total development cost); soft costs represent approximately 18.5% of total. At approximately 500 SF per bed and $300 to $500 per SF, implied development cost runs approximately $150,000 to $250,000 or more per bed for new construction.

35 states plus the District of Columbia operate Certificate of Need programs. Of these, 34 states (including DC) require CON specifically for nursing home beds, the most common CON-regulated service. 15 states have no CON laws, including Texas, California, Colorado, and others.

Financing: HUD Section 232, SBA, and USDA

The HUD Section 232 Mortgage Insurance Program provides fixed-rate financing up to 40 years (new/rehab) or 35 years (existing without rehab), with LTV up to 85% (90% for nonprofit sponsors). The portfolio includes 3,600 or more insured loans with unpaid principal balance exceeding $32 billion. Total HUD-insured amount in 2023 was $2.9 billion. Facilities must accommodate 20 or more residents requiring skilled nursing, and 99% of the loan is insured by FHA.

SBA 7(a) and 504 loans are available for healthcare facility acquisition and construction. USDA Community Facilities Loans serve rural nursing homes in communities of 20,000 or fewer, providing direct loans, guaranteed loans, and grants. Triple-net lease structures are common for REIT-operated facilities.

Demographics: The Coming Demand Wave

The 65-and-over population stood at 58 million in 2022 and will reach 73.1 million by 2030 and 82 million by 2050 (42% increase). The 85-and-over population will nearly triple from 6.5 million (2022) to 14.4 million by 2040 and 18.6 million by 2050. By 2034, people 65-and-over will outnumber children under 18 for the first time: 77.0 million versus 76.5 million. Between 2023 and 2033, the 75-and-over cohort will increase by 11.7 million individuals.

Why SNF Feasibility Studies Fail

Common reasons SNF feasibility studies reach negative conclusions include inadequate Medicaid reimbursement creating unsustainable losses, workforce shortages preventing full-capacity operations, rising operational costs outpacing reimbursement increases, CON requirements blocking market entry in 34 states, high development costs of $150,000 to $250,000 or more per bed, competition from home health and assisted living alternatives (Home and Community-Based Services spending rose 18.4% in 2024), and rural locations facing nursing home desert challenges where 85% of new deserts are concentrated. The fundamental challenge is structural: approximately half of all SNFs operate at a loss, yet the demographic demand is historically unprecedented. Feasibility hinges on payer mix optimization (maximizing Medicare and private-pay days relative to Medicaid), operational excellence in staffing and quality metrics that drive reimbursement, and real estate strategies that separate property ownership from operations through REIT or triple-net structures.

For lenders and investors evaluating projects in this sector, UnionMetric provides independent assisted living feasibility study services that meet SBA and USDA requirements.

Sources

1. IBISWorld, Nursing Care Facilities in the U.S. Industry Analysis 2025
2. Grand View Research, U.S. Skilled Nursing Facilities Market Industry Report 2033
3. CMS, Fiscal Year 2025 and 2026 Skilled Nursing Facility Prospective Payment System Final Rules
4. MedPAC, March 2025 Report to Congress: Skilled Nursing Facility Services Chapter 6
5. NIC, Skilled Nursing Faces Opportunities and Challenges in 2025
6. CLA/CliftonLarsonAllen, 39th SNF Cost Comparison and Industry Trends Report 2024
7. Lument, The Gradual Recovery Accelerates: 2025 Seniors Housing and Healthcare Market Outlook
8. Skilled Nursing News, Nursing Home Bed Prices Decline in 2024, March 2025
9. Federal Register, Medicare and Medicaid Programs Repeal of Minimum Staffing Standards for Long-Term Care Facilities, December 2025